The behavioral theory of the (community‐oriented) firm: The differing response of community‐oriented firms to performance relative to aspirations

Abstract

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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