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Activity Overinvestment: The Case of R&D

Ahuja, G. & Novelli, E. ORCID: 0000-0002-6899-1096 (2017). Activity Overinvestment: The Case of R&D. Journal of Management, 43(8), pp. 2456-2468. doi: 10.1177/0149206317695770


The literature on corporate diversification has often argued for and established the case that companies often overdiversify in a product market sense – i.e. enter into unrelated product markets where they may not fully cover their cost of capital. Yet, even without engaging in unrelated diversification, managers need to make resource allocation decisions to a variety of activities that a company conducts to consummate its business. In this article we focus on Research and Development (R&D) activity and we discuss the effects that the uncertainty, boundary ambiguity, feedback latency, R&D lumpiness and legitimacy that characterize technological contexts can have in making overinvestment in R&D likely. Specifically, in this article we a) draw attention to the construct of activity overinvestment, and specifically R&D overinvestment, b) use the received literature to argue that there exists a prima facie case for examining this construct and its antecedents in order to evaluate the extent and implications of R&D overinvestment, and c) make the more general case that the resource allocation literature needs to study the issue of activity overinvestment systematically.

Publication Type: Article
Additional Information: © SAGE Publications.
Publisher Keywords: Resource allocation/Management, Patents and R&D Strategies, Technology Strategy
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Bayes Business School > Management
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