Performance Feedback in Hierarchical Business Groups: The Cross-Level Effects of Cognitive Accessibility on R&D Search Behavior

AbstractThis study examines the cross-level effect of group-level managers on member firms’ problemistic search in hierarchical business groups. Using multilevel data from Korean business groups, we propose that the effects of failure to meet an aspiration level on R&D search intensity increase when member firm performance and R&D investments are more cognitively accessible to group-level managers. Specifically, we find, first, that when underperforming firms are widespread in a business group, a focal member firm intensifies R&D search in response to performance below an aspiration level because member firm performance, as a group-level problem, becomes cognitively accessible to group-level managers. Second, as member firms operating in R&D intensive industries are more prevalent in a business group, R&D investments, as a search solution, become more cognitively accessible to group-level managers. Thus, a focal member firm reinforces R&D search in response to the performance shortfall. We discuss the implications of these findings for research on the behavioral theory of the firm and performance feedback.