Motivation and Ability: Unpacking Underperforming Firms’ Risk-Taking

Forthcoming at Organization Science

42 Pages Posted: 20 Feb 2024 Last revised: 24 Mar 2024

See all articles by Ohad Ref

Ohad Ref

Ono Academic College - Faculty of Business Administration

Songcui Hu

University of Arizona - Department of Management and Organizations

Maxim Milyavsky

Ono Academic College

Naomi E. Feldman

Hebrew University of Jerusalem, Department of Economics

Zur Shapira

Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Management and Organizational Behavior

Date Written: February 1, 2024

Abstract

Do firms take more or less risk in response to performance shortfalls? Although the behavioral theory of the firm (BTOF) has been a guiding framework in this area, empirical evidence remains inconclusive. Moreover, empirical work has largely failed to distinguish between firms’ motivation to take risks and their ability to do so. In this study, recognizing the distinct roles played by these two components, we specifically focus on risk-taking motivation. Drawing on March and Shapira’s (1992) shifting-focus-of-attention model, we highlight that firms’ motivation to take risks is contingent on their chosen reference points and the shifts between them. We propose that, on average, risk-taking motivation exhibits a positive monotonic relationship with performance shortfalls, a sequence involving an initial increase, subsequent leveling off, and then a renewed increase. To advance the theory of risk-taking motivation, we extend our inquiry to consider the moderating effect of concern for firm survival, and subsequently explore factors influencing this concern. Furthermore, we investigate a critical implication of differentiating risk-taking motivation and ability. Due to the mismatch between motivation and ability, underperforming firms take the greatest risks when their performance is moderately below aspirations, with motivation and ability being at moderate levels, leading to an inverted U-shaped relationship between performance shortfalls and risk-taking. Empirical evidence derived from experiments and archival data supports our theoretical predictions. This study contributes to the BTOF literature by demonstrating that underperforming firms’ risk-taking behavior is jointly determined by their motivation, ability, focus of attention, and concern for survival.

Suggested Citation

Ref, Ohad and Hu, Songcui and Milyavsky, Maxim and Feldman, Naomi E. and Shapira, Zur, Motivation and Ability: Unpacking Underperforming Firms’ Risk-Taking (February 1, 2024). Forthcoming at Organization Science, Available at SSRN: https://ssrn.com/abstract=4712642 or http://dx.doi.org/10.2139/ssrn.4712642

Ohad Ref

Ono Academic College - Faculty of Business Administration ( email )

104 Tzahal Street
Kyriat Ono, 55000
Israel

Songcui Hu (Contact Author)

University of Arizona - Department of Management and Organizations ( email )

405 McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Maxim Milyavsky

Ono Academic College ( email )

Tzahal Street 104
Kiryat Ono, 55000
Israel

Naomi E. Feldman

Hebrew University of Jerusalem, Department of Economics ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel
9190501 (Fax)

Zur Shapira

Leonard N. Stern School of Business - Department of Economics ( email )

40 West Fourth Street, 7-06
New York, NY 10012
United States

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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