The role of institutional environment driving firms' attention to forward-looking aspirations

Official URL: http://dx.doi.org/10.5465/AMBPP.2021.14640abstract

When are firms’ search behaviors regulated by their future performance expectations below their future performance targets (forward-looking determinant of search behavior) versus their performance below their historical or social aspirations (backward-looking determinant of search behavior)? Firms’ search behaviors are influenced both by their forward- and backward-looking determinants, yet we do not know much about the contingencies that make firms more/less attentive to the forward-looking versus backward-looking search determinants. Our fundamental argument is that firms’ resource dependence on distinct environmental actors in different institutional settings makes their search more attentive to forward- or backward-looking search determinants. We specifically argue that although capital market demands in market-based financial systems make firms’ search forward-looking, demands and pressures of banks in bank-based financial systems make their search activities backward-looking. Our findings suggest that although the impact of future performance expectations below targets on firms’ search activities is intensified in market-based financial systems, firms’ search activities are more influenced by their performance decline below aspirations in bank-based financial systems. We discuss implications for theory and practice.