A comparison of alternative measures of organizational aspirations

Abstract

Research on organizational aspirations has used various representations of firm-level aspirations and based those representations on various performance measures. To advance our understanding of the measurement of aspirations, we empirically compare three different aspiration models defined using six different performance measures to explain three different firm outcomes (financial misrepresentation, R&D spending, and income-stream uncertainty INTRODUCTIONHow do managers evaluate their own firm's performance? Some theoretical paradigms, such as the behavioral theory of the firm (or BTOF;Cyert and March [1963] 1992) tackle this question explicitly. Other approaches largely ignore how managers assess success, implicitly assuming they use either accounting or capital market performance measures. Yet, paradigms that attempt to explain strategic behavior must make some assumptions about how managers evaluate firm performance; even profit-maximizing models implicitly assume firms know their profits and understand how it compares to optimal profits. The BTOF argues that managers compare expected firm performance to aspiration levels that depend on prior aspirations, prior performance, and the performance of comparable firms. A large literature demonstrates that performance relative to aspirations (or "attainment discrepancy") influences risk taking (Bromiley, 1991;Fiegenbaum, 1990;March and Shapira, 1987;Miller and Chen, 2004;Miller and Leiblein, 1996;Singh, 1986). Attainment discrepancy also influences research and development (R&D) spending (Antonelli, 1989;Bromiley and Washburn, 2011;Chen and Miller, 2007;Palmer and Wiseman, 1999), capital structure (Miller and Bromiley, 1990), actual and intended firm growth (Greve, 2008;Wicklund and Shepherd, 2003), large-scale organizational change (Greve, 1998) (Iyer and Miller, 2008), and organizational misconduct (Harris and Bromiley, 2007).Despite abundant research using attainment discrepancy to explain firm behavior, differences in measuring aspirations demonstrate an insufficient level of theoretical and empirical understanding of organizational aspirations leading to two major problems. First, aspirations studies adopt one of several functional forms for aspirations without discussing the theoretical assumptions or methodological merits of the alternative forms. Second, most studies examining organizational aspirations measure performance using one measure without considering other performance measures. To address these problems, we compare functional forms for aspirations measures defined using a number of different performance measures.The issue we address, comparing a set of measures, differs from the standard measurement issue of validating or assessing the reliability of a single measure. The many extant studies employing one of these three measures collectively demonstrate nomological validity but do not resolve the problem of having several competing measures for the same construct, especially when each measure embodies a slightly different theoretical nuance about...

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“…They are the weighted average model that comprises both measures of aspirations with predefined weights or endogenously determined ones, the switching model that assumes that the focus of the managers' attention switches between these two measures, and the separate model that considers both measures independently. Applying these models to R&D spending, Bromiley and Harris (2014) find support for the separate model with regard to aspirations. The present study investigates the impact on R&D activities of both self and social aspirations.…”

“…The firms then adapt the aspirations to performance. Bromiley and Harris (2014) identify three main empirical models concerning aspirations that relate to the performance of the firm (selfaspiration) and to the performance of other firms (social aspirations). They are the weighted average model that comprises both measures of aspirations with predefined weights or endogenously determined ones, the switching model that assumes that the focus of the managers' attention switches between these two measures, and the separate model that considers both measures independently.…”