Searching Wide or Deep? Absorptive Capacity, Slack Resources and the Role of External Search in Small Firm Growth

Firms often conduct external search for new opportunities, but not all search leads to growth. Integrating traditional explanations of search from behavioral theory with biological foraging models, we explain how absorptive capacity together with financial slack influence breadth or depth of search. Our findings from 291 small Swedish technology firms indicate that higher absorptive capacity increases search. Absorptive capacity had a stronger effect on breadth of search than for depth of search. We find that only depth of search leads to higher growth for small firms. Further, financial slack strengthened the absorptive capacity and search depth relationship of search relationship, but weakened the relationship between absorptive capacity and breadth of search. The findings are consistent with foraging models that account for resource availability