Who depends on why: Toward an endogenous, purpose‐driven mechanism in organizations' reference selection

Abstract

This paper investigates how firms select reference organizations, that is, other firms to which they compare themselves. We question the exogenous nature of references (i.e., them being defined via industry-categorizations) but suggest that, via motivations or purposes, firms endogenously select them. We evaluate our findings when analyzing proprietary data on hotels' self-selection of comparison-hotels. In support of our arguments, we find that in situations of increased uncertainty regarding firms' own relative abilities and standing, firms make adjustments to their selected references toward more similar ones. This enables them to obtain more diagnostic information about their relative abilities and this effect holds constant of (exogenous) industry-entry or exit events. Our findings contribute to an updated understanding about the role of comparison organizations in firms' decision-making. Managerial Summary: Prior work shows that comparisons with other firms (i.e., references) play an important role for our understanding of firms' decision-making. For example, performance comparisons with references can trigger search or a decision-need, ultimately, leading to acquisition-decisions, new-product-introductions, and

Stretch Goals, Factual/Counterfactual Reflection Strategies, and Firm Performance

“…There is a possibility that managers may set aggressive endogenous goals in such situations because goals may be endogenous and negotiated (Luger, 2023; Sitkin et al, 2011). The idea that aggressive goals create the possibility of a separating equilibrium is possible, especially when external stimuli or reward systems are embedded in the decision‐making process (Jensen, 2001, 2003; Luger, 2023). Although my study and experimental design do not address this possibility, future research may address this by including external stimuli in the experimental design.…”

“…For instance, in the theorizing, I contend that managers who meet or exceed their exogenous goals are less likely to be benefited from reflection strategy because reflection is enlightened by its relationship to goal-directed cognition (Epstude and Roese, 2008). There is a possibility that managers may set aggressive endogenous goals in such situations because goals may be endogenous and negotiated (Luger, 2023;Sitkin et al, 2011). The idea that aggressive goals create the possibility of a separating equilibrium is possible, especially when external stimuli or reward systems are embedded in the decision-making process (Jensen, 2001(Jensen, , 2003Luger, 2023).…”

Star CEOs: influence on competitor CEOs' risk-taking

“…Second, this study contributes to the literature by showing that the risk-taking behavior of decision-makers is influenced by multiple aspirations (e.g. Berchicci and Tarakci, 2022;Greve, 1998;Keum and Ryan, 2023;Luger, 2023;Mezias et al, 2002). Extant literature primarily examined a firm's social aspirations and historical aspirations.…”

“…Research suggests that decision makers have multiple aspirations, and that their focus of attention determines how reference points influence their strategic decision making (e.g. Berchicci and Tarakci, 2022;Greve, 1998;Keum and Ryan, 2023;Luger, 2023;Mezias et al, 2002). For example, firms adjust and select their reference points in situations of greater uncertainty concerning a firm's own relative abilities and position (Luger, 2023).…”

“…Berchicci and Tarakci, 2022;Greve, 1998;Keum and Ryan, 2023;Luger, 2023;Mezias et al, 2002). For example, firms adjust and select their reference points in situations of greater uncertainty concerning a firm's own relative abilities and position (Luger, 2023). Likewise, environmental volatility can impact the way decision-makers assess multiple aspirations, leading them to prioritize one type of aspiration over others (Berchicci and Tarakci, 2022).…”