Coalition Support and Priority of Multiple Goals

Abstract

Organizational goals are interdependent and follow a priority order to enable decision makers to fulfill the top priority goals before they proceed to pursue the succeeding ones. Previous research has shown that profitability is the top priority goal of firms. However, what determines the pursuit of lower priority goals after the profitability goal is met has remained unexplored. We leverage dominant coalition theory in the behavioral theory of the firm to theorize that whether a lower priority goal is subsequently pursued depends on the power of its supporting coalition on the board of directors. In particular, we identify resource allocations to the shareholders and to the society as two goals secondary to profitability goal and examine whether firms’ pursuit of these goals depends on the power of coalitions supporting or opposing them. By examining 2,071 Chinese listed firms, we find that the fulfillment of the profitability goal encourages the pursuit of two secondary goals. We also find that the membership of different board coalitions, namely, shareholder-value coalition and state-endorsement coalition, affects firms’ engagement in rewarding the shareholders and rewarding the society differently. These findings support our theory that coalitions shape the prioritization of multiple secondary goals in organizational decision making.