Attainment Discrepancy Research Articles

Not all responses are the same: How CEO cognitions impact strategy when performance falls below aspirations

This study integrates research on managerial discretion within the behavioral theory of the firm to examine how four CEO psychological traits serving as antecedents of managerial discretion— ambiguity tolerance, cognitive complexity, locus of control, and commitment to the status quo—moderate firm responses to poor performance. Using CEOs’ responses to questionnaires, CEO ambiguity tolerance is found to positively moderate the relationship between negative attainment discrepancy and strategic change when performance is slightly below aspirations, defined as average market return for the firm’s industry. Further, CEOs with greater cognitive complexity are found to engage in more strategic change when performance is farther below aspirations. Thus, this study begins to unpack the role of CEOs’ cognitive makeup on firm responses to performance shortfalls.

Attainment Discrepancy and New Geographic Market Entry: The Moderating Roles of Vertical Pay Disparity and Horizontal Pay Dispersion

AbstractStudies in the behavioural strategy literature have examined the influence of attainment discrepancy on new geographic market entry with inconclusive results. We clarified the relationship between attainment discrepancy and new geographic market entry by considering the moderating effects of managerial pay gaps with concentration on vertical pay disparity and horizontal pay dispersion. The framework also contributes to our understanding of tournament theory and social comparison theory by identifying specified performance contexts under which types of pay gaps conform to or violate theoretical predictions. Empirical analyses based on a panel data of Standard and Poor’s (S&P) 500 firms from 1996 to 2006 showed that our hypotheses are largely supported.

The Role of Network Position and Structure in Determining Attainment Discrepancy Attentiveness

Prior performance and the performance of others serve as two important performance feedback benchmarks in the aspiration literature, yet their distinction is often overlooked. We argue that because historical and social aspirations represent different modes of organizational learning, this affects the way managers prioritize their attention to either historical or social attainment discrepancies. We predict that institutional pressures on the saliency of these learning modes will impact whether firms are more likely to focus on their own prior performance or to that of their social peers, and the network literature offers a lens to apply institutional theory towards attainment discrepancy attentiveness. In a sample of 4,726 firms (2000-2015), we find that firms with high network centrality are more sensitive to social attainment discrepancy due to the socially constructed pressures of status associated with centrality and the need to outperform peers in order to maintain their advantageous positioning, whereas firms with low centrality are more sensitive to historical attainment discrepancy. We also find that network closure intensifies the relationship between centrality and social attainment discrepancy, possibly by amplifying the degree to which these institutional norms are transmitted through dense networks. Conversely, high levels of structural holes intensify the relationship between non-centrality and a firm’s attendance to historical aspirations.

A Behavioral Perspective on the Choice of Alliance Governance Mode

This study provides a behavioral perspective on the firm’s choice of alliance governance mode. We argue that a firm’s choices between equity and non- equity alliances are influenced by two firm-level determinants, namely that firm’s attainment discrepancy and its CEO career horizon. We posit that positive attainment discrepancies motivate firms to engage in non-equity alliances to pursue more flexibility, while negative attainment discrepancies encourage firms to search for alternatives in equity alliances to achieve more performance recovery and growth. Furthermore, we argue that firms that are managed by CEOs with short career horizons may be associated with more behavioral uncertainties as their CEOs near their retirement, and thus become less likely to engage in long-term partnerships, such as equity alliances. In contrast, we posit that firms that are managed by CEOs with long career horizons are more likely to pursue closely related equity alliances to bolster their learning from that alliance. Using a sample of 5,542 alliances conducted between 1995 and 2015 by 202 by publicly-traded U.S. firms, we provide evidence for our arguments.

The triggers of local and distant search: Relative magnitude and persistence in explaining acquisition relatedness

Research on problemistic search has assumed negative attainment discrepancy to be the trigger of both local and distant search. Extending this research, we present and compare two additional triggers: (1) relative attainment discrepancy, which reflects how much a firm's attainment discrepancy deviates from its past negative attainment discrepancies; and (2) persistent attainment discrepancy, which reflects how often the firm experiences below-aspirations performance. Our triggers for distant search model a behavioral explanation for the timing and relatedness of acquisitions. We find support for baseline arguments of problemistic search whereby firms increase both industry- and skill-related acquisitions when they perform below aspirations. When they persistently perform below aspirations, however, this likelihood is reduced and firms engage in acquisitions that are more unrelated, thereby providing support for the notion of expanding search boundaries from local to distant search. Of the two triggers of distant search proposed, relative attainment discrepancy does not induce firms to expand search boundaries. Our results indicate that persistent attainment discrepancy is a key construct to consider when studying the expansion of search boundaries.

Firm ownership structure impact on corporate social responsibility: evidence from austerity U.K.

ABSTRACT Corporate social responsibility (CSR) has become an increasingly important sustainable development issue in U.K. The main contribution of this study is to examine how firm ownership structure impacts good corporate governance and CSR in U.K. during austerity conditions. Following the financial crisis of 2007–2008, the U.K. government introduced austerity conditions which impacted firm CSR activities. From the initial sample of more than 250 firms, 50 consistently remain listed on the FTSE4good index during 2008–2012 and are analysed. The definition of CSR distinguishes voluntary and mandatory CSR construct. Findings indicate Board ownership structure and satisfactory firm performance impact on the level of voluntary CSR. Board ownership results suggest increased institutional and non-CEO shareholdings support a higher level of voluntary CSR engagement, whilst increased CEO shareholdings lead to a lower level of investment in voluntary CSR. In terms of satisfactory firm performance, results suggest positive attainment discrepancy supports a higher level of voluntary CSR, whereas greater potential organisational slack leads to a lower level of voluntary CSR investment. Effective governance and voluntary CSR association is more pronounced under conditions of high attainment discrepancy and low organisational slack. The findings suggest implications for adapting firm decision-making latitude and government policy between austerity and prosperity conditions.

Attainment Discrepancy and Investment: Effects on Firm Performance

The behavioral theory of the firm (BTF) posits that managers engage in problemistic search when they experience attainment discrepancy (performance falls below aspirations), in order to raise performance above the aspiration level. Yet, the performance consequences of problemistic search remain an open question. We find that investment in search, triggered by negative performance feedback, enhances firm value. We infer that performance discrepancy facilitates adaptation and improves performance via focused managerial attention and self- discipline. We also find that performance shortfalls relative to aspiration do not induce “swing for the fences” investment in search (by gambling on risky projects), and instead foster prudent value-enhancing investments that enhance the probability of making large gains and reduce the volatility of the firm’s stock returns. Furthermore, we also find that the threat of bankruptcy, the availability of slack and corporate governance mechanisms do not have any effect on the performance consequences of search, reinforcing our view of the primacy of performance feedback in value creation from investment in search.

In Deep Water: Negative Attainment, Attention, and IOR Formation in the Dutch Water Authority Sector

Behavioral theory can be used to explain when search are triggered, yet it is silent on what directs this search and the resulting decisions. Synthesizing the behavioral theory of the firm with the attention-based view fills this gap. We theorize four moderators of the association between negative attainment discrepancy and interorganizational relationship formation: a weaker relationship when attention is on (1) internal issues, and (2) different organizations in the external environment, and a stronger relationship when the attention is on (3) interorganizational collaboration, and (4) similar organizations in the external environment. Applying topic modeling to longitudinal data from the Dutch water authority sector 2008-2014, we find that organizations are more likely to form an interorganizational relationship when performance drops below aspiration and that this effect is indeed moderated by the organization’s attention to aforementioned issues. We discuss theoretical implications, in particular in extending behavioral decision theory, and phenomenological implications, in particular for research on interorganizational relationships.

Inertia, aspirations, and response to attainment discrepancy in design contests

The process of evaluating performance relative to aspirations is widely used by many studies of organizational and technological change. The standard performance feedback model argues that decision makers act in function of attainment discrepancy between performance and aspirations. The theory also states that response to attainment discrepancy is influenced by inertia. Organizational research suggests that there are two types of inertia that we identify in this paper as performance‐based inertia, and nonperformance‐based inertia. We examine the influence of these two types of inertia on the two types of attainment discrepancy as identified by standard performance feedback theory: attainment discrepancy that is based on historical aspirations and attainment discrepancy based on social aspirations. We examine mechanisms that account for the influence of both types of inertia, and derive hypotheses that predict their moderating effect on attainment discrepancy. We test these hypotheses using data on 112 teams that participated in ‘Robot Wars’, a tournament organized as a contest between teams that field machines specifically designed for the event. Our dependent variable is the magnitude of design change prior to participating in each tournament. Our results show, as predicted, that: performance‐based inertia negatively moderates design change in response to attainment discrepancy that is based on social aspirations and; nonperformance‐based inertia negatively moderates design change in response to attainment discrepancy that is based on social aspirations. However, contrary to our predictions, our results show no relationship between nonperformance‐based inertia and design change in response to attainment discrepancy based on historical aspirations. We find a positive and significant result for the relationship between performance‐based inertia and design change in response to attainment discrepancy based on historical aspirations. Our study contributes to research on the relationship between performance feedback and technological decision making in contexts where inertia can alter assessment of new product introduction risks.

Performance Feedback and Firm Risk Taking: The Moderating Effects of CEO and Outside Director Stock Options

We contribute to the behavioral theory of the firm and the behavioral agency model by developing a theoretical framework that predicts the differential interaction effects of performance feedback and values of stock option grants of multiple agents on firm risk taking. We explain how chief executive officers (CEOs) versus outside directors awarded with stock option grants perceive negative or positive deviations from prior performance. We argue that in a negative attainment discrepancy context, high values of option grants will increase the risk aversion of CEOs who already bear excessive employment and compensation risks, resulting in less risk taking; however, it will enhance the risk-taking propensity of influential outside directors who increase monitoring and support for risky projects because their risk preferences are better aligned with those of shareholders. In a positive attainment discrepancy context, high values of option grants will amplify risk aversion in both CEOs and outside directors who perceive risky strategies as potential threats to anticipated incentive values associated with a gain domain, thereby reducing risk-taking activities. Analysis of panel data from 1992 to 2006 on the research and development spending of U.S. manufacturing firms based on Arellano–Bond dynamic panel regression reveals findings largely consistent with our predictions.

Foreign direct investment behavior: Problemistic or slack search

This study examines the behaviors of firms that engage in Foreign Direct Investments (FDIs). The present study is unique in adopting the classification of underperforming or outperforming, relative to aspiration level, to examine FDI behaviors. An analysis of the fixed-effects panel regression shows that the attainment discrepancy and the behaviors of their peer firms affect the listed Taiwanese firms’ FDIs into China. However, slack search is more appropriate than problemistic search in explaining firms’ FDI behaviors. Shifts of managers’ attention occur when firms face different situations. Managers may shift their attention from aspiration to survival when threats are present. The focal point of managers’ attention can be more on unabsorbed slack or potential slack depending on whether firms are pursuing aspiration or survival. Understanding how the role of aspiration level and the shifts of managers’ attention play in FDI behaviors can help outsiders such as investors and policymakers to identify firms’ strategy and modify investment strategies or policies. Key words: Foreign direct investment, the behavioral theory of the firm, the resource-based view of the firm, attainment discrepancy, slack search, problemistic search.

Outside Director Pay Attainment Discrepancy and Strategic Risk-Taking: Moderating Role of Firm Size

The extant agency literature recognizes that stock options and stock grants influence risk decisions. However, prior work has examined the effects of these stock-based incentives on risk behavior a...

Performance Attainment Discrepancy and R&D Intensity: CEO and Director Stock Options as Moderators

We contribute to the behavioral agency model by developing a theoretical framework predicting the differential interaction effects of performance attainment discrepancy and values of stock options ...

FDIs in life cycle stages: firm-level evidence from Taiwan

This study aims to examine how attainment discrepancy and financial slack affect risk-taking behaviour across a Firm's Life Cycle (FLC) stages. The empirical results show that the investment behaviour of the firms is deeply affected by the industry's investment behaviour in all FLC stages. Especially in the mature stage, slack search can appropriately explain Foreign Direct Investment (FDI) behaviour, and long-run resource is an essential factor. In the growth stage, financial soundness is a prerequisite for firms to launch FDIs. In the recession stage, firms seem to be insensitive to performance or slack resources.

The internationalization and performance of a firm: Moderating effect of a firm's behavior

Empirical studies show mixed results regarding the relationship between a firm's internationalization and performance. One reason is that these studies used various economic market firms as their research sample. Thus, this study on a firm's internationalization is based on newly industrialized economies to shed additional light on this relationship. According to the firm behavioral theory, the moderating impact of a firm's internal organizational slack and attainment discrepancy are critical for enhancing a firm's performance in the internationalization process. We tested these hypotheses using longitudinal data (2000–2005) from 179 high-technology listed companies in Taiwan. We extended the behavioral theory of the firm to explain the moderating effect on the internationalization–performance model. We found that firms tend to exhibit positive performance in internationalization when they have a higher level of organizational slack and attainment discrepancy.

Corporate Governance and Corporate Social Responsibility (CSR): The Moderating Roles of Attainment Discrepancy and Organization Slack

Manuscript Type: Empirical Research Question: Is the relationship between corporate governance mechanisms and corporate social responsibility (CSR) contingent on satisfaction with firm performance? Research Findings/Insights: Our results suggest that while effective corporate governance discourages both positive (proactive stakeholder relationship management) and negative (violation of regulations and standards) CSR, higher slack and positive attainment discrepancy lead to higher positive and lower negative CSR, respectively. More significantly, we find that the association between effective corporate governance and both positive and negative CSR depends on satisfaction with firm performance as indicated by the levels of slack and attainment discrepancy. Put simply, the impact of corporate governance on positive CSR is more pronounced under low slack/negative attainment discrepancy conditions, and that on negative CSR is more pronounced under high slack/positive attainment discrepancy conditions. Theoretical/Academic Implications: Our study provides robust support for the behavioral theory of the firm. Previous research has not adequately considered the role of satisfaction with firm performance in studying the impact of corporate governance on managerial decision-making. We show that the association between corporate governance and CSR dimensions depends on differences in decision-making latitude originating from relative firm performance compared to those of peer firms. Practitioner/Policy Implications: First, to understand how effective corporate governance can constrain positive CSR and more importantly reduce negative CSR. Second, to appreciate that the effectiveness of an organization's governance mechanisms is contingent on slack and performance and the marginal returns from improving governance mechanisms when things are going well may be low.

Risk and procedural rationality: a behavioral theory perspective

PurposeThe purpose of this paper is to explore the impact of perceived risk on the procedural rationality of the decision process rather than decision choices or outcomes. The moderating roles of attainment discrepancy and organizational slack are also explored.Design/methodology/approachThese relationships, motivated by behavioral theory, are tested using survey data of capital investment decisions in a sample of 128 public firms in the USA.FindingsThe findings suggest an inverted‐U shaped relationship between perceived risk and procedural rationality. In addition, absorbed slack and attainment discrepancy played moderating roles on the perceived risk‐procedural rationality relationship.Research limitations/implicationsThis study has several implications for research. First, the influence of risk is extended beyond decision outcomes to include decision processes. Second, the core arguments of behavioral theory, including uncertainty avoidance and decision context, appear to hold for the decision process. However, the effects of risk appear to be in the form of an inverted U‐shaped relationship, differing from prior behavioral theory research related to decision outcomes.Practical implicationsPerceived risk and the organizational context can lead to differing approaches to making decisions. As perceived risk increases, managers appear to alter the extent of information gathering and analysis. Organizations may consider designing different decision processes for different situations that take these managerial tendencies into account.Originality/valueThe contribution of this study is the extension of behavioral theory explanations of risk from decision choices or outcomes to the procedural rationality of the decision process. The findings show that risk has a non‐linear influence on the procedural rationality of the decision process.

ORGANIZATIONAL SLACK AND ATTAINMENT DISCREPANCY AS ANTECEDENTS OF CORPORATE SOCIAL PERFORMANCE.

The present study attempts to investigate the determinants of corporate social performance (CSP). Specifically, it examines the relationship between organizational slack and CSP using the behavioral theory construct of attainment discrepancy. The results show that organizational slack and attainment discrepancy in financial performance are necessary precursors to the firms' undertaking CSP investments.

The Impact of Attainment Discrepancy After Benchmarking on Changes in the Business Portfolio in Diversified Firms

The Impact of Attainment Discrepancy After Benchmarking on Changes in the Business Portfolio in Diversified Firms

Integrating Behavioural and Economic Concepts of Risk into Strategic Management: the Twain Shall Meet

This paper develops an integrated framework of risk management and strategic competitive advantage that incorporates behavioural and economic notions of risk. The resulting model argues for the importance of risk-taking to sustainable competitive advantage and ultimately to firm performance. The model integrates framing effects of attainment discrepancy, transaction costs from implicit contracts theory and capital costs from finance theory. The proposed model suggests that continuous risk-taking by firms may help sustain competitive advantage and thus lower firm risk. This, in turn, effectively increases market returns to shareholders by ensuring earnings growth while simultaneously reducing the risk premium discount attached to a firm’s future income stream.