Organizational Decline and its Effect on Investments in Innovation

In times of an increasingly unstable global economy, the topic of organizational decline and its effect on innovative activities becomes more and more important. This study aims at contributing to the ongoing academic discussion of whether performance decline facilitates or inhibits investments in innovation. In order to do so, the paper draws on the opposing predictions of the behavioural theory of the firm as well as the threat-rigidity theory and discusses their implications with respect to the thesis topic. More specifically, by investigating a sample of 803 Japanese manufacturing firms from 2008 to 2012, this study explores how organizational decline in terms of performance below aspirations, firm’s threat of bankruptcy, and organizational slack affect decision making about R&D search intensity.