Risk-taking behavior of technology firms: The role of performance feedback in the video game industry

Abstract

This study focuses on what drives technology-driven companies to engage in risk-taking behavior by serving new markets. Building on the behavioral theory of the firm and prospect theory, this study suggests that technology-driven organizations tend to respond to past performance rather than future possibilities. Using a sample of 5312 video games from 362 game developers, the results reveal that market performance trend and market performance variability have opposing effects on risk-taking behavior: while a positive market performance trend negatively influences a company's tendency to venture into new markets, a high-degree of market performance variability tends to positively influence ne..