Overtaking in the rain: performance feedback and firm innovation during decoupling period

Performance feedback mechanism is one of the core propositions of the behavioral theory of the firm. It provides an important analysis perspective for studying strategic behaviors, such as firm innovation and change. However, the performance feedback mechanism has its inherent complexity. The theoretical predictions are not consistent, the empirical findings are staggered, and the measurement methods are different. This paper systematically reviews relevant literature and research topics, analyzes when and why the organization responds to performance feedback, proposes the classification and nature of different response behaviors, and identifies the problems in the operationalization of aspiration. Based on an integrated review of the existing literature, we explore and propose future research directions in the field of performance feedback and organizational responses.

Corporate venture capital (CVC) has consistently proven its importance for firm innovation, growth, and other strategic goals. However, research on the antecedents of CVC is still scarce. Drawing on the behavioural theory of the firm, we examine how performance feedback affects the decision to pursue CVC. Empirical results using panel data on Chinese A-share listed firms from 2011 to 2019 indicate that there is an inverted U-shaped relationship between negative performance feedback and the probability of initiating CVC. Moreover, such an effect is moderated by CEO overconfidence in that it weakens the inverted U-shaped relationship. Further study shows that CVC aids in firm innovation and creates firm value. Our findings highlight the importance of performance feedback on corporate venture capital.

This study examines how the duration of innovation underperformance and overperformance affects collaborative innovation in family firms. Integrating performance feedback theory and socioemotional wealth theory, we analyse panel data from Chinese A-share listed family firms. The findings indicate that prolonged innovation underperformance promotes collaborative innovation, while sustained overperformance diminishes it. These effects are strengthened under founder CEOs, highlighting the interplay of temporal performance feedback and family authority. By introducing the concept of performance feedback duration into this context, our research addresses a literature gap and advances understanding of how the persistence of innovation outcomes shapes strategic decisions in family enterprises.

Prior research has established a positive link between chief executive officer (CEO) narcissism and firm innovation. Notably, research shows that CEO narcissism is positively related to more radical innovation and breakthrough technologies, that is, manifestations of a firm's exploration orientation, and positively related to more incremental innovation, that is, manifestations of firms' exploitation orientations. However, it primarily examines these orientations in isolation or neglects their interplay and thereby ignores insights from organizational learning theorists that firms and managers face decisive trade‐offs between fundamentally distinct exploration and exploitation orientations. This overlooks the possibility that narcissistic CEOs may emphasize exploration over exploitation, and vice versa, to gain visibility, affecting the balance between those orientations. Consequently, we might draw incorrect conclusions about how CEO narcissism affects firms' innovation. Drawing on theoretical mechanisms from the narcissistic personality literature, we develop and test a competing logic that connects CEO narcissism with firms' relative exploration orientation, that is, firms' exploration relative to the exploitation orientation. In addition, we theorize on and investigate the moderating effects of accounting‐ and market‐based performance feedback that may alter narcissistic CEOs' attention to exploration or exploitation and, hence, affect the relationship with firms' relative exploration orientation. We test our hypotheses using panel data from 120 firms in the Standard and Poor's 100 index between 2008 and 2018, covering the personality profiles of 224 CEOs. Our findings indicate that CEO narcissism is negatively associated with firms' relative exploration orientation, that is, narcissistic CEOs emphasize an exploitation orientation. Furthermore, this relationship is pronounced with firms' increasing relative accounting‐based performance and attenuated with firms' increasing relative market‐based performance. We draw theoretical and managerial implications from these insights.

ABSTRACTWhile previous studies have acknowledged the importance of underperformance duration in organizational responses, few conceptual or empirical efforts have been made to explore how overperformance duration shapes innovation strategies over time. Drawing on the behavioral theory of the firm (BTOF), this study argues that overperformance duration has a U‐shaped relationship with exploratory innovation and an inverted U‐shaped relationship with exploitative innovation. Additionally, the intensity of overperformance is investigated as a moderator that amplifies both nonlinear relationships. Using firm‐level and patent data from 691 Chinese listed manufacturing firms between 2006 and 2018, empirical tests provide supporting evidence for these arguments. This study advances the current understanding of the BTOF by introducing and analyzing a temporal perspective on how positive performance deviations influence different types of innovation through performance feedback.

Overtaking in the Rain: Performance Feedback and Firm Innovation during Decoupling Period

Based on the insights of the behavioral theory of the firm and the agency theory, we explore the impact of negative performance feedback (NPF) on the dynamic equilibrium between exploitative and exploratory innovation. Using the 2007–2020 listed Chinese A‐share high‐tech manufacturing companies as a research sample, our study finds that NPF has a significant positive impact on the punctuated equilibrium innovation of firms. Moreover, we find that the chief executive officer’s (CEO) existing tenure weakens the above‐mentioned relationship, whereas CEO’s expected tenure strengthens it.