Entering new markets: The effect of performance feedback near aspiration and well below and above it

Abstract

Research summary:This study draws on the resource-based view and the behavioral theory of the firm to gain new insights about the effect of performance relative to aspiration level (i.e., performance feedback) on the decision to enter new markets. Results show an inverted U-shaped relationship between performance both below and above aspiration level, and the probability of firms to enter new markets. That is, when firms are well below or well above their aspiration level, they significantly change their behavior. This article develops a theoretical framework to clarify and organize these findings.Managerial summary: This study examines the effect of performance feedback, and particularly, large discrepancies between firm performance and aspiration level on the decision to enter new markets. It provides support to the role of performance feedback in affecting the decision to enter new markets, a factor that has received relatively little attention in the extensive literature that has examined the inducements of such moves. Results show that, as performance falls below or rises above aspiration, a firm's probability of entering new markets increases up to a certain point after which this relationship decreases. This shows that the tendency to enter new markets is different for firms that are in the neighborhood of aspiration level compared to those that are well below or above it. into markets during a period as an event. For robustness test, we used the number of new markets as our dependent variable and re-estimated the models. The main results did not change.

Attainment Discrepancy and New Geographic Market Entry: The Moderating Roles of Vertical Pay Disparity and Horizontal Pay Dispersion

“… Our research differs from Chang (), Lin (), and Ref and Shapira () by showing how different types of managerial pay gaps moderate the influence of attainment discrepancy on new geographic market entry. …”

“…Following prior studies, we proxied new market entry using the number of new geographic markets entered into by the focal firm (Chang, ; Lin, ; Ref and Shapira, ), and transformed the variable into natural logarithm to mitigate skewness and kurtosis. To assess the number of new geographic segments, we compared these segments in consecutive years and counted new ones that appeared in the following year.…”

“…New product market entry may influence decisions to enter into new geographic markets (Henderson and Fredrickson, ). We measured new product market entry using number of new product segments into which the firm enters (Ref and Shapira, ). Stock volatility and reprice/reload actions may affect propensity to enter into new regions.…”

“…Strategy studies in the behavioral literature have examined the relationship between attainment discrepancy (i.e., difference between current performance and the aspiration level; Lant, ) and new geographic market entry and found inconclusive results (Chang, ; Lin, ; Ref and Shapira, ) . For instance, Chang () did not find support for performance below the aspiration level.…”

“…Lin () found support for her theory that performance below the aspiration level increases geographic scope, but did not find conclusive result for performance above the aspiration level. Ref and Shapira () found inverted U‐shaped relationships between performance both below and above the aspiration level and new market entry. We suggest this empirical ambiguity can be attributed to a lack of consideration of managerial pay gaps (i.e., pay differences among top managers).…”