Looking backward instead of forward: Aspiration-driven influences on the efficiency of the capital allocation process

Mathias Arrfelt, Robert M. Wiseman, G. Tomas M Hult

Research output: Contribution to journalArticlepeer-review

54 Scopus citations

Abstract

This study examines the influence of backward-looking, reference-dependent decisions on forward-looking capital allocation investment choices across business units within a firm. Specifically, we develop an integrated behavioral framework for predicting how aspirations for business unit performance affect the efficiency of the internal capital allocation process. Results suggest that, contingent on dispersion in business unit performance and on firm slack, performance aspirations have pervasive effects; current performance above and below aspirations influences the efficiency of the allocation process. Given that prior examinations of aspiration-driven behavior have generally focused on changes in strategic organizational actions (e.g., R&D investment) without further considering the quality or appropriateness of such actions, this study contributes by also focusing on the appropriateness of capital allocations with clear implications for allocation efficiency.

Original languageEnglish (US)
Pages (from-to)1081-1103
Number of pages23
JournalAcademy of Management Journal
Volume56
Issue number4
DOIs
StatePublished - Aug 1 2013

ASJC Scopus subject areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Strategy and Management
  • Management of Technology and Innovation

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