The theory behind PPE volatility ha

The theory behind PPE volatility has a basis in the concept of temporal orientation in asset investments (Souder & Bromiley, 2012). Similar to R&D volatility, PPE volatility induces the changes in the temporal orientations of tangible asset investments. Managers must consider both short-term and long-term operational needs and maintain a flexible temporal orientation to meet changing production needs that result from R&D volatility. They can do so by maintaining operatingassets with varying time horizons. Complementing PPE variability is desirable, because uncertainty in R&D returns is three times higher than that of capital expenditures (Kothari, Laguerre, & Leone, 2002). As such, complementing the gains from R&D with varying capital expenditures could further improve performance. The mismatch between R&D volatility and PPE volatility could lead to lower gains from R&D volatility as the resource profiles of these two types of investments might not be fully compatible. Higher R&D and PPE volatilities could help fill strategic gaps that would improve performance. The reasoning behind R&D volatility is the renewal of knowledge, whereas the reasoning behind PPE volatility is that the firms have a commitment to reducing the erosion of tangible assets.