Do Increases in R&D Search Intensity Signal Future Problems? A Behavioral Theory Perspective

The Behavioral Theory of the Firm (BTF) predicts that organizational search will generally be backwards looking and myopic. Accordingly, most of the research employing this perspective has looked at the influence of recent past performance on firm search behavior. However, Cyert and March’s original work, as well as some more recent research, has stressed that search can also sometimes be forward-looking. We build on this perspective to show that since internal signals of future problems motivate firms to increase search, an increase in R&D search behavior can often signal future performance declines reflected in forward-looking measures of firm performance, such as market valuation. In the process, we examine multiple moderators of the relationship between changes in search and future performance that help to distinguish our theory from alternative explanations based on the Resource Based View and agency theory.