Abstract
PurposeA firm will respond to performance feedback, i.e. a comparison of its current performance with the goals to which it aspires, by means of changes in its search activity. There is an emerging body of literature that studies how such behavioral responses are shaped by important decision-makers inside firms. The study focuses on the corporate board – one of the most influential decision-making groups in terms of strategy. More specifically, the study aims to study the moderation effect of the size, turnover and age diversity of the board.Design/methodology/approachThe sample is based on the largest listed German automobile and manufacturing firms followed between the years 2001 and 2015. The sample is analyzed using fixed-effects panel data models.FindingsThe findings indicate that the age diversity of the corporate board and, partially, also the turnover of its members moderate firms' responsiveness to performance feedback. On the other hand, the size of the board does not seem to play a role. The study, therefore, supports the notion of taking into account the characteristics of the corporate board when analyzing strategic decision-making and points to areas for further research.Originality/valueThe study contributes to the literature by empirically testing the moderating effect of three characteristics of corporate boards that have not been largely tested in the literature to date.
Highlights
There are numerous factors that cause firms to change strategy
The findings indicate that, of the three board characteristics in this study, board age diversity plays the strongest moderating role in responsiveness to performance feedback
This research supports the notion that the responses of firms to performance feedback in terms of their search activity are shaped by their internal composition
Summary
There are numerous factors that cause firms to change strategy. One of the major drivers identified in the literature is performance feedback (Posen et al, 2018), i.e. a comparison of a firm’s actual performance and the performance goals to which it aspires. Based on Simon’s (1955) concept of bounded rationality, when a firm does not attain the goals to which it aspires, it is likely to search for behavioral alternatives. In this case, a process called problemistic search begins (Cyert and March, 1963) with the aim of finding new solutions for bridging the problematic gap between negative performance and aspiration. The firm is far from a monolithic decision-making subject. It consists of various groups of stakeholders that shape its decisions. Since Desai’s (2016) study on the effect of the composition of the board on firms’ responses to performance feedback, there has been
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