Behavioral Theory Of The Firm Research Articles

Environmental Performance Feedback and Timing of Reshoring: Perspectives from the Behavioural Theory of the Firm

AbstractThe behavioural theory of the firm (BTOF) claims that firms’ performance feedback is significant for strategic decision‐making. Building upon this, we shift our focus from the widely researched topic of financial performance to sustainability performance. We theorize that firms’ environmental performance feedback (i.e. performance relative to aspirations) influences their reshoring decisions. Based on a sample of publicly traded manufacturing multinational enterprises (MNEs) from 15 developed countries, we find that firms with below‐aspiration environmental performance (BEP) are slower to engage in reshoring activity. In contrast, firms with above‐aspiration environmental performance (AEP) are quicker to engage in reshoring. Moreover, we substantiate the moderating role of financial performance feedback: positive financial performance feedback enables firms with higher BEP to engage in reshoring activity even more slowly. Nevertheless, the moderating role of positive financial performance feedback has not been confirmed in the relationship between higher AEP and the timing of reshoring.

Re‐Evaluating the Offshoring Decision: A Behavioural Approach to the Role of Performance Discrepancy

AbstractFirms are in a continuous process of critically re‐evaluating their offshoring strategies due to performance discrepancies. While prior research has focused on the implementation of organizational responses to performance shortfalls, we examine the offline search process, a key antecedent of organizational change, during which firms simultaneously explore alternative solutions when facing either a positive or a negative discrepancy between performance and aspirations. We adopt the Behavioural Theory of the Firm (BTOF) to investigate how the search process is affected by the size and nature (as being positive or negative) of the discrepancy as well as how it is moderated by cognitive biases. By examining 441 offshoring initiatives, we study firms' search processes in a novel context that refers either to ‘local’ solutions that are close to the current activity (i.e., expansion in the same host country) or ‘distant’ solutions that are far from the current one (i.e., relocation to a third country or to the home country). Our results provide new insights into organizational search, namely that performance shortfalls lead to distant search unless this choice is moderated by a location‐specific anchor bias relating to the strategic importance of host location, while positive discrepancies trigger local search with decision‐makers more inclined to consider expansion in the current host country.

Taking Stock of the Behavioral Theory of the Firm While Looking to the Future: A Bibliometric Review

Although the Behavioral Theory of the Firm (BTOF) has drawn increasing attention in organizational studies, there lacks an overall picture of its development status. Using bibliometric methods, we conducted a comprehensive review of 510 articles on BTOF in different dimensions: research methodologies and contexts, the audiences of the BTOF studies, related organization theories, contributing articles, themes, and their dynamic changes. We analyzed the most co-cited articles and the most boundary-spanning studies and identified 13 research themes related to BTOF. The BTOF has been an emerging organization theory with significant implications in innovation, organizational risk-taking, etc. The assumptions, concepts, and mechanisms in BTOF have influenced a wide range of theories in organizational studies, such as organizational learning, evolutionary economics, and institutional theory. Academic interest in the Asian context, especially in the East Asian context, has increased significantly since 2014. Regression methods have attracted great attention, while the mixed-methods approach or exploratory methods are under-utilized in the BTOF literature. The results also suggest that research on adaptive aspirations, organizational slack, R&D investment, and selective attention to multiple goals seems to have much potential in the future.

Business Groups, Hierarchies and Risk Preferences: How Family CEOs Respond to Performance Shortfalls

Despite their global presence, family business groups have not gained much attention from scholars concerning the behavioral theory of the firm (BTOF). As a hierarchical organization, family business groups as a whole are managed by the group chairperson while his or her family members sometimes run individual member firms as subunits and become family CEOs. Prior studies in the BTOF have revealed that subunits in a hierarchical organization take a risk in response to their performance below aspiration levels and, in doing so, may have assumed that subunit managers have a non-family relationship with top managers. But this assumption limits the application of the BTOF to family CEOs because they are bound to the group chairperson by kinship. We fill this gap by examining how member firms run by family CEOs respond to their underperformance. We develop a novel theory that family CEOs are concerned about how their firm’s underperformance might spill over and hurt their family’s socioemotional wealth and so their firm becomes risk averse in the face of the performance shortfalls. We test this argument using matched samples of member firms managed by family CEOs and professional CEOs in Korean business groups. We also find that underperforming firms become more risk averse when their CEO is the chairperson’s direct descendants, rather than non-direct family members, and the chairperson pays attention to regulation policies challenging the family-dominant governance structure. This study makes a number of theoretical contributions to research in the BTOF and research on family businesses.

Organizational Response to Performance Shortfalls: The Role of Self-confidence and Time Slack

The behavioral theory of the firm (BTOF) states that performance shortfalls trigger organizational responses seeking to restore performance above the aspiration level. However, previous research has shown ambiguous support for this proposition. One explanation for this lack of support is subjective performance assessments: Performance shortfalls might not be perceived as problematic by decision makers, which leads them to underestimate the need for a response. In this paper, I argue that decision makers’ self-confidence promotes optimistic interpretations of performance assessments when performance is ambiguous enough. However, when performance shortfalls are unambiguous, I predict that decision makers’ self-confidence leads to the opposite consequence, strong organizational responses, due to risk-seeking behavior. In addition, in this paper I propose that organizational slack is a source of ambiguity in assessing performance feedback allowing for favorable interpretations. Particularly, I propose that decision makers prone to make optimistic performance assessments overestimate the value they can extract from slack, which leads them to underestimate the need for a response to performance shortfalls. I find support for my hypotheses by analyzing 101,146 first down decisions from the National Football League (NFL) between seasons 2009 and 2016.

The Impact of Consistent and Inconsistent Performance Feedbacks on Corporate Social Responsibility

Behavioral theory of the firm (BTOF) remains under-utilized to understand the impact of firms on the society. This study pays attention to the effects of multiple performance aspirations and develops a more holistic view about how performance feedback influences social behavior of firms. Leveraging the global trend that forces firms to perform CSR activities, this study integrates BTOF and prospect theory to reveal that firms become risk averse by spending more on CSR activities when they fail to meet both historical and social aspiration levels. The analysis also shows that firms exhibit risk-seeking behavior by spending less on CSR activities when they: (1) perform better than both historical and social aspiration levels, and (2) meet historical aspiration level but fail to meet social aspiration level.

Search at the Individual-Level, Dyadic-Level, and Aggregation to the Organizational-Level

Organizational search permits organizations to solve challenges, explore opportunities, and develop new solutions. This symposium takes inspiration from the coalitional perspective advanced in A Behavioral Theory of the Firm. The papers collected in the symposium examine search performed at different hierarchical levels of organizations and by diverse groups within organizations. We also offer perspectives on bridging the micro-macro gap in organizational search – and the micro- macro gap in organizational research more generally. Considering how search occurs at the micro-, meso-, and macro-levels in organizations provides insights into what elements of the processes remain the same across levels, what elements differ, and cross-level differences. Rethinking the social context of search Presenter: João Duarte; Maastricht U., School of Business and Economics Presenter: Pino G. Audia; Dartmouth College The Effect of Prior Aspiration Diversity on Team Performance in Coordinated Search Presenter: Jerry M. Guo; Aarhus BSS, Aarhus U. Presenter: Thorsten Wahle; Alliance Manchester Business School, U. of Manchester How Organizational Structure Determines Effective Exploration across Hierarchical Levels Presenter: Oliver Baumann; U. of Southern Denmark Presenter: Kannan Srikanth; The Ohio State U. Fisher College of Business Presenter: Tiberiu Sergiu Ungureanu; Ohio State U. Gender representation congruence on R&D lab research novelty Presenter: Sarah Edris; Maastricht U., School of Business & Economics Presenter: Boris Lokshin; Maastricht U., School of Business & Economics

Meaning as Use: Linguistic Foundations for the Behavioral Theory of the Firm

Meaning as Use: Linguistic Foundations for the Behavioral Theory of the Firm

Alliance performance and subsequent make‐or‐ally choices: Evidence from the aircraft manufacturing industry

AbstractResearch SummaryWe examine how the performance of a firm's prior alliances influences its propensity to persist with the alliance mode or switch to independent operations in the context of new product introductions (NPIs). Drawing on the behavioral theory of the firm (BTOF), we argue that a firm's alliance performance has a U‐shaped effect on its likelihood of undertaking the subsequent NPI independently and that competitive intensity strengthens this U‐shaped relationship. We also predict that firms with above‐aspiration alliance performance are more likely to achieve breakthrough performance in the subsequent NPI if they switch to independence than if they continue to ally. Data on NPIs in the global aircraft manufacturing industry (1944–2000) support our hypotheses. Our study extends the alliance literature and contributes to research on how firm performance influences subsequent strategic choices.Managerial SummaryThe dilemma of whether to continue or exit an alliance or relationship is a common one for individuals, countries, and firms. Our study examines firms' strategic decision to switch to independent operations after having partnered with other firms. Using the aircraft product development context, we show that firms that make such a change in their strategy are the ones that performed either much better or much worse than what they expected. Firms with alliance performance close to their expectations tend to persist with their current strategy. Of the firms that change their strategy, the high performers benefit much more from changing their strategy than low performers. We provide insights regarding when it is preferable for managers to continue to ally or to switch to independence, especially in launching new products.

The Impact of Corporate Social Responsibility Performance Feedback on Corporate Social Responsibility Performance.

This study empirically analyzes how corporate social responsibility (CSR) performance feedback impacts CSR performance, focusing on the performance feedback perspective of behavioral theory of the firm (BTOF). By performing generalized least squares (GLS) regression analysis based on Korean company data from 2012 to 2019, we presented evidence that positive social and historical performance feedback had a positive effect on CSR performance. Our results provide evidence that firms with higher social and historical CSR performance than CSR aspiration may have higher CSR performance than those that do not.

How to Apply Artificial Intelligence for Social Innovations

ABSTRACT This study investigates how to apply artificial intelligence for social innovations using two socio-political factors critical for a Behavioral Theory of the Firm (BTF) – uncertainty and conflict. The analysis leads to four approaches for applying artificial intelligence for social innovations such as the agent-based modeling, social entrepreneurship, stakeholder capital, and social contract approaches. The valuation of artificial intelligence in the projects is endogenously created while the social innovators evaluate their environments, goals, and technologies. The study offers step-by-step guidance to assess the performance of and to create implementation strategies for social innovation projects combined with artificial intelligence.

Aspiration formation and attention rules

AbstractResearch SummaryThe behavioral theory of the firm (BTOF) proposes that firm behavior is goal‐directed and that organizational aspirations are a function of prior historical aspirations, past performance, and the performance of others. Despite the centrality of aspirations in the BTOF, little is known about aspiration formation and why firms favor one aspiration type over others, that is, attention rules. Drawing on the attention‐based view, we posit that attention rules are shaped by environmental volatility over time and vary by locus of attention across firms. Data from US manufacturing firms managing their toxic chemical waste provide evidence for attention‐rule adaptation.Managerial SummaryFirms must set aspirations, measure, and improve their toxic waste levels to avoid costly economic, regulatory, and environmental hazards. Although aspirations play a vital role in driving firm behavior, we still have limited understanding of how managers allocate their attention to various performance feedback during aspiration formation. We argue that attention allocation differs for managers across organizational hierarchy exposed to varying degrees of environmental volatility. Greater volatility of the business environment steers managerial attention from the performance of others toward their own historical aspirations. We also suggest that the attention of managers at higher levels of the organizational structure are directed from their own historical aspirations toward performance of others. We find corroborating evidence for our conjectures.

Continuous innovation failure, top management team relational capital and the overseas R&D activities of companies in emerging economies

ABSTRACT Failure is an unavoidable part of the innovation process. Previous studies have explored the impact of innovation failures on a variety of strategic actions. However, to date, whether and when firms – especially those in emerging economies – adopt overseas research and development (R&D) strategies in response to innovation failures remains unexplored. By integrating insights from the behavioural theory of the firm (BTOF) and springboard theory, our study theoretically analyzes and empirically examines the impact of continuous innovation failure on the overseas R&D activities of companies in emerging economies. Using a dataset comprised of Chinese listed manufacturing firms, we find that continuous innovation failure is positively related to the overseas R&D activities of companies in emerging economies. After considering the moderating effect of top management team (TMT) relational capital, we also find that TMT financial relational capital weakens the above relationship, while TMT government relational capital strengthens it.

Tracing the influence of James March’s most cited works: an empirical approach using historical analysis of co-citation contexts

PurposeThe purpose of this study is to examine the historical continuity of James March’s contributions to management scholarship by tracing the co-citations that appear within the textual contexts of articles in premier management journals that cite both March and Simon’s 1958 book Organizations and other works co-authored by March.Design/methodology/approachThis study uses within-citation context analysis to examine 522 passages from eight premier management journals that contain co-citations to Organizations and any another work co-authored by March. This entails coding the citing passages to identify the specific knowledge claims from March’s works and how citing authors used them, which establishes linkages between the content in different works of March’s works as used by citing authors.FindingsThis study finds that 31 other works by March are co-cited within the same citation contexts along with Organizations. The vast majority (71%) of these co-citations of March’s later works are to Cyert and March’s A Behavioral Theory of the Firm. The four other most highly co-cited works are Levitt and March (1988); March (1991); Cohen et al. (1972); and Levinthal and March (1993). Of the eight summary codes used in the analysis corresponding with the contents of Organizations, two summary codes – “Routines and Programs” and “Cognitive Limits” – accounted for the clear majority (60.1%) of all co-citation contexts in this study.Research limitations/implicationsThis study only examined the co-citations to Organizations in eight premier journals in organization studies, and a larger selection of journals might have altered the results to some degree. A truly comprehensive analysis might consider every citation context in the published literature where citing authors jointly mention any two or more of March’s works. Given the extraordinarily large number of citations to March’s works, this was impractical and unfeasible.Practical implicationsA time-bound and rigorous review of co-citations in common contexts allows both scholars and practitioners to recognize the genuine threads of theory presented by leading scholars and trace them through subsequent works to see how theories have evolved both in practice – reflected in empirical work – and in conception – reflected in theoretical development.Social implicationsPrior research into citation methodology has shown the proliferation of references over time. It is not uncommon for contemporary works to list 100 or more references for a single paper. This research encourages and facilitates a greater discipline in understanding and using citations by tracing the roots of citations and the extent of their importance in citing works.Originality/valueThis paper presents an historical perspective of the influence of James March’s body of scholarship by tracking within context co-citations that link a seminal early work of March to his most cited works in premier journals. This study tracks specific knowledge claims that have persisted throughout March’s corpus of scholarship. This historical method is a systematic approach to tracing how subsequent scholarship ties together and uses multiple works to support specific knowledge claims, enabling an objective analysis of the commonalities among a scholar’s works over time. This is the first example of research using this bibliographic method to form an historical perspective of a seminal author or a classic work.

The effects of performance shortfalls on firms’ exploitation and exploration R&D internationalization decisions: Does industry environmental matter?

Building on the behavioral theory of the firm (BTF), our study investigated how firms adjust their exploitation and exploration R&D internationalization in response to performance shortfalls and how this adjustment is moderated by industry environmental factors. Using 16 years (2003–2018) of data on Chinese listed firms, our study found that in response to performance shortfalls, firms will increase exploitation R&D internationalization rather than exploration R&D internationalization. In other words, performance shortfalls negatively affect the share of exploration R&D internationalization. In addition, we also found that the relationship between performance shortfalls and the share of exploitation R&D internationalization is strengthened by industry market turbulence but weakened by industry technological turbulence.

Persistent innovation underperformance and firms' R&D internationalization: The moderating effects of multidimensional TMT human capital

The antecedents of firms' R&D internationalization have attracted the attention and discussion of scholars. However, the manner and circumstances in which a firm's past innovation performance affects its R&D internationalization decisions have not yet been discussed. Based on the behavioral theory of the firm (BTOF), we propose that persistent innovation underperformance might serve as a motivating factor to trigger R&D internationalization and that the top management team (TMT) determines how responsive to persistent innovation underperformance the firm is likely to be. Results from empirical analyses of panel data from 1323 listed Chinese manufacturing companies over a 9-year period indicate that a longer duration of persistent innovation underperformance increases the likelihood that firms will implement R&D internationalization. Integrating the moderating roles of multidimensional TMT human capital, we further find that TMT education level and technical background strengthen the abovementioned relationship, while TMT international experience weakens the abovementioned relationship. The contributions, implications, and limitations of this study are fully discussed.

Media influence and time horizons of strategic change

This study draws on the behavioral theory of the firm (BTOF) to understand why and how different media coverage, conceptualized as the “soft” performance feedback, can drive firms’ search behaviors differently, leading them to make strategic changes in different domains. By decomposing multifaceted strategic changes into short versus long-term domain, we posit that negative media coverage fosters firms to conduct a problemistic search, which increases both the short- and long-term strategic changes in the firms, though at a different degree; while positive media coverage encourages firms to pursue a slack-driven search, which increases the firms’ long-term strategic changes aiming for future gains but decreases their short-term strategic changes. We find support for the hypotheses by analyzing a sample of 8,499 firm-year observations covering 2,452 listed companies in China from 2012 to 2017. Both theoretical and practical implications are discussed.

Drivers of Firms’ Risk Taking Behavior

Risk-taking and behavioral theory of the firm (BTOF) research have not considered how positive economic sentiment influences firms’ risk taking or how it moderates the performance feedback-risk taking relationship. Advocating scope acquisitions constitute evidence of firms’ risk taking behavior, we develop theory that posits positive economic sentiment directly affects the number of scope acquisitions firms make, and moderates the relationship between firms’ performance feedback and their scope acquisitions. Using data from the US economic sentiment index and 635 firms in 154 industries making 6,216 scope acquisitions between 1980 and 2015, we find support for our hypotheses. We contribute to the literature by recognizing positive economic sentiment as a boundary condition that influences firms’ risk taking behavior in studies of behavioral theory of the firm

Aspirational Motivation and Competitive Conformity

In a rapidly growing industry where all firms are doing extremely well, a firm whose performance is merely good may seem inadequate by comparison. By incorporating behavioral theory of the firm (BTOF) logic, we examine the degree to which managers choose to conform to the competitive actions and repertoires of peers based on the joint effects of their social performance (performance relative to peers) and historic performance (performance relative to their past performance). We assess the actions of 303 firms from 2001 to 2017 and find that poor social performance leads firms to imitate their more successful competitors, moving more closely to competitive repertoires that reflect the norms or “recipe” for the industry. We further find that this relationship is contingent on how the focal firm performs relative to historical aspirations, depending primarily on whether the signals from social and historic performance are congruent or inconsistent. Our results extend work on competitive dynamics and behavioral theories of the firm, as well as informing past research that has discussed the benefits that imitation provides to organizations, such as institutional theory and theories of mimetic isomorphism, which argue that firms benefit when they model themselves on other successful organizations.

The Role of Time in Organizational Aspirations: Past- and Future-Oriented Performance Feedback

Research in the tradition of the Behavioral Theory of the Firm (BTF) has long analyzed organizations’ reactions to discrepancies between aspiration and actual performance – yet largely overlooked the formative role of time. We contribute to organizational aspirations literature by theorizing and empirically testing two temporal dimensions in a single study: (a) the impact of time-persistent innovative under- and overperformance on engagement in external corporate venturing (ECV) and (b) the moderating effect of future financial performance expectations. We develop our hypotheses on temporal dynamics of managerial cognition around performance feedback by integrating insights from momentum theory and strategic reference point theory. We test our hypotheses on a sample of high-tech firms in the U.S., combining patent-based innovation data with ECV deal data and security analyst estimates from 2005 to 2016. We find that firms first decrease and then increase their engagement in ECV with persistent innovative underperformance; and vice versa for persistent innovative overperformance. We also find evidence for the moderating role of future performance expectations on firms’ reactions to time-persistent innovative performance feedback. The importance of temporal dynamics to managerial cognition that we uncover can help to explain conflicting empirical findings on innovative search reactions to performance feedback.