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Firms consider multiple reference points simultaneously to assess performance; however, these referents may be inconsistent in signaling success or failure. Consequently, decision makers use one of two contrasting decision rules when responding to inconsistent feedback: problem solving or self-enhancement. So far, disparate theoretical logics and mixed evidence has limited our understanding about when decision makers shift their attention from positive to negative aspects of inconsistent feedback, or vice versa, and increase or decrease their research and development (R&D) search. We examine how different types of chief executive officer (CEO) power explain why some firms may respond to inconsistent feedback—that is, positive performance feedback and negative prospects—in distinct ways. We find that firms engage in less R&D search as a response to inconsistent feedback when CEOs have high levels of structural, ownership or expert power. In contrast, when CEOs have high levels of prestige power, firms undertake more R&D search as a response to inconsistent feedback. Our findings provide new insights and contribute to conversations about CEO power and performance feedback within the context of the behavioral theory of the firm.
Blagoeva et al. (Thu,) studied this question.