How do Managerial Perceptions of Performance Feedback affect Innovation?

Abstract

Although managers’ perceptions are core to the Behavioral Theory of the Firm (BTOF), few empirical studies measure managerial perceptions of their organization’s performance and theorize on the inconsistency between perceptual and objective performance feedback. Based on longitudinal survey data of Canadian organizations, we examine how this inconsistency affects the propensity for innovation in organizations. Our analysis broadly validates that as inconsistency increases between the two types of feedback it dampens innovation. Second, positive perceptions strengthen the relationship between positive objective performance feedback and innovation, leading to increased search, whereas negative perceptions strengthen the relationship between negative performance feedback and innovation, echoing the problemistic search hypotheses. We also find that perceptions moderate the effect of objective performance feedback differently in the social and historical dimensions as well above and below the aspiration thresholds.

Keywords: performance feedback, manager, innovation, Behavioral Theory of the Firm

JEL Classification: M