Performance Feedback

Combining the theses of problemistic search and slack search, past research in the behavioral theory of the firm suggests that both low- and high-performing firms may engage in the same type of risk-taking activity. We counter this view with a consistent, motivation-based logic in the theory: Low-performing firms are fixated on finding short-term solutions to immediate problems, so they have an increased probability of exhibiting deviant risk-taking behavior such as bribery, whereas high-performing firms are concerned about sustaining their competitive advantage in the long run and will more likely engage in aspirational risk taking such as Ru0026D. Using a sample of 9,633 firm-year observations covering 2,224 listed companies in China, we find that as a firm’s performance falls further below its aspiration level, it has larger abnormal entertainment spending, an implicit measure of bribery expenditure, but not higher Ru0026D intensity. However, as a firm’s performance rises further above its aspiration level, it...