Prior Experiences of Managers and Responsiveness to Performance Feedback

Abstract

This study examines how the prior career experiences of decision makers systematically shape their responses to performance shortfalls. We posit that while prior experiences lead managers to develop greater levels of knowledge and skills, they also shape their mental models and enhance their beliefs about their abilities, their predictions, and their strategies, which in turn makes them less responsive to negative performance feedback. We find that more experienced and more specialized fund managers are less likely to initiate changes when faced with negative performance feedback compared with their less experienced or less specialized counterparts. Further, the context within which managers gained their prior experience matters. As performance deteriorates below aspirations, managers with prior experience in high-status organizations and those who have worked previously under munificent environmental conditions are also less responsive compared with their counterparts without such experience. Overall, our paper contributes to the literature on performance feedback by showing that prior experience of decision makers is an important factor that determines an organization’s propensity to initiate strategic change in response to negative performance feedback. Further, the study also contributes to the human capital literature by highlighting a potential unintended side effect of accumulated human capital, namely lower responsiveness to negative performance feedback.