Conflict Inside and Outside: Social Comparisons and Attention Shifts in Multidivisional Firms

Abstract

Behavioral Theory highlights the crucial role of social comparisons in attention allocation in adaptive aspirations. Yet, both the specification of social reference points and the dynamics of attention allocation have received little scholarly examination. We address performance feedback from two social reference points relative to divisions in multidivisional firms: economic reference point and political reference point. Comparing divisional performance with the two reference points can give consistent or inconsistent feedback, which has important consequences for the dynamics of attention allocation in adaptive aspirations. We find consistent feedback leads to more attention to own experience while inconsistent feedback results in more attention to the social reference point the focal division underperforms. Results reveal that political reference point plays an important role in determining managerial attention allocation.