LOOKING BACKWARD INSTEAD OF FORWARD: ASPIRATION-DRIVEN INFLUENCES ON THE EFFICIENCY OF THE CAPITAL ALLOCATION PROCESS

TitleLOOKING BACKWARD INSTEAD OF FORWARD: ASPIRATION-DRIVEN INFLUENCES ON THE EFFICIENCY OF THE CAPITAL ALLOCATION PROCESS
Publication TypeJournal Article
Year of Publication2013
AuthorsArrfelt M., Wiseman R.M, Hult G.TM
JournalAcademy of Management Journal
Volume56
Issue4
Pagination1081-1103
Date PublishedAug
Type of ArticleArticle
ISBN Number0001-4273
Accession NumberWOS:000323852100008
Keywordsbehavioral-theory, ceo compensation, compensation design, decision-making, diversification discount, empirical exploration, firm performance, industry matter, inefficient investment, multilevel approach
Abstract

This study examines the influence of backward-looking, reference-dependent decisions on forward-looking capital allocation investment choices across business units within a firm. Specifically, we develop an integrated behavioral framework for predicting how aspirations for business unit performance affect the efficiency of the internal capital allocation process. Results suggest that, contingent on dispersion in business unit performance and on firm slack, performance aspirations have pervasive effects; current performance above and below aspirations influences the efficiency of the allocation process. Given that prior examinations of aspiration-driven behavior have generally focused on changes in strategic organizational actions (e.g., R&D investment) without further considering the quality or appropriateness of such actions, this study contributes by also focusing on the appropriateness of capital allocations with clear implications for allocation efficiency.

DOI10.5465/amj.2010.0879