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Research Summary: Combining insights from the behavioral theory of the firm with sociological research on local embeddedness, we propose that communityoriented firms respond differently to performance relative to aspirations than noncommunity-oriented firms. Community-oriented firms develop long-term relations with local constituents and emphasize community goals.This orientation should buffer them from the riskinducing effects of falling below financial aspirations, and encourage them to pursue community goals more intensely when exceeding financial aspirations. Using U.S. bank data from 2005 to 2013, we find that community orientation-exemplified by community banksattenuates the influence of performance below aspirations on risk-taking, but amplifies the influence of performance above aspirations on community investments such as small business loans. We discuss implications for a sociologically informed view of performance feedback processes. Managerial Summary: Relative to their size, locally embedded community banks take less risk and make more small business loans than do larger banks. We

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Research shows that reference group selection underpins critical organizational processes, but less is known about publicly disclosed choices of reference groups, such as those for the evaluation of firm performance. Because audiences, such as investors and analysts, prefer reference groups created by independent entities they can trust, they disapprove of choices of custom peer groups created by reporting firms. Nevertheless, firms frequently choose reference groups that do not conform to audiences’ expectations. We seek to explain why firms deviate from these externally held standards even when incurring penalties by developing theory and formulating hypotheses about the influence of chief executive officer (CEO) power. Using data from 10-K filings, we find that firms led by high-power CEOs are more likely to use nonconforming, custom peer groups despite incurring penalties. However, the relationship between CEO power and the use of custom peer groups is weaker when CEOs face greater scrutiny from shareholders and analysts. We also find that low firm performance increases the use of custom peer groups among high-power CEOs. Contrary to our expectations, high CEO compensation attenuates the effect of CEO power on the choice of custom peer groups, arguably because high levels of CEO pay increase scrutiny. Although firms incur costs for using nonconforming reference groups, supplemental analyses reveal that CEOs benefit by receiving higher compensation, especially when performance is low. We conclude by discussing implications for research on publicly disclosed reference groups, the consequences of power, and information disclosure.