Neither More nor Less: Responsiveness to Performance Feedback and Subsequent Performance

Abstract

Despite some contradictory findings and missing details on the process of performance feedback itself, the literature on the topic can largely explain why and when the firm strategy changes. While understanding the firm behavior has an enormous value, we are still unsure of the performance consequences of responses to performance feedback. This research aims to contribute to answering the question of the relationship between responsiveness to performance feedback (intensity with which the firm reacts to a given performance feedback message) and subsequent performance. Since the responsiveness has both positive and negative consequences, the relationship is theoretically assumed to be of an inverted U shape. That means that responding either too little or too much is detrimental for subsequent firm performance. Using data from U.S. manufacturing firms, the findings support the inverted U shape relationship between responsiveness and subsequent performance. Furthermore, the research shows the moderating effects of the firm’s proximity to bankruptcy and the industry’s R&D intensity on the relationship. The research contributes to the performance feedback literature and points out potential avenues for prescriptive advice to firms.