Determinants of Firm's R&D Intensity:

Abstract

Abstract

Determinants of Firms R&D Intensity: Based on Shifting Focus of Attention Model

Il-hyung Cho Department of Business Administration The Graduate School Seoul National University

This study investigates firms search behavior (R&D activity) by utilizing March and Shapiras shifting focus of attention model. In accordance with shifting focus of attention model, this research suggests that organizations search behavior is induced by its performance feedback and that the nature of this relationship is determined by whichever reference point is the focus of organizational attention. By examining the R&D expenditures of Koreas IT device manufacturing companies from 2002 to 2012, this study shows that a degree of gap between organizations achieved performance and its aspiration level affect which reference point (among aspiration, survival, and slack) organizational attention is focused on and that firms decision on R&D investment varies with this attention. In addition, performance-aspiration gap and a degree of stability of organizational authority have interactive effects on search behavior. Firms R&D intensity strengthens when CEOs power in TMT (a factor that positively affects stability of authority) increases, whereas the influence of stock price volatility (a factor that negatively affects stability of authority) on firms decision on R&D activity is not significant. The findings suggest that stability of organizational authority could function as strong factor that determines firms search and risk taking behavior.

Keywords: R&D intensity, performance-aspiration gap, CEO power, stock price volatility, organizational attention, stability of authority Student Number: 2012-20526