How does negative performance feedback affect a firm’s openness in its innovation search behaviour? The moderating role of organisational slack

Using the behavioural theory of the firm as a theoretical lens, an integrated framework for this study was developed to examine how negative performance relative to aspiration as well as organisational slack shapes a firm's openness in its innovation search behaviour. Furthermore, the study investigates whether the extent to which slack is committed to specific organisational procedures determines its moderating effect on the relationship between negative performance feedback and open innovation search behaviour. Patent archives and financial data from 1688 manufacturing firms publicly listed in the US were collected to construct a panel dataset of 13,685 observations. By examining the open innovation search behaviours of these manufacturers from 1986 to 2006, it was found that negative performance feedback encourages firms to be more open to external knowledge sources. The findings also revealed that the absorption degree of slack indeed determines its moderating role. Specifically, underperforming firms with more unabsorbed slack exhibited more openness in their innovation search behaviours, whereas absorbed slack failed to show significance. Possible explanations for the insignificance of absorbed slack are further discussed.