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This study aims to clarify how companies should manage exploration and exploitation in the long term, and particularly whether companies should dynamically change their resource allocation related to exploration and exploitation activities.

To demonstrate the effect of shifts in focus between exploration and exploitation on financial performance and market evaluation, an empirical examination was conducted using secondary panel data for Japanese manufacturers from 2000 to 2014, which was analyzed by fixed-effect estimation with a control function approach considering the problem of endogeneity.

The empirical results suggest that companies should change their resource allocation related to exploration and exploitation in the long term. Long-term focus shifts between exploration and exploitation activities enhance not only future financial performance (return on assets and return on sales), but also future market evaluations (Tobin’s Q).

This paper showed a pathway connecting technological knowledge searches to the company’s future performance. With reference to the discussion of existing research, it remains unclear what kind of management is required for company activities related to exploration and exploitation. This study showed that companies can improve their profitability and market evaluations by changing their resource allocation for exploration and exploitation activities over time.

While most research on exploration and exploitation is from a static perspective, this study simultaneously incorporated focus balance and focus shifts into the empirical model and thereby examined exploration and exploitation from a dynamic perspective. Even when considering the effects of balancing exploration and exploitation, this study confirmed that organizational vacillation will improve financial performance and market evaluation.

Prior research has produced conflicting results on the relationship between firm-level patenting activity and financial performance. To identify a factor that impacts the results, this study tests whether the level of customer-base concentration (defined as focusing on a small number of major customer sales transactions) changes the relationship between firm-level patenting activity and financial performance (return on assets: ROA).

Using a longitudinal secondary dataset from Japanese manufacturers from 1991 to 2016, this study investigates the interaction effect between firm-level patenting activity and customer-base concentration. With additional analysis using multiple profitability measures, this study provides robust evidence that customer-base concentration is an important factor in changing the relationship between firm-level patenting activity and financial performance.

The analysis results show that there is a positive relationship between firm-level patenting activity and ROA. In addition, this relationship is positively moderated by the customer-base concentration. This means that suppliers can improve the performance of the patenting activity by concentrating on their customer base.

By identifying a moderating factor between patenting activity and financial performance, this study advances the interpretation of conflicting results in patent research. Moreover, this study reveals a situation where customer-base concentration, which has a direct negative impact on financial performance, leads to better financial performance. This also indicates that firm-level patenting activities may compensate for the negative aspects of customer-base concentration.