The influence of time, contracts, and audience on investment decisions in Major League Baseball

Abstract

Attainment discrepancy (AD) studies emphasize situations where management believes options exist to raise performance over aspirations, or where low performance makes survival the relevant aspiration level. Sometimes organizations face performance sufficiently below aspirations that achieving aspirations in the time available becomes unreasonable, even though survival is not at risk. We develop hypotheses regarding the influence of negative AD on investment decisions in such situations, and how time pressures and alternative forms of performance pressure may moderate the influence of negative AD on investment. Using Major League Baseball game data from 2007 to 2016 and measuring investment by use of rookies yields the following results. First, negative AD increases investment. Second, the effect of negative AD on investment increases as time remaining to raise performance above aspirations declines. Third, the final year of a manager’s contract (a second indictor of time remaining to improve performance) and home game attendance (an alternative indicator of performance pressure) diminish the influence of negative discrepancy on investment.