Performance feedback, performance prospects, and firm search behavior: the role of institutional settings
Alipour A. Goudarzi K. Ateş N.Y. Gözübüyük R. Genç M.
November 2025Elsevier Inc.
Journal of Business Research
2025#200
The Behavioral Theory of the Firm (BTOF) posits that firms undertake R&D search when their current performance falls below their aspirations, reflecting a backward-looking driver of search, or when anticipated future performance is projected to fall short of targets, representing a forward-looking driver. However, little is known about how external contingencies influence the prominence of these search drivers. Drawing on the literature on institutions, we argue that financial systems in a country, a key aspect of firms’ institutional settings, influence the salience of forward- and backward-looking drivers by shaping firms’ temporal and cognitive orientations. Specifically, we propose that while firms in market-based financial systems are more responsive to performance expectations below targets, firms in bank-based financial systems are more responsive to performance below aspirations. We further argue that the influence of financial systems depends on firms’ slack resources and equity dependence. Our analyses on a sample of 3,908 manufacturing firms from 24 countries corroborate these hypotheses, stressing the central role of institutional settings in shaping firms’ R&D search behavior.
Behavioral theory of the firm , Country financial systems , Institutional setting , Performance aspirations , Performance expectations , R&D search
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Bang College of Business, KIMEP University, 4 Abay Avenue, Almaty, 050010, Kazakhstan
Ozyegin University, Nisantepe, Orman Sk. No:13, 34794 Cekmekoy, Istanbul, Turkey
School of Business, College of Charleston, 66 George St, Charleston, SC, United States
Sabanci University, Orta Mahalle, Üniversite Caddesi No:27, 34956, Tuzla, Istanbul, Turkey
Bang College of Business
Ozyegin University
School of Business
Sabanci University
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