How CEO exploration orientation affects firm performance

Kostopoulos, Konstantinos christos, Syrigos, Evangelos, Andriopoulos, Konstantinos and Filatotchev, Igor (2017) How CEO exploration orientation affects firm performance. Academy of Management Proceedings, 2017 (1), 14980. (doi:10.5465/AMBPP.2017.14980abstract).

Abstract

In this study, we aim to challenge the traditional assumption that balancing exploration and exploitation results invariably in superior performance. Specifically, we draw on the attention-based view to argue that CEO relative exploration orientation will mobilize efforts towards allocating valuable resources to R&D activities that will, in turn, allow the firm to renew its resource and product portfolio and thereby attain superior performance. We further build on agency theory and identify two central corporate governance mechanisms that operate as boundary conditions in the way CEO relative exploration orientation is channeled to performance through R&D intensity: CEO power, which strengthens this indirect relationship, and outside board members’ power that conversely attenuates these indirect effects. We find support for our predictions using a comprehensive panel dataset of 283 manufacturing, information, and professional, scientific and technical services firms in the S&P 500 index from 2007 to 2013. Our study, therefore, offers a new approach in understanding the relationship between exploration, exploitation and performance.

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