Wonsang Ryu, JaSeung Koo, Taiki Ito, Seung Hun Han
This study examines the influence of natural disasters on firm search orientation in technology development. While prior research has extensively explored the environmental antecedents of exploration and exploitation, the potential impact of these environmental antecedents on decision-makers' risk preference has received limited attention. Thus, focusing on natural disasters as an environmental factor that alters the level of managerial risk taking, we theorize how such disasters affect firm search orientation. Specifically, we argue that experiencing a natural disaster leads firm decision makers to engage in less managerial risk taking by increasing their perceived variance of outcomes (particularly, the likelihood of maximum loss), reducing their confidence in their capabilities to foresee the future, and arousing anxiety and stress. As a result, this diminished risk preference directs search activities more towards exploitation rather than exploration, because the returns from exploration are often more uncertain and distant compared to those from exploitation. To validate our hypothesis, we utilize the Great East Japan Earthquake as a natural experiment, an event recognized as the deadliest and most devastating in Japanese history.
