A tale of two distractions: How institutional forces influence R&D-based problemistic search in transition economies

Abstract

The behavioral theory of the firm (BTOF) suggests that firms are motivated to increase R&D search in response to profitability shortfalls—that is, R&D-based problemistic search. Although prior studies have provided considerable evidence for this influential explanation of R&D search, recent research shows that it is not the case in transition economies. Our study sheds light on this critical question of Why not for transition economy firms (TEFs), by identifying institutionally derived mechanisms that distract TEF decision makers' attention from R&D-based problemistic search. Specifically, we examine the implications of institutional environments for goal definition and problem attribution—two critical yet underexplored components of problemistic search. Integrating the BTOF and institutional implications, we theorize how TEFs' R&D-based problemistic search is distracted by government-imposed goal definition and politically oriented problem attribution. Using panel data on Chinese listed firms, we find that R&D search in response to profitability shortfalls is negatively moderated by employment shortfalls (government-imposed goal definition) and lack of political connections relative to peers (politically oriented problem attribution). Our study provides novel insights into TEFs' R&D-based problemistic search by revealing two institutionally derived distractive mechanisms (i.e., boundary conditions). Moreover, this study extends the BTOF literature by exploring how decision makers' intrinsic attention allocation (among different goals and among different latent problems) is subject to extrinsic institutional environments.