Effects of Government R&D Grants on IT Entrepreneurial Firm Performance: A New Perspective on Exploration vs. Exploitation

Governments keep subsidizing R&D of IT entrepreneurial firms greatly. However, the effect of these grants remains unclear. Acknowledging this gap, this study provides a nuanced perspective to understand the influence of government R&D grants on IT entrepreneurial firm performance. Based on the literature on organizational learning, we categorize government R&D grants into two types: explorative vs. exploitative. Moreover, drawing on resource complementarity theory, we articulate how the two types of government R&D grants interact with firms’ private R&D resources. In particular, we hypothesize that in the innovation stage, government explorative R&D grants complement a firm’s internal exploration in influencing innovation performance, but substitute a firm’s external exploration. We further posit that in the commercialization stage, government exploitative R&D grants complement a firm’s innovation performance and internal exploitation in impacting financial performance, but substitute a firm’s external exploitation. We advance a theory of public-private R&D interaction for IT entrepreneurial firms.