When Bad News is Sugar-Coated: Information Distortion, Organizational Search and the Behavioral Theory of the Firm

Strategic Management Journal, Forthcoming

48 Pages Posted: 7 Apr 2013

See all articles by Christina Fang

Christina Fang

New York University (NYU) - Department of Management and Organizational Behavior

Ji-hyun (Jason) Kim

Yonsei University School of Business

Frances J. Milliken

New York University (NYU) - Department of Management and Organizational Behavior

Date Written: March 30, 2013

Abstract

Most work in strategy and organization theory assumes that performance feedback is straightforward to interpret and truthfully reported. We raise the following question: How might the systematic distortion of negative performance information affect organizational learning and future performance? We formulate a model where (1) members do not always report the truth about what they know about their performance level, especially when performance is below aspiration and (2) their propensity to distort information is subject to social influence. We find that organizations that are characterized by a high level of information distortion tend to perform more poorly, but that the effect of a low rate of sugar-coating may, in some conditions, be more benign than the literatures seem to suggest.

Keywords: Organizational learning, performance feedback, social influence, Behavioral Theory of the Firm, simulation

Suggested Citation

Fang, Christina and Kim, Ji-hyun (Jason) and Milliken, Frances J., When Bad News is Sugar-Coated: Information Distortion, Organizational Search and the Behavioral Theory of the Firm (March 30, 2013). Strategic Management Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2244966

Christina Fang (Contact Author)

New York University (NYU) - Department of Management and Organizational Behavior ( email )

44 West 4th Street
New York, NY 10012
United States

Ji-hyun (Jason) Kim

Yonsei University School of Business ( email )

50 Yonsei-ro, Seodaemun-gu
Seoul, 120-749
Korea, Republic of (South Korea)
+82-2-2123-6573 (Phone)

Frances J. Milliken

New York University (NYU) - Department of Management and Organizational Behavior ( email )

44 West 4th Street
New York, NY 10012
United States

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