Absorptive capacity versus competency trap: Experiential knowledge and investment in emerging technologies

Abstract

Because of the radical novelty of emerging technologies, investing in such technologies brings high risk and great uncertainty. Whether investors’ experiential knowledge encourages or discourages investment in emerging technologies remains under investigation. Juxtaposing the “absorptive capacity” and “competency trap” perspectives, this study proposes a pair of competing hypotheses regarding the influence of experiential knowledge on investor decision-making in emerging technologies. Specifically, we contend that experiential knowledge stimulates investment in emerging technologies based on the absorptive capacity perspective. Meanwhile, drawing on the competency trap perspective, we also argue that experiential knowledge may discourage investment in emerging technologies. Empirical evidence from blockchain-related funding rounds reveals that experiential knowledge negatively influences investment in emerging technologies, which is consistent with the competency trap perspective. We also discover that investor reputation and investor status exacerbate the competency trap implications. Overall, this study sheds light on investment in emerging technologies, the theoretical dilemma of experiential learning, as well as decision-making under uncertainty and ambiguity.