Fighting the Bear and Riding the Bull: Exploitation and Exploration During Times of Recession and Recovery

Abstract:     
The performance implications of the managerial ability to balance exploitation and exploration in times of economic recession and recovery are not well understood. In this paper, a longitudinal research approach serves to establish an inverted U-shaped relationship between the managerial attention given to exploitation-exploration and firm performance, in the recession (i.e., bear) and recovery (i.e., bull) phases of the business cycle. We find this relationship to be positively influenced by the bull phase. Moreover, the distribution of attention to exploitation-exploration becomes less important when moving from a bear to a bull market. Finally, the optimal distribution of attention to exploitation-exploration changes toward more exploitation when moving from a bear to a bull market. Overall, our results imply that each phase of the business cycle provides a highly different context for managing and balancing exploitation and exploration.

Number of Pages in PDF File: 40

Keywords: exploitation, exploration, recession, recovery, performance implications

JEL Classification: O30

working papers series