The Effect of Managerial Interpretations of Aspiration Discrepancies on Production Asset Growth

Abstract

Managerial interpretations of performance-aspiration discrepancies, i.e. causal attributions by managers to explain performance that deviates from aspiration levels, have a crucial role in directing attention, constraining search and driving strategic investment decisions. Hence, understanding organizational responses to performance-aspiration discrepancies requires investigating managerial attributions of causality. We examine this question using a sample of 2,479 Spanish manufacturing firms from 1998 to 2012 and exploring variations in the relationship between productivity aspiration discrepancies and production asset growth induced by managers’ attributions of causality. Consistent with our contention, we find that managers’ causal attributions help explain the heterogeneity of organizational responses to performance-aspiration discrepancies. This study provides a more complete and nuanced understanding of the association between performance that deviates from aspiration levels and the capital allocation process, recognizing managerial causal attributions as a key cause of variation in the relationship between performance-aspiration discrepancies and both the mean and variability of strategic investments.