Aspiration Levels and R&D Search in Young Technology-Based Firms

Decisions about allocation of resources to research and development (R&D), referred to here as R&D search, are critically important for competitive advantage. Using panel data collected yearly over a period of nine years, this paper re-visits existing theories of backward-looking and forward-looking decision models for R&D search in the important context of young technology-based firms. Some of the findings confirming existing models, but overall the findings contradict existing models. Not only are young technology-based firms found to increase search when aspirations are not met, but they do the same when performance surpasses aspirations. Both positive and negative outlooks reinforce the effects of performance feedback. The combined effect is that the more outcomes and expectations deviate from aspirations the more young technology-based firms invest in R&D search.