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This paper examines how firms determine their risk-taking behavior based on their performance feedback relative to their aspiration levels. Using a unique database that finely captures risk-taking behavior of oil & gas industry firms, we find empirical support that firms that are performing above their historical aspiration levels reduce risk-taking behavior, while firms that are performing below their historical aspiration levels increase risk-taking behavior. Furthermore, we find that firms that find consistent feedback from performance relative to both historical and social aspirations reach either a success or survival point that determines their risk-taking behavior. When performance relative to historical and social aspirations become inconsistent, firms either ignore or try to resolve the discrepancy.
Strategic Change and Multi-indicator Performance Feedback
Gerardus J. M. Lucas,
University of Nottingham Daniela Blettner,
Simon Fraser University Eric Gedajlovic,
Simon Fraser University
Performance Feedback Theory holds that executives change strategy when their organization’s performance falls short of the aspiration level. This has been extended to incorporate multiple performance indicators, like profitability and growth, in some studies. Other studies explored how performance feedback affects allocation of attention and resources across multiple strategic changes, such as R&D investment and new product introductions. We seek to combine both these extensions in a single study. Using a sample from the North-American feature film industry, we investigate whether performance feedback predicts what strategic change is more likely to occur as we hypothesize this depends on which of the salient performance indicators yielded unsatisfactory performance feedback. We contribute to the PFT literature by better capturing the empirical complexities of responding to performance feedback.
Performance Feedback and Internationalization: The Moderating Role of the Industry Environment
Recent behavioral strategy studies have investigated the influence of performance feedback on internationalization and found equivocal results. We propose that these inconclusive empirical patterns reflect distinct structural characteristics of each industry within diverse samples that were used, resulting in different internationalization responses. The equivocality also stems from a lack of consideration for the moderating role of industry environment in the domestic market. Building on the behavioral theory of the firm and contingency theory, we contribute to shedding light on the empirical ambiguities by employing a single industry to test the proposition that the relationship between performance feedback and internationalization is moderated by industry dynamism and munificence. Empirical testing using high-tech firms largely supported the hypotheses.
When Performance Isn't Performance: Earnings Smoothing, Performance Feedback, and Strategic Change
A precursor of strategic change often studied is ﬁrm performance, and studies of performance often use reported accounting earnings as a measure of such performance. However, some managers actively smooth reported earnings through accounting and operational choices. While the accounting literature has studied the behavior of earnings smoothing on the quality of the reported numbers, this paper focuses on how such behavior impacts subsequent strategic choices made by the ﬁrm. This study analyzes the association of earnings smoothing to whether reported performance meets or exceeds organizational aspirations and then links earnings smoothing to a lower propensity for subsequent change in the ﬁrm’s major resource allocations.