Who's in the Driver's Seat? Exploring Firm-Level vs. CEO-Level Effects on Problemistic Search

The Behavioral Theory of the Firm suggests that performance below an aspiration triggers problemistic search that can lead to organizational change and risk-taking. This compelling perspective has spawned considerable empirical examination of diverse strategic outcomes as firms' responses to performance feedback. However, empirical studies have provided inconsistent evidence of problemistic search effects on various organizational search outcomes. This empirical controversy is likely attributed to the fact that most research has considered problemistic search as a firm-level and relatively routinized process with a high degree of automaticity in firms' responses to performance feedback while overlooking the role of managerial agency. Rather than viewing problemistic search as an automatic firm-level process, we believe that behavioral responses are shaped, at least partially, by top executives, notably CEOs. To this end, we first examine whether problemistic search effects vary across a range of organizational change and risk outcomes. We then explore whether the relative size of firm and CEO effects varies across different search outcomes. Using a multilevel approach, we show not only the heterogeneity in problemistic search effects on different organizational outcomes but also heterogeneity in the relative size of firm and CEO effects on these outcomes. While firm effects are substantial in directing some strategic decisions, as proposed by the problemistic search model, CEO effects are large for certain organizational outcomes, such as changes in resource allocation. This study serves as a jumping-off point for future theorizing and empirical work on problemistic search that incorporate the role of managerial agency.

Automated summary

The Behavioral Theory of the Firm proposes that underperformance triggers problemistic search and can result in organizational change and risk-taking. However, empirical studies have found inconsistent evidence regarding the effects of problemistic search on various organizational outcomes. This study argues that the role of managerial agency, particularly CEOs, in shaping problemistic search responses should not be overlooked. The research shows heterogeneity in the effects of problemistic search and the relative size of firm and CEO effects on different organizational outcomes.