Firm Failure and the Exploration/Exploitation Dilemma:The Role of Firm Life Cycle

Firms face a ceaseless dilemma of adaptation to their environments by embracing the right combination of exploration/exploitation strategies. Regarding this quandary’s long-term impact, we propose a novel theoretical model linking the pursuit of exploration and exploitation approaches and the likelihood of firm failure, stressing the crucial moderating role of the firm life cycle that substantively shapes the underlying relationships. The model is empirically tested using a large panel dataset from 1988 to 2019, clearly revealing the moderating impact of the five stages of the firm life cycle (and the transition phase between them) on the association between exploration and exploration and firm failure. The findings indicate that exploration has a significant negative impact on firm failure at the growth, maturity, and transition stage; however, it has a significant positive impact on firm failure at the introduction stage. Exploitation has a significant negative impact on firm failure at the maturity stage.