Tilburg School of Social and Behavioral Sciences, Spain
Research on Performance Feedback (PF) recognizes that firms behave in a goal-oriented manner: negative performance feedback leads to undertaking actions to restore aspirations and, generally, positive performance feedback leads to a decrease on those actions. However, PF has mostly ignored the role of decision makers in assessing solutions and opportunities. Interestingly, the strengths and limitations from PF contrast with those from Upper Echelons Theory (UET) that emphasize the role of decision makers in firms’ decisions but ignore important contextual factors such as performance feedback. I integrate both theories to develop a more comprehensive, realistic, and precise theory of decision-making in firms that overcomes the limitations of each theory by exploiting their respective strengths. In particular, I propose and show that technological firms respond to negative performance feedback by investing in R&D, but this effect is stronger for firms with output oriented CEOs; above aspirations, positive performance feedback leads to lower R&D investment when CEOs are throughput oriented—as the R&D becomes an unnecessary means (i.e. tool)—, but to higher R&D investment when CEOs are output oriented—as R&D is an important strategic sub-goal for these firms. This study has important contributions to PF, UET, and firm decision-making at large.
