The Effect of Firm-specific Factors on Firms' Decisions to Invest in Exploration and Exploitation

Prior theoretical and empirical research emphasizes the importance of allocating investment between exploratory and exploitative R&D (March, 1991; Mudambi & Swift, 2014). However, the firm-specific factors that determine exploratory and exploitative R&D investment have remained largely unexplored. We attempt to address this research gap by examining the effects of inter-organizational relationships (innovation collaboration and external information sourcing), R&D personnel educational level and internationalization statuses (exporting and geographic scope) on firm investment in exploratory and exploitative R&D. Building on the organizational learning theory, we argue that different firm-specific factors generate different effects on firm investment in exploratory and exploitative R&D because they stimulate different learning mechanisms. We empirically test the model by using panel data on more than 4000 firms from Technological Innovation Panel, which is a Community Innovation Survey-based data, for the period 2006-2011. Our findings show that the influence of a determinant on exploratory R&D investment may be different from its influence on exploitative R&D investment, and the determinants of exploratory R&D investment may differ from the determinants of exploitative R&D investment. These findings stress on the need for future research to be careful in extrapolating conclusions from analysis that studies a specific type of R&D investment into studies that analyze on another type of R&D investment or into studies that analyze on the overall R&D investment. The study contributes to organizational learning theory by identifying direct factors and moderators that facilitate firm investment in activities of organizational learning.