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0010.1177/23409444231164427Business Research QuarterlyDasGupta and Mishra
research-article2023

Regular Paper
Business Research Quarterly

Performance feedback and firms search 1­–23

© The Author(s) 2023
Article reuse guidelines:
behaviors: Role of corporate governance sagepub.com/journals-permissions
https://doi.org/10.1177/23409444231164427
DOI: 10.1177/23409444231164427

in companies around the world journals.sagepub.com/home/brq

Ranjan DasGupta1 and Sibanjan Mishra2

Abstract
Research on firm’s motivation to undertake search behaviors in situations of positive and negative performance feedback
is limited in empirical literature. In addition, the role of institutionalized corporate governance mechanisms in mediating
firm’s aspiration-driven search behaviors is yet to be explored. Therefore, this study aims at examining whether firms
around the world facing positive and negative performance feedback undertake different search behaviors. Furthermore,
we test whether firm’s corporate governance mechanisms strengthen such search behaviors. This study reports that
negative performance feedback positively influences firm problem-driven search behaviors, whereas positive performance
feedback positively impacts its innovative search behaviors. Furthermore, we find a significant negative moderating
influence of board strength, while a mixed positive influence of board effectiveness on firm performance feedback to carry
out distinctive search behaviors. Therefore, we think that these findings would help the regulators and policy makers to
strengthen their existing corporate governance mechanisms and regulations.
JEL CLASSIFICATION:[AQ: 2]

Keywords
Corporate governance, performance feedback, search behaviors, board strength, board effectiveness

Introduction external conditions propels its innovative and problem-

There are inconclusive theoretical underpinnings about the
search behaviors of firms facing differential performance
feedback situations. On one hand, behavioral theory (BT)
(Cyert & March, 1963) prescribes below-average firms’
problem-driven (i.e., problemistic) search behaviors1 for
alternative solutions. On the other hand, the Ansoffian
view (Ansoff, 1979) opines that a necessary strategic thrust
(henceforth ST) for a firm is primarily due to aspiration
attainment discrepancy, that is, dependent on positive per-
formance feedback. Thereby, Ansoff (1979) argued for
exploratory or innovative search behaviors.2 Therefore, a
better understanding of the drivers and domain of search
behaviors and the types of strategies firms might select
under differential performance feedback situations, may
be conditioned on their goal difficulty and aspiration
attainment discrepancy. We draw our primary motivation
from the premise that how a firm’s differential perfor-
mance feedback driven by its internal capabilities and
driven search behaviors.
BT predicts that firms with negative performance feed-
back3 would trigger problem-driven search behaviors and,
therefore, organizational change. This conjecture is sup-
ported in studies such as research and development con-
sortia of high-tech firms (Bolton, 1993), innovations and
investment in shipbuilding (Greve, 2003a), and R&D
expenses of manufacturing firms (Chen, 2008; Chen &
Miller, 2007). On the contrary, Audia and Greve (2006)
showed that negative performance feedback lowers search
behaviors in small firms, and it either has no significant
1
Indian Institute of Management Raipur, Raipur, India
2
XIM University, Harirajpur, India
Corresponding author:
Ranjan DasGupta, Indian Institute of Management Raipur, Kurru
(Abhanpur), Atal Nagar, Raipur 493 661, Chhattisgarh, India.
Emails: dasguptaranjan75@gmail.com; rdasgupta@iimraipur.ac.in

[AQ: 1] Creative Commons Non Commercial CC BY-NC: This article is distributed under the terms of the Creative Commons
Attribution-NonCommercial 4.0 License (https://creativecommons.org/licenses/by-nc/4.0/) which permits non-commercial use,
reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and
Open Access page (https://uk.sagepub.com/aboutus/openaccess.htm).
2 Business Research Quarterly 
effect or increases search, that is, risk-taking behaviors in
large firms. Vissa et al. (2010) found that organizational
form (business-group affiliated firms vs. unaffiliated
firms) influences responsiveness to performance feedback
contingent on the type of search domain (market or R&D).
All these empirical studies suggest that richer theoretical
insights into the linkage between performance feedback
and a firm’s decision outcomes lie in investigating the
moderating/mediating factors affecting this relationship.
In addition, the inconsistent empirical results (see
Audia & Greve, 2006; Chen, 2008; Gaba & Joseph, 2013;
Iyer & Miller, 2008; and so on) of firm’s performance
feedback and search behaviors have also prompted us to
investigate whether institutionalized corporate governance
(CG) mechanisms in firms around the world with cross-
economic, cross-regulatory, and cross-cultural heteroge-
neities strengthen such relationships, and, therefore
mitigate the empirical contradictions. As reported, nega-
tive performance feedback would increase the participa-
tion of firm boards in the power to influence a firm’s
decision-making (Tuggle et al., 2010). Boards typically
influence firms through each of these three primary mech-
anisms—by monitoring management with the interests of
owners or other external stakeholders in mind, by securing
resources for the firms, and by providing advice to man-
agement (Krause et al., 2013). Empirical literature (Kumar
& Sivaramakrishnan, 2008; Pathan, 2009; and so on) also
argues that the effectiveness of the firm board, that is,
monitoring firm managers and limiting their opportunistic
behaviors, and the strength of the firm board, that is, pro-
viding resources and advice due to diversity, depend on its
constructs. As there is a limited theoretical argument as to
the most important CG mechanisms in our context, we
make a conscious selection of firm-board variables here
based on those emphasized most in the empirical literature
(see Dasgupta, 2021; Kumar & Sivaramakrishnan, 2008;
Pathan, 2009; and so on) as a proxy of “board strength”
(representing board composition or diversity [i.e., struc-
ture]) and “board effectiveness” (representing board func-
tioning [i.e., process]), namely independent directors and
women directors, and board size and number of meetings,
respectively. We measure board strength and board effec-
tiveness by more independent directors and greater pres-
ence of women directors, a large board size, and a higher
frequency of board meetings. This is because a higher
number of independent and women directors on a firm
board would make the firm’s decision-making more pru-
dent and less subjective due to divergent views, and there-
fore, such strategic behaviors would be very strong. On the
contrary, a large board comprised of members from differ-
ent fields and with different views and a high frequency of
meetings would improve the quality of managerial deci-
sion-making by stricter monitoring, resource capabilities,
and better managing of business complexities.
Therefore, overall, we draw our secondary motivation
from the fact that there is still a need for research
examining whether problem-driven or innovative search
behaviors are affected by a firm’s negative or positive per-
formance feedback, which might be caused by the underly-
ing fragile CG practices in such firms. Accordingly, it is
compelling to investigate here how institutionalized CG
mechanisms can moderate a firm’s search behaviors under
positive and negative performance feedback situations.
Furthermore, prior methodological studies on aspira-
tion had used direct internal measures of firm aspiration.
For instance, Lant (1992) and Mezias et al. (2002) both
estimate models with actual aspiration measures but did
not compare multiple aspiration formulations. Besides,
their results might not generalize to corporate-level data,
as Lant (1992) uses data from experiments using business
school students, and Mezias et al. (2002) use budget tar-
gets of the branch banks. In separate works, Washburn and
Bromiley (2012) study the auto manufacturer to compare
alternative aspiration models, but the implications of their
results for aggregate studies are unclear. While these arti-
cles make significant contributions, a perceptible compari-
son of different aspiration measures has long been overdue.
Therefore, we have also attempted here to fill this gap by
examining the impact of the firm’s historical aspiration
(HA), social aspiration (SA), and weighted aspiration
(WA)-based performance feedback on its search behaviors
in both positive and negative performance feedback situa-
tions in a multicountry context.
Overall, in general, we contribute to the existing literature
on finance and strategy in three ways. First, this study reports
that negative performance feedback positively influences
firm problem-driven search behaviors, whereas positive per-
formance feedback positively impacts innovative search
behaviors. We, therefore, augment the BT (Cyert & March,
1963) and didn’t substantiate the Ansoffian (Ansoff, 1979)
view of negative performance feedback firms. However,
Ansoffian’s (Ansoff, 1979) ST viewpoint is exclusively evi-
dent for positive performance feedback firms in undertaking
innovative search behaviors. So, our initial conjecture of dif-
ferential performance feedback situations impacting a firm’s
search behaviors differently is henceforth proved. Second,
we find a strong negative moderating influence of a firm
board with board strength and a mixed positive influence of
a firm board with board effectiveness on a firm’s perfor-
mance feedback to undertake search behaviors. More spe-
cifically, an effective firm board not only strengthens the
firm’s problem-driven search behaviors but also shows a
mixed impact on innovative search behaviors under our aspi-
ration measures. In addition, we also find that higher inde-
pendent directors’ presence on a firm board negatively
moderates the firm’s performance feedback to undertake
search behaviors. Similarly, we report that board size nega-
tively impacts a firm’s performance feedback to undertake
their problem-driven search behaviors. On the contrary,
higher women directors’ presence has a significant positive
influence on such firm actions. The results of the meeting
frequency also show a significant favorable influence on
DasGupta and Mishra
firm performance feedback to undertake its problem-driven
and innovative search behaviors. Therefore, we substantiate
that each of these CG mechanisms has its unique moderation
impact on a firm’s performance feedback to undertake differ-
ent search behaviors distinctively. Third, to mitigate the con-
flicts arising from different aspiration measures driven by
performance feedback, we classify our firms into two divi-
sions, that is, positive and negative performance feedback
firms. Subsequently, we prove that negative performance
feedback positively influences below-average firm problem-
driven search behaviors, whereas positive performance feed-
back positively impacts innovative search behaviors.
The remaining portion of this article is organized as fol-
lows: “Theory and hypotheses” talks about the relevant lit-
erature and developed hypotheses; “Data, variable
construction, and methodology” presents data and method-
ology; “Results and discussions” presents the results and
discussions; and “Conclusion” concludes our article with
the relevant implications, followed by references and tables.
Theory and hypotheses
Theoretical overview
Firms undertake search behaviors when their performance
falls below their historical performance levels (i.e., HA)
and the performance of other referent firms such as indus-
try peers (Cyert & March, 1963, 1992; DasGupta, 2022;
March & Simon, 1993) (i.e., SA). Several authors have also
used a weighted average of self- and social-referent meas-
ures to give one aggregate measure (Greve, 2003a; Mezias
et al., 2002; Shinkle, 2012) (i.e., WA). Given BT’s focus on
the search choices made by the firm’s decision-makers and
agency theory’s focus on monitoring the role of the firm
board (e.g., Fama, 1980; Kumar & Sivaramakrishnan,
2008; Pathan, 2009; and so on), we further contend that the
institutionalized CG mechanisms would be critical mediat-
ing factors to strengthen or weaken firms’ performance
feedback-search behavior associations. We substantiate our
CG mediation arguments further from the empirical angle
of the “monitoring hypothesis” (see Brick & Chidambaran,
2008; Fama, 1980; Pathan, 2009) whereby we presume that
“board strength” and “board effectiveness” comprising of a
higher number of independent directors and women direc-
tors, and, large board size and higher number of meetings,
respectively, would strengthen firms’ performance feed-
back-search behavior associations.
Firm’s performance feedback and search
behaviors
The BT (Cyert & March, 1963) of the firm suggests that in
situations when performance declines far below the aspira-
tion level, that is, negative performance feedback condi-
tions, the firm’s managers initiate search behaviors for
solutions, referred to as “problem-driven” search
3
behaviors. The intent is to reverse the decline and improve
future firm performance (Greve, 1998, 2003a). Thereby,
greater search behaviors would only occur when due to
lower performance firms attain negative performance
feedback, and such behaviors would diminish as perfor-
mance improves and thereby firm reaches the positive per-
formance feedback zone (Greve, 1998). Therefore, we
expect a firm to undertake higher “problem-driven” search
behaviors under a negative performance feedback condi-
tion. This guides us to the following hypothesis:
Hypothesis 1. There is a negative relationship between
firm’s performance feedback and its problem-driven
search behaviors.
We further argue that there is an agency problem in mana-
gerial decisions concerning R&D intensity in response to
the firm’s performance feedback. The basis of our argu-
ment is grounded on the agency theory perspective that
managers are risk-averse and self-interest-seeking
(Amihud & Lev, 1981). The fact is that an increase in
R&D intensity does not have an immediate positive impact
on a firm’s performance given that returns to R&D invest-
ments tend to be distant and uncertain (Scherer & Ross,
1990). Rather, it can make firm performance vulnerable
because of the increase in operating expenses of the firm.
Accordingly, to strengthen short-term firm performance,
managers are most likely to search for opportunities to
reduce such expenses that do not have an immediate nega-
tive impact on revenues. There is also evidence that firms
use reductions in R&D expenses to boost earnings after a
leveraged buyout (Long & Ravenscraft, 1993). Therefore,
we argue that managers might also use reductions in R&D
expenses to increase the chances of improving positive
performance feedback for their firms through improved
performance especially when they are having average to
below performance. Therefore, we expect a firm to under-
take higher “innovative” search behaviors under a positive
performance feedback condition. This leads us to the fol-
lowing hypothesis:
Hypothesis 2. There is a positive relationship between
firm’s performance feedback and its innovative search
behaviors.
CG, firm’s performance feedback, and search
behaviors
In addition to theoretical propositions (see Section 2.1),
the inconsistent empirical results (see Audia & Greve,
2006; Chen, 2008; Gaba & Joseph, 2013; Iyer & Miller,
2008; and so on) of firm’s performance feedback and
search behaviors have prompted us to investigate whether
the institutionalized CG mechanisms in international firms
with cross-economic, cross-regulatory, and cross-cultural
4 Business Research Quarterly 
heterogeneities mediate firm’s performance feedback-
search behavior relationships and thereby solving the
empirical contradictions. We expect that the negative per-
formance feedback condition would increase the firm-
board involvement in the power to influence the firm’s
decision-making (Tuggle et al., 2010). Boards typically
influence a firm’s search decisions through each of these
three primary mechanisms—by monitoring management
with the interests of owners or other external stakeholders
in mind, by securing resources for the firms, and by pro-
viding advice to management (Krause et al., 2013).
The agency costs inherent in the separation of owner-
ship and control would be reduced by monitoring of the
board of directors, and, thereby, might improve firm per-
formance and accordingly firms would move to positive
performance feedback situations (Fama, 1980; Zahra &
Pearce, 1989). In addition, the resources’ functioning of
the board encompasses providing expertise and advice
(Baysinger & Hoskisson, 1990), administering advice and
counsel (Lorsch & Maclver, 1989), and aiding in the for-
mulation of strategy and other important firm decisions
such as search behaviors (Judge & Zeithaml, 1992).
Therefore, all these board mechanisms are extremely
important in strengthening interrelationships between firm
performance, performance feedback, and search behav-
iors. In this context, Haxhi and Van Ees (2010) also argue
that, in reality, firm boards might be less concerned with
solving conflicts of interest, rather, more concerned with
solving problems of performance variability (causing neg-
ative performance feedback), coordination, and managing
the complexity and uncertainty associated with strategic
decision-making such as “innovative” search behaviors
(Rindova, 1999; Roberts et al., 2005).
Empirical literature (Kumar & Sivaramakrishnan, 2008;
Pathan, 2009; and so on) also argues that a firm’s board
effectiveness, that is, monitoring the firm’s managers and
limiting their opportunistic behaviors, and board strength,
that is, providing resources and advice due to diversity,
depend upon its constructs. Our proxies of board strength
and board effectiveness are more independent directors and
higher women directors’ presence, and, large board size
and higher frequency of board meetings. This is because a
higher number of independent and women directors on a
firm board would make the firm’s decision-making more
prudent and less subjective due to divergent views and
thereby such strategic behaviors would be very strong. On
the contrary, a large board comprised of members from dif-
ferent fields and with different views and a high frequency
of meetings would enhance the quality of managerial deci-
sion-making through stricter monitoring, resource capabili-
ties, and managing business complexities better.
Board strength (board diversity) in a firm is extremely
important for it to be effective. Such diversity would also be
resulting in better firm performance, quality of earnings, and/
or lower risk-taking propensity by managers (see Fama &
Jensen, 1983; Kumar & Sivaramakrishnan, 2008). All these
could mediate performance feedback. We argued in line with
the reputation hypothesis, independent directors would sup-
port investments in less risky projects which help firms in
avoiding losses and thereby protect their image (Pathan,
2009). This also might create performance feedback situa-
tions in comparison with social peers. In addition, such firms
would maintain at least the status quo in terms of their per-
formance and would also maintain positive performance
feedback, due to strict monitoring of managerial activities.
Based on the monitoring hypothesis, we can also argue that
the presence of a higher percentage of independent directors
on firm boards is expected to reduce their risk-propensity
regarding “innovative” search behaviors. Empirical evidence
supports the above argument by suggesting a negative rela-
tionship between the presence of independent directors on
firm boards and their such search behaviors (see Brick &
Chidambaran, 2008; Pathan, 2009). This argument is
grounded on the assumption that the cost of information
becomes higher for nonexecutive directors (Boone et al.,
2007) as only limited information is available to the firm’s
managers; thereby, the information asymmetry increases.
On the contrary, Adams and Ferreira (2009) observe that
women directors’ presence influences monitoring policy.
Empirical literature (see Jianakoplos & Bernasek, 1998)
also shows that in terms of search preferences men are
more likely to take higher risks than their women counter-
parts. Accordingly, most studies (Adams & Ferreira, 2009;
and so on) argue women on boards are tempted to exercise
excessive monitoring in profitable firms following riskier
decisions that in turn might decrease shareholder value. A
large body of empirical evidence is also found on whether
the presence of women on firm boards increases the pro-
pensity to search or favors risk taking (see Faccio et al.,
2016; and so on). Most of these studies present a decline in
search behaviors in women-dominated firms across coun-
tries which also implies performance feedback for them.
On the contrary, many empirical studies (see Hutchinson
et al., 2015; and so on) document the positive influence of
women directors on firm performance across countries and
industries. Higher present performance would automati-
cally drive positive performance feedback for the present.
However, in such cases, in women-led firms thereafter
mostly search behaviors (mostly “innovative”) would be
decreased. This leads us to the following hypothesis:
Hypothesis 3: Board strength would mediate firm’s
performance feedback and search behavior relation-
ships. It further implies that higher strength of the
firm board would strengthen problem-driven search
behaviors for negative performance feedback firms
and innovative search behaviors for positive perfor-
mance feedback firms.
We argue that board effectiveness in monitoring and advis-
ing firm managers determines its strength, and such a firm
DasGupta and Mishra
board is representing the firm’s shareholder’s interest more.
Following De Andres and Vallelado (2008) and Erkens et al.
(2012) among others, we also argue that “board effective-
ness” symbolizes large board size and a higher frequency of
board meetings. Our argument here that the number of
directors serving a firm board is relevant to the outcome of
the board’s decisions of search behaviors is in line with the
assumptions of the agency theory (Jensen & Meckling,
1976). In addition, board size and its negative relation to
firm performance due to nimbleness, cohesiveness, less
communication, and coordination costs as well as less “free-
riding” director problems with smaller boards (Jensen,
1993) are the most common findings in the literature
(Yermack, 1996; and Hermalin & Weisbach, 2003).
However, Yermack (1996) observes that small boards would
be more likely to ratify riskier R&D-intensive investment
projects that can ultimately increase the overall firm risk and
might cause volatile operating performance. Thereby due to
performance volatility, negative performance feedback situ-
ations cannot be ruled out for firms with small boards.
Accordingly, it would intent and carry out problem-driven
search behaviors which imply that small board size does
have a positive influence on such behaviors. On the con-
trary, several studies observed that we need larger boards in
large firms to reflect the complexities of their business mod-
els (see Coles et al., 2008), to monitor CEO functioning bet-
ter (Forbes & Milliken, 1999), and to increase the pool of
resources and expertise available (Van den Berghe &
Levrau, 2004; see also impact of resource dependency the-
ory [see Pfeffer, 1972] on CG [Nicholson & Kiel, 2007]).
Coles et al. (2008) find that firm performance increases with
board size for complex firms. Cheng (2008) also shows that
US firms with larger boards are associated with higher per-
formance and lower performance volatility. Jackling and
Johl (2009) find that board size impacts firm performance
positively for Indian firms. Large board size negatively
impacts a firm’s search behaviors due to the diversification
of opinions effect (Sah & Stiglitz, 1986, 1991). Similarly, it
would impact the performance feedback of the firm through
improved performance.
We also argue that effective monitoring and intensity of
board activities (in line with resource dependency theory
[Pfeffer, 1972]) can be possible with a higher frequency of
board meetings which might be an important way to
improve “board effectiveness” (Adam & Ferreira, 2009).
This also takes into account the internal functioning of the
board (De Andres & Vallelado, 2008) and how boards
operate. As frequent meetings provide board members
with the chance to meet and discuss and exchange ideas
regularly on how they wish to monitor managers and firm
strategies such as search behaviors, we expect that the
more frequent the meetings are, the closer the optimum
control over managers is.
Ntim and Osei (2011) suggest that more frequent board
meetings tend to generate higher financial performance
5
which would cause positive performance feedback. It fur-
ther strengthens when previous stock performance is con-
sidered, suggesting that operating performance rises in the
subsequent periods with a high number of meetings
(Francis et al., 2012). On the contrary, the literature also
suggests that boards with frequent meetings possess less
market value (Vafeas, 1999, p. 140) and negative entrepre-
neurial activities in firm Johl (2006). Jensen (1993) ques-
tions the activeness of boards in such cases and reports
poor performance leading to problem-driven search behav-
iors. Bhagat et al. (2015) emphasize the number of risk
committee meetings as the driver of market performance
which implies strong risk governance or balanced risk tak-
ing by firms. Thus, we argue that a high frequency of board
meetings would also influence the performance feedback
situations of the firm positively by improving the stability
of the base operating performance. This leads us to the fol-
lowing hypothesis:
Hypothesis 4: Board effectiveness would mediate
firm’s performance feedback and search behavior
relationships. It further implies that board effective-
ness would strengthen problem-driven search behav-
iors for negative performance feedback firms and
innovative search behaviors for positive performance
feedback firms.
Data, variable construction, and
methodology
Data and sample
The empirical setting for our study starts with a large set of
firm-level panel data for eight countries comprising of
both developed (the United States, Australia, Korea, and
Japan) and developing (China, India, Brazil, and South
Africa) countries during the period 2008 to 2017 (details
given in Table 1). To prepare the sample data, we filter the
data for the nonfinancial firms from each country’s firm-
level dataset. This resulted in 1,914 firms out of 2,142
firms in the final sample for the analysis. These 1,914
firms include 1,083 companies from four developed coun-
tries and remaining 831 firms from four Brazil, Russia,
India, China, and South Africa (BRICS) countries repre-
senting the emerging countries here. We exclude the fifth
BRICS country, that is, Russia for data unavailability. So,
finally, we investigate 1,914 firms comprising of 19,140
firm years for all studied variables. We have used the
Bloomberg database for sourcing the dataset.
Variable construction
We present a detailed layout of the variable construction in
this section. Our sample primarily comprises of three sets of
variables along with set of control variables. The first set of
6 Business Research Quarterly 

Table 1. Data description of sample.

Country Economic Benchmark Number of Legal Investor National culture

status Index firmsa systemb protection rightsb scorec
Australia Developed ASX 325 Common Strong rights 87
law
Japan Developed Nikkei 225 222 Civil law Strong rights 146
Korea Developed Kospi 45 Civil law Poor rights 145
USA Developed S&P 500 491 Common Strong rights 86
law
Brazil Emerging BOVESPA 56 Civil law Poor rights 145
China Emerging Shanghai Comp. 560 Civil law Poor rights 110
India Emerging NSE 100 96 Common Poor rights 117
law
South Africa Emerging JALSH 119 Common Strong rights 98
law

Note: This table presents the demographic data of sample countries.

a
Total number of sample firms is 1,914, out of which 1,083 from developed countries and remaining 831 from emerging countries.
b
Legal system and investor protection rights (calculated based on six parameters’ scores) information is collected from La Porta et al. (1997, 2008).
c
National culture score is the sum total of power distance and uncertainty avoidance scores as taken from Hofstede (2001) and La Porta et al.
(1997, 2008).

variables pertains to problem-driven search behavior con-
texts4 (i.e., the return on assets standard deviation [ROASD])
and innovative search behavior (i.e., the research and devel-
opment intensity [R&D intensity]). ROASD is calculated
by rolling standard deviation of the preceding 3 years’ return
on assets (ROA) in each calendar year. For robustness pur-
pose, following Bhagat and Bolton (2008), we calculate
ROA as operating income before depreciation divided by
total assets and then calculate its SD.5 Consistent with prior
studies (e.g., Chen & Miller, 2007; Gentry & Shen, 2013;
Gupta, 2017), we have measured R&D intensity as the per-
centage of firm’s R&D expenses over sales during each cal-
endar year. This represents the innovative risk behavior
here. We also conduct the analysis using only firm observa-
tions that reported R&D expenses.
The second set of variables refers to firm’s performance
feedback in regard to firm’s historical aspiration perfor-
mance feedback (HAPF), social aspiration performance
feedback (SAPF), and weighted aspiration performance
feedback (WAPF). We measure HA as firm’s ROA during
the prior year and SA as the cross-sectional median ROA
of all other firms within the same industry during that year.
Performance feedback is the difference between firm’s
ROA and HA, and the difference between firm’s ROA and
SA, respectively. We follow Cyert and March (1963) and
Greve (2003a) to compute WAPF as a blend of the firm’s
historical and SA levels.
The third set relates to the CG variables, that is, board
strength and board effectiveness. We measure board
strength by combining higher percentage of independent
directors and women directors scaled by board size (i.e.,
number of directors). On the contrary, our board effective-
ness represents large board size and high frequency of
board meetings. We also report the mediation impact of
each of these individual mechanisms to substantiate our
main findings in firm’s performance feedback–search
behavior relationships.
Finally, we use a set of control variables6 (lagged ROA,
growth opportunity, size, leverage, and liquidity) and set of
dummy variables pertaining to country heterogeneity (i.e.,
developed and emerging market, national culture, investor
protection rights, and legal system [see Table 1 for details]).
The extant literature (see Coles et al., 2008; Fisher & Hall,
1969; John et al., 2008; H. Li et al., 2013; and so on) sup-
ports inclusion of the control variables bears impact of indi-
vidual firm’s heterogeneities on its search behaviors and
performance feedback. For instance, the growth opportuni-
ties available before the firms can drive them in search
behaviors especially in innovative contexts.
The institutional, cultural, and economic environments
of a country have also been shown (see La Porta et al.,
1998, 2008; H. Li et al., 2013; and so on) to affect firm’s
search behaviors. Therefore, here we include dummy vari-
ables based on their legal system (civil vs. common law)
and economic status (developed vs. emerging) and also
control for the investor protection rights and national cul-
ture prevailing in individual countries. We create develop-
ment dummy (EMDEVDUM t ) that takes a value of zero,
when country belongs to the group of developed nations
and one otherwise. The country’s legal system dummy
(LEGSYSDUM t ) takes value zero when a firm-year obser-
vation belongs to civil law practicing country and one oth-
erwise. The dummy for strong rights (based on six
parameters)7 (IPRDUM t ) takes value one and zero other-
wise for poor rights countries. For national culture dummy
(NACULDUM t ), we assign zero for risk-seeking coun-
tries8 where firms would go for more search behaviors, and
one otherwise for risk-averse culture.
DasGupta and Mishra
Model development and methodology
Based on our first hypothesis relating to firm’s HAPF and
its problem-driven search behaviors, we test the following
equation:
ROASDt = α t + HAPFt + ROAt −1 + Growth Oppt
+ Sizet + Leveraget + Liquidityt
(1)
+ EMDEVDUM t + NACULDUM t
+ IPRDUM t + LEGSYSDUM t
To test the second hypothesis relating to HAPF and its
innovative search behaviors, we test the following
equation:
R & D Inst = α t + HAPFt + ROAt −1 + Growth Oppt
+ Sizet + Leveraget + Liquidityt
(2)
+ EMDEVDUM t + NACULDUM t
+ IPRDUM t + LEGSYSDUM t
Also, we conduct above analyses for firm’s SAPF and
its WAPF. Then, suspecting that firm’s performance feed-
back could be endogenous and influenced by the CG vari-
ables, we model and test the following equation for our
third and fourth hypothesis:
HAPFt = α t + ROAt −1 + BRDEff t + BRDStrgt
+ GrowthOppt + Sizet + Leveraget
+ Liquidityt + EMDEVDUM t (3)
+ NACULDUM t + IPRDUM t
+ LEGSYSDUM t
The above model is also studied using individual ele-
ments of board strength and board effectiveness as:
HAPFt = α t + ROAt −1 + BSIZEt + BMEETt + WDIRt
+ IDIRt + Growth Oppt + Sizet
+ Leveraget + Liquidityt + EMDEVDUM t (4)
+ NACULDUM t + IPRDUM t
+ LEGSYSDUM t
To present a very robust understanding on the issue, we
adopt a comparative approach among several methodolo-
gies for exploring the relationship between firm’s perfor-
mance feedback and search behaviors. Therefore, we
compare results derived from four specific methodolo-
gies, that is, Panel-OLS, Fixed effect (FE) model, dynamic
OLS, and Panel system Gaussian mixture model (GMM).
The advantages over each of them are presented in this
section. To start with, we use the Panel-OLS for a basic
general finding. However, while studying such relation-
ship for the diverse set of firms belonging to developed
and emerging economies, we focus on three types of
7
endogeneity issues, that is, unobserved heterogeneity,
simultaneity, and dynamic endogeneity.
First, it has been noticed in empirical literature that
unobserved heterogeneity results, in presence of omitted
variables, affects both the independent variables and the
dependent variable. In such a case, the use of FE estima-
tion is recognized to be a robust approach. However, in the
presence of dynamic endogeneity, such FE models result
in biased estimation. The rationale behind such biased esti-
mation is due to the fact that the current observations of the
regressand (such as firm’s performance feedback and
growth opportunities) are not independent of the previous
values of the dependent variable (i.e., variability of firm
performance or R&D intensity). Considering this dynamic
endogeneity, we use dynamic OLS. Second, we encounter
the issue of simultaneity which arises when the variables
under study are jointly determined, that is, in our case the
search behavior depends on firm’s performance feedback.
In such a case, a simultaneous equation model is expected
to correct the inconsistency. However, such model
demands for strict exogeneous variables which are again
extremely tough to identify in the corporate finance and
international firms setting. Third, the issue of dynamic
endogeneity, that is, dependence of the explanatory varia-
bles on the lagged values of the dependent variable in the
presence of unobservable effects needs to be addressed. To
the best of our knowledge, the dynamic endogeneity issue
is not addressed in empirical literature concerning to firm’s
performance feedback and search behaviors relationships.
Therefore, to address the dynamic and other types of
endogeneity issues, we use the dynamic panel GMM esti-
mation motivated from Arellano and Bond (1991). The
Arellano and Bond (1991) methodology converts the level
equation to a differenced equation with the predetermined
instrument values. The differenced equation suffers from
the measurement error issues because differencing the
variables reduces the variation in the data and hence
reduces the power of the tests. In addition, the independent
variables in their level form weak instruments for the dif-
ferenced equation. Therefore, we use a system GMM
(given by Arellano & Bover, 1995 and Blundell & Bond,
1998) which includes the level equation along with the dif-
ference equation. In such a case, the first difference
becomes the instrument variables in the level equation and
the system GMM is represented as follows:
 Yt  *  Yt − k  *  X t −1  *  Z t  Et
  =α +β  +γ   +δ   + (5)
 yt   yt − k   xt −1   zt  ε t
where Y is the regressand (the variability of ROA [i.e.,
ROASD] and R&D intensity) in their level form and y is
the first difference of the regressand. The first difference
and level explanatory variables in the equation are given
by x and X, respectively. Similarly, Z and z are the set of
control variables such as size, leverage, liquidity, growth
8 Business Research Quarterly 

Table 2. Descriptive statistics. income stream volatility (ROASD). This is since innova-
tive search behaviors undertaken by firms are mostly
Variables Mean SD Minimum Maximum
opportunistic and require both growth opportunities and
ROA σ 3.10 9.16 0.00 695.38 available slack resources. On the contrary, problem-driven
R&D intensity 23.33 77.17 0.00 310.81 search behaviors are situations-driven and necessary for
HAPF 4.58 19.02 –533.67 966.03 firms facing declining operating performance, that is,
SAPF 4.67 22.05 –570.02 283.95 mostly having negative performance feedback. Our aspira-
WAPF 4.65 20.83 –562.75 283.07 tion measures are similarly volatile which justifies inclu-
BSIZE 0.98 0.13 0.00 1.52 sion of all in this study. On the contrary, though board
BMEET 0.96 0.20 0.00 2.30 effectiveness is stable, but presence of board strength is
WDIR 11.89 11.12 0.00 83.31 extremely volatile (σ of 83.5%). The independent direc-
IDIR 55.26 25.41 0.00 100.00
tors’ presence is not stable which might imply that in many
Board effectiveness 0.81 0.38 0.00 2.40
of our sample firms, CG mechanisms are not strictly
Board strength 684.56 83.50 0.00 71.43
adhered to. This might cause the value-reducing innova-
Lagged ROA 4.87 11.38 –281.59 146.37
tive search behaviors especially in case of positive perfor-
Growth Opp. 218.14 185.42 0.00 436.79
Size 4.04 1.23 –3.52 8.38
mance feedback firms.
Leverage 25.55 19.67 0.00 980.72 The correlations (see Table 3) show that performance
Liquidity 3.16 1.26 –1.76 7.80 feedback measures have a significant negative association
with both firms’ problem-driven and innovative search
Notes: ROAσ (ROA SD) and R&D intensity are dependent variables behaviors. These are further mediated by board strength
and firm’s HAPF, SAPF, and WAPF, and all CG variables are and board effectiveness of firm boards. We find that board
independent variables, and others are control variables. SD: standard
deviation; ROA: return on assets.[AQ: 4] size in individual capacity impacts search behaviors nega-
tively. On the contrary, board meetings and independent
directors’ high percentage positively influence such behav-
opportunities, and four dummies for developed or emerg- iors. However, women directors’ high percentage in firm
ing country, investor protection rights, legal system, and boards provide us conflicting direction. On one hand, it
culture in our case. To account for dynamic specification, weakens problem-driven search behaviors, however, initi-
we use k order of lags for the dependent and independent ates innovative search behaviors in firms. Both board
variables. Also, to achieve asymptotic efficiency, we use strength and board effectiveness have a significant positive
two-step GMM instead of one-step. To check for the valid- association. Lagged ROA, lagged R&D intensity, and
ity of the GMM models, we report the first and second growth opportunity variables all are having a significant
order serial correlation under the null that there is no serial negative association with search behaviors. Our control
correlation. Furthermore, we report the Hansen statistics measures also show strong significant evidence to impact
for over-identification restrictions under the null that the our main variables. All these relationships imply that their
instruments used here are valid and robust. inclusion in our models would further substantiate our
main findings.

Results and discussions

Descriptive and correlation results
We report the descriptive statistics and correlations for the
19,140 observations in Tables 2 and 3. As the historical
and social (0.806***), historical and weighted (0.866***),
and social and weighted (0.994***) aspiration perfor-
mance feedback variables show high correlations, we esti-
mate separate models using historical, social, and WA
levels. Greve (2003b) suggested that managers might pre-
fer SA level when they believe that their firm is compara-
ble to others in an industry but prefer HA level when they
view their firm as being unique. By estimating separate
models for HAPF, SAPF, and WAPF, we also avoid includ-
ing redundant indicators that could distort parameter esti-
mates (Gordon, 1968).[AQ: 3]
Our descriptive results (see Table 2) show that R&D
intensity is more volatile across firms in comparison with
Preliminary multivariate results
Tables 4 and 5 present the results for our models corre-
sponding with Equations 1 and 2 about performance feed-
back of firms considering the full sample. Firm’s HAPF
and WAPF across our methods shows a positive impact on
firm’s innovative search behaviors. Accordingly, we con-
firm our Hypothesis 2. Furthermore, we find that the firm’s
SAPF has negative influence on firm’s problem-driven
search behaviors, accepting Hypothesis 1. However, we
report some conflicting results, that is, the firm’s SAPF has
significant negative impact on its innovative search
behaviors.
To study the performance feedback of developed and
emerging market firms sample separately, we report only
the generalized method of moments results of Equations 1
and 2 in Table 6 for problem-driven search behavior (i.e.,
ROASD) and Table 7 for innovative search behavior (i.e.,
 DasGupta and Mishra

Table 3. Correlations results.

Variables ROA σ R&D Int HAPF SAPF WAPF BSIZE BMEET WDIR IDIR BRDEff BRDStrg Lag ROA Lag R&D In Growth Opp. Size Lev. Liquidity
ROA σ 1
R&D Int .096 1
HAPF .099 –.134 1
SAPF –.198 –.232 .806 1
WAPF –.149 –.221 .866 .994 1
BSIZE –.144 –.032 .008 .028 .025 1
BMEET .017 .028 –.100 –.134 –.133 –.100 1
WDIR –.028 .035 .035 .044 .044 .066 –.140 1
IDIR .024 .003 .037 .022 .026 –.02 –.237 .426 1
BRDEff –.031 –.023 .007 .041 .036 .403 .810 –0.01 –.108 1
BRDStrg –.021 .007 .051 .065 .065 .084 –.151 .901 .660 .218 1
Lag ROA –.203 –.229 .806 .996 .991 .035 –.173 .063 .076 –.021 .073 1
Lag R&D In –.243 –.209 .456 –.506 .601 .115 –.126 –.023 .136 .131 –.113 .036 1
Growth Opp. –.030 –.002 –.017 –.026 –.026 .055 .071 –.075 –.013 .034 –.070 –.030 .413 1
Size –.183 –.060 .025 .076 .069 .440 .150 –.201 –.301 .285 –.133 .059 .866 .280 1
Leverage –.074 –.035 –.084 –.115 –.112 .086 .095 –.031 –.022 .079 –0.01 –.121 –.134 –.027 .046 1
Liquidity –.153 –.044 0.009 .049 .043 .418 .200 –.209 –.375 .302 –.187 .025 .996 .311 .877 –.006 1

ROA: return on assets; HAPF: historical aspiration performance feedback; SAPF: social aspiration performance feedback; WAPF: weighted aspiration performance feedback.
Notes: Bold numbers indicate significant correlation at the 0.05 significance level.
9
 10

Table 4. ROASD—firm’s performance feedback impact.

Variables ROA σ—HAPF ROA σ—SAPF ROA σ—WAPF

OLS FE DOLS GMM OLS FE DOLS GMM OLS FE DOLS GMM

Constant 10.302*** 10.122*** 10.116*** 11.177*** 11.057*** 11.704*** 11.039*** 10.560*** 11.700***
Lag ROA –0.665*** –0.667*** –0.294*** –0.519*** 0.088 –0.025 0.343*** 0.187 –3.100*** –3.319*** –0.840*** –2.959***
HAPF/SAPF/WAPF 0.375*** 0.377*** 0.115*** 0.276*** –0.112 –0.056 –0.236*** –0.150*** 1.579*** 1.695*** 0.379*** 1.488***
Growth opportunity 0.000 0.000 0.000 0.000 0.000 0.000 0.000*** 0.000 0.000*** 0.000*** 0.000 0.000
Size –1.720*** –1.691*** –1.824*** –1.745*** –2.259*** –2.226*** –0.235 –2.285*** –1.532*** –1.426*** –1.757*** –1.548***
Leverage –0.039*** –0.039*** –0.021*** –0.036*** –0.032*** –0.032*** –0.006 –0.037*** –0.037*** –0.037*** –0.020*** –0.039***
Liquidity 0.280*** 0.296*** 0.147 0.332*** 0.476*** 0.489*** –0.029 0.359*** 0.263*** 0.324*** 0.136 0.095
EMDEVDUM 0.074 0.066 –1.340*** –0.236 –0.637*** –0.54 3.231*** –0.785 2.301*** 2.474*** –1.112*** 2.148***
LEGSYSDUM 1.880*** 1.930*** 1.455*** 1.587*** 0.657*** 0.947 1.024*** 0.2 7.319*** 7.922*** 2.789*** 6.831***
IPRDUM –0.123 –0.135 –1.233*** –0.245*** 0.11 0.085 2.905*** 0.172 –0.405 –0.484 –1.611*** –0.425
NACULDUM 2.263*** 2.192*** 2.703*** 2.136*** 2.419*** 2.426*** 0.302 2.520*** 3.743*** 3.637*** 3.018*** 3.957***
Observations 19,140 19,140 19,140
R-Square 0.291 0.294 0.288 0.25 0.077 0.079 0.21 0.076 0.255 0.272 0.287 0.23
F-stat 726.049*** 387.111*** 147.369*** 79.897*** 606.50*** 347.21***
DW Stat 1.613 1.62 1.801 1.453 1.456 1.454 1.535 1.577 1.52
AR(1)/AR(2) p 0.02/0.70 0.01/0.89 0.03/0.81
Hansen-J-Stat(p) 0.26 0.3 0.28

ROA: return on assets; HAPF: historical aspiration performance feedback; SAPF: social aspiration performance feedback; WAPF: weighted aspiration performance feedback.[AQ: 5]
Notes: This table reports firm’s performance feedback impact on its problem-driven search behaviors (i.e., ROASD) (Equation 1).
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
For testing the validity of the two-step system GMM, we report the first and second order serial correlation statistics (H0: no serial correlation) and the Hansen J-statistics for overidentifying restrictions
(H0: all instruments are valid). The results confirm that there is no second order serial correlation among the error terms. The Hansen-J-statistics fails to reject the null hypothesis of over-identification
restrictions, hence confirming that the instruments are valid and are robust in nature.[AQ: 6]
Business Research Quarterly 
 DasGupta and Mishra

Table 5.[AQ: 7] R&D intensity—firm’s performance feedback impact.

Variables R&D intensity—HAPF R&D intensity—SAPF R&D intensity—WAPF

OLS FE DOLS GMM OLS FE DOLS GMM OLS FE DOLS GMM

Constant 88.005*** 86.980*** — 22.880*** 89.221*** 88.166*** — 24.126*** 89.180*** 87.994*** — 26.266***
Lag R&D intensity –1.886*** –1.907*** –0.224*** –0.522*** 4.62 0.125 4.701 1.948 –2.458 –3.038 –0.974 –1.112***
HAPF/SAPF/WAPF 0.353* 0.339 0.089 0.160*** –1.384*** –1.425*** –0.199 –0.308*** 0.572 0.859 0.461 0.433**
Growth opportunity 0.000 0.000 0.00 0.00 0.000 0.000 0.000*** 0.000*** 0.000 0.000 0.000 0.000
Size –47.48*** –47.98*** –14.11*** –10.77*** –48.02*** –48.50*** –12.58*** –8.31*** –47.74*** –48.09*** –11.42*** –10.79***
Leverage –0.012 –0.002 –0.085 –0.051*** –0.002 0.007 –0.140*** 8.842*** –0.005 0.003 –0.057 –0.048
Liquidity 33.628*** 34.803*** 11.179*** 8.406*** 33.736*** 34.906*** 10.447*** –0.005 33.663*** 34.839*** 11.354*** 8.440***
EMDEVDUM –6.184 –5.325 4.432 –4.187*** –6.696 –5.809 14.892*** 5.114*** –5.792 –4.435 12.321*** –3.697***
LEGSYSDUM 17.699*** 17.854*** 3.677 4.615*** 16.786*** 16.972*** 2.576 6.838*** 19.047*** 20.393*** 7.277*** 5.967***
IPRDUM 0.431 –0.606 7.861*** –1.092*** 0.737 –0.316 16.928*** 6.958*** 0.46 –0.759 13.212*** –1.269
NACULDUM 33.991*** 31.696*** 7.803*** 5.817*** 34.395*** 32.086*** 6.918*** 3.188*** 34.787*** 32.578*** 4.324 6.178
Observations 19,140 19,140 19,140
R-Square 0.064 0.066 0.074 0.046 0.064 0.065 0.08 0.034 0.064 0.065 0.07 0.045
F-stat 20.386*** 11.845*** 22.260*** 12.324*** 20.081*** 11.729***
DW Stat 1.165 1.167 1.998 1.166 1.168 2.005 1.165 1.167 2.003
AR(1)/AR(2) p 0.04/0.65 0.07/0.79 0.01/0.88
Hansen-J-Stat(p) 0.43 0.38 0.44

HAPF: historical aspiration performance feedback; SAPF: social aspiration performance feedback; WAPF: weighted aspiration performance feedback.
Notes: This table reports firm’s performance feedback impact on its innovative search behaviors (i.e., R&D intensity) (Equation 2).
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
For testing the validity of the two-step system GMM, we report the first and second order serial correlation statistics (H0: no serial correlation) and the Hansen J-statistics for overidentifying restrictions
(H0: all instruments are valid). The results confirm that there is no second order serial correlation among the error terms. The Hansen-J-statistics fails to reject the null hypothesis of over-identification
restrictions, hence confirming that the instruments are valid and are robust in nature.
11
12 Business Research Quarterly 

Table 6. ROASD—firm’s performance feedback impact.

Variables Emerging Developed

ROA σ—HAPF ROA σ—SAPF ROA σ—WAPF ROA σ—HAPF ROA σ—SAPF ROAσ—WAPF
Constant 6.738*** 6.897*** 6.241*** 5.682*** 7.225*** 3.258***
Lag ROA 0.103*** 0.060*** 0.396*** –0.806*** –0.199*** –4.013***
HAPF/SAPF/WAPF –0.036*** –0.021*** –0.183*** 0.443*** 0.026*** 2.037***
Growth opportunity 0.000 0.000 0.000 0.000 0.000 0.000
Size –1.147*** –1.13*** –1.132*** –2.083*** –3.023*** –1.769***
Leverage 0.006** 0.003 0.006** –0.042*** –0.035*** –0.037***
Liquidity –0.147 –0.15 –0.141 0.427 0.671*** 0.596***
LEGSYSDUM 1.493*** 1.590*** 0.957*** 0.858*** 18.336*** 27.814***
IPRDUM –0.241 –0.251 –0.43 0.427*** –3.479*** –7.604***
NACULDUM 0.058 0.111 –0.213 0.427*** 21.282*** 22.612***
R-Square 0.054 0.052 0.055 0.388 0.101 0.366
J-stat 0.58 0.55 0.62 0.32 0.37 0.41
DW Stat 2.022 2.022 2.023 1.950 1.979 1.989

ROA: return on assets; HAPF: historical aspiration performance feedback; SAPF: social aspiration performance feedback; WAPF: weighted aspiration
performance feedback.[AQ: 8]
Notes: This table reports the system GMM coefficients of firm’s performance feedback impact on its problem-driven search behaviors (i.e., ROASD)
(Equation 1).
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).[AQ: 9]

Table 7. R&D Intensity—firm’s performance feedback impact.

Variables Emerging Developed

ROA σ—HAPF ROA σ—SAPF ROA σ—WAPF ROA σ—HAPF ROA σ—SAPF ROA σ—WAPF
Constant 2.975*** 3.043*** 2.970*** 3.655*** 3.885*** 4.558***
Lag ROA 0.037*** 0.036*** 0.037*** –0.001 –0.001 –0.001
HAPF/SAPF/WAPF 0.003 0.019*** 0.001 0.583*** 1.247*** 0.780***
Growth opportunity 0.000 0.000 0.000 0.000 0.000 0.000
Size –0.326*** –0.307*** –0.329*** –78.354*** –76.395*** –74.345***
Leverage –0.021*** –0.024*** –0.021*** 0.281 0.221 0.213
Liquidity 0.127 0.128 0.129 50.486*** 49.805*** 49.075***
LEGSYSDUM 0.913*** 0.989*** 0.905*** 192.888*** 195.964*** 185.019***
IPRDUM –2.394*** –2.432*** –2.393*** –35.638 –38.061 –35.219
NACULDUM –1.128*** –1.098*** –1.131*** 248.891*** 246.501*** 234.323***
R-Square 0.069 0.072 0.069 0.017 0.017 0.018
J-stat 0.54 0.57 0.62 0.38 0.42 0.45
DW Stat 1.988 1.993 1.988 1.114 1.125 1.115

ROA: return on assets; HAPF: historical aspiration performance feedback; SAPF: social aspiration performance feedback; WAPF: weighted aspiration
performance feedback.
Notes: This table reports the system GMM coefficients of firm’s performance feedback impact on its innovative search behaviors (i.e., R&D intensity)
(Equation 2).
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).[AQ: 10]

R&D intensity), respectively. The results confirm that
while the firm’s HAPF and SAPF influences firm’s prob-
lem-driven search behavior negatively for emerging mar-
ket firms accepting our Hypothesis 1, it is positive for
developing markets firms. For WAPF and problem-driven
search behavior, the influence is negative for developed
market firms accepting Hypothesis 1 and positive for
emerging market firms. However, for the innovative search
behavior (i.e., R&D intensity), the firm’s HAPF, SAPF,
and WAPF has positive influence across both developed
and emerging market firms accepting our Hypothesis 2.
Thus, we find qualitatively similar results to problem-
driven and innovative search behavior and the firm’s HA,
SA, and WAs in line with our overall results.
To examine the reasons behind such conflicting results
under different aspiration measures driven performance
feedback, we further classify our firms into positive and
negative firms based on their performance feedback9 under
each of our aspiration measures. We report these results in
Table 8.
 DasGupta and Mishra

Table 8. Negative and positive performance feedback firms (search behaviors).

Variables Negative performance feedback firms Positive performance feedback firms

ROAs R&D intensity ROAs R&D intensity

HAPF SAPF WAPF HAPF SAPF WAPF HAPF SAPF WAPF HAPF SAPF WAPF
Constant 1.125 11.021 –12.897* 689.026* 566.191 648.264* –1.298 –13.733** 37.782*** –19.645 –1.917 2.881
Lag ROA/ R&D Int. 0.104*** –0.196 0.165** –4.788*** 3.787 –6.830* –0.583*** –0.444** –4.394*** –0.472*** 0.382** 0.002
HAPF/SAPF/WAPF –0.331*** –0.122 –0.306*** 2.180*** –2.63 2.844 0.607*** 0.369*** 2.483*** 0.036 –0.194** –0.003
Board strength 0.001** 0.001 0.00 –0.009 0.002 0.000 0.000 –0.002** –0.001** 0.005* 0.000 0.000
Board effectiveness 1.028*** 2.471*** 0.564** –18.041 –13.183 –15.822 –0.637*** –0.1 –0.811*** 2.409 0.214 0.062
Strength*Effectiveness –0.001*** –0.003** –0.001* 0.011 0.005 0.006 0.000 0.001** 0.000 –0.003 0.000 0.000
Growth opportunity 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Size 0.024 0.435 –0.111 –69.94*** –78.30*** –76.34*** –0.616*** –1.752*** –0.553*** –16.32*** –2.643*** –2.578***
Leverage –0.010** –0.015* –0.011** 0.226 0.294 0.289 –0.016*** 0.012* –0.012** –0.076* –0.029*** –0.029***
Liquidity –0.144 –0.666* –0.385** 51.537*** 55.615*** 54.763*** 0.370*** 0.779*** 0.806*** 10.690*** 2.803*** 2.858***
EMDEVDUM –0.259 –0.639 –0.341 –6.375 –16.391 –7.334 0.036 0.619 3.609*** –2.084 –3.257*** –2.921***
LEGSYSDUM 0.895*** 0.552 0.264 26.362 5.818 27.705 0.843*** 1.421** 9.544*** 3.141 –0.452 0.482*
IPRDUM –0.226 –0.444 0.197 –2.783 –2.337 –3.023 –0.052 1.077** 0.01 1.355 –0.194 –0.223
NACULDUM –0.639** –1.423* –0.282 60.921** 67.079** 70.904*** 0.397** 1.614*** 2.078*** 14.691*** 0.411 0.453
Observations 9,126 7,139 9,446 8,043
R-Square 0.314 0.138 0.278 0.021 0.021 0.021 0.791 0.155 0.618 0.023 0.098 0.097
DW Stat 1.334 1.138 1.314 1.027 1.058 1.059 1.566 1.363 1.335 1.021 1.072 1.072
AR(1)/AR(2) p 0.00/0.77 0.01/0.80 0.00/0.82 0.00/0.76 0.00/0.79 0.00/0.84 0.00/0.99 0.00/0.85 0.00/0.89 0.00/0.83 0.00/0.69 0.00/0.76
Hansen-J-Stat (p) 0.33 0.32 0.45 0.55 0.29 0.35 0.44 0.49 0.38 0.42 0.39 0.38

HAPF: historical aspiration performance feedback; SAPF: social aspiration performance feedback; WAPF: weighted aspiration performance feedback; ROA: return on assets.[AQ: 11]
Notes: This table reports firm’s performance feedback impact on its problem-driven and innovative search behaviors (i.e., ROASD and R&D intensity) (Equations 1 and 2) for negative and positive
performance feedback firms (i.e., firms which are below [negative] and above [positive] in regard to their HA, SA, and WA levels).
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
13
14
Intriguingly, we find that positive performance feed-
back firms are significantly positively impacted by their
performance feedback condition to undertake more prob-
lem-driven search behaviors. On the contrary, their posi-
tive performance feedback condition has a significant
negative impact on their innovative search activities.
Therefore, we reject both Hypotheses 1 and 2 for these
firms. On the contrary, in case of negative performance
feedback firms, their performance feedback condition has
a significant negative association with their problem-
driven search activities. This implies that firms in this clus-
ter which are at the bottom, that is, having an extremely
negative performance feedback condition would under-
take higher problem-driven search behaviors and vice
versa. Our results also corroborate that firms with negative
performance feedback are having a significant positive
influence in undertaking innovative risk behaviors. We,
therefore, accept both Hypotheses 1 and 2 only for nega-
tive performance feedback firms.
In all our models across methods, we find that previous
year’s (lagged) firm performance had a negative influence
on firm’s search behaviors. However, in case of firms with
negative performance feedback condition, such perfor-
mance has a significant positive influence on their prob-
lem-driven search activities. Growth opportunity has a
significant positive impact on firm’s search behaviors.
However, in case of negative performance feedback firms,
we didn’t incorporate this control variable as they are
fighting for survival and not pursuing growth. Large-size
firms are also less interested in search behaviors. In addi-
tion, leverage has a negative impact on firm’s search activ-
ity across our results. On the contrary, liquidity is positively
influencing firm’s search behaviors authenticating slack
search theory. However, in case of firms with negative per-
formance feedback, liquidity is a concern in case of prob-
lem-driven search behaviors.
In all our results, the national culture and legal systems of
respective countries are strongly influencing firm’s search
behaviors. Only in case of negative performance feedback
firms, these are negatively influencing their problem-driven
search activities which imply that it might be due to inbuilt
strong legal systems and risk-averse national culture that
these firms could not undertake such actions frequently.
Table 8 also reports the influence of firm-board strength
on firm’s search behaviors for negative and positive per-
formance feedback firms. We find that board strength sig-
nificant positively impacts firm’s problem-driven search
behaviors for negative performance feedback firms. On
the contrary, for positive performance feedback firms it
has a significant negative influence, however, for these
firms, it further strengthens innovative search behaviors.
Therefore, we accept Hypothesis 3 for both positive and
negative performance feedback firms. In addition, we find
that board effectiveness significant positively impacts
firm’s problem-driven search behaviors for negative
Business Research Quarterly 
performance feedback firms. On the contrary, for positive
performance feedback firms it has a significant negative
influence; however, in case of innovative search behavior
for both type firms, we didn’t find any significant influ-
ence. Therefore, overall, we accept Hypothesis 4 only for
negative performance feedback firms.
In Table 9, we report the impact of CG mechanisms on
firm’s performance feedback condition in undertaking
search behaviors under different aspiration measures.
Interestingly, we find that board strength in a firm influ-
ences its search behaviors significant negatively by nega-
tively impacting performance feedback condition under
two of our three firm-aspiration measures. We thereby
accept Hypothesis 3. Similarly, when we examine the indi-
vidual elements of a firm-board strength, we find that
higher presence of independent directors overwhelmingly
impacts firm’s performance feedback condition significant
negatively. This implies that independent boards weaken
firm’s risk behaviors. On the contrary, women directors
show positive influence to such performance feedback
condition which drive especially firm’s innovative search
behaviors. On an overall basis, we can argue that the
hypothesized mediation effects of board strength on firm’s
performance feedback condition in undertaking search
behaviors are fully validated. In addition, we find that
board effectiveness of a firm board has a positive impact
on firm’s performance feedback condition to undertake
both problem-driven and innovative search behaviors.
Therefore, we accept Hypothesis 4. However, when we
examine the individual elements of board effectiveness,
we observe that board size is actually impacting firm’s
performance feedback condition significant negatively in
case of their problem-driven search behaviors. This implies
that higher number of directors in the firm-board weaken
firm’s search behaviors. On the contrary, meeting fre-
quency results are showing overwhelming significant pos-
itive influence on firm’s performance feedback condition
under our aspiration measures for both problem-driven
and innovative search behaviors. So, on an overall basis,
we can substantiate that the negative mediation effect of
board effectiveness on firm’s performance feedback condi-
tion in undertaking search behaviors is fully evident.
Furthermore, we find from Table 9 results that board
strength and board effectiveness have a significant nega-
tive influence on firm’s performance feedback condition in
two out of three aspiration measures. Interestingly, the
interaction effect of board strength and board effectiveness
(see Table 8) positively impacts problem-driven search
behaviors of positive performance feedback firms. On the
contrary, it has a significant negative influence for nega-
tive performance feedback firms in line with overall
results. Accordingly, we can conclude that both board
strength and board effectiveness impacts can be of con-
flicting nature in moderating firm’s performance feedback
and search behaviors relationships.
Table 9. CG impact on firm’s performance feedback.

Variables ROA SD R&D intensity

DasGupta and Mishra

HAPF SAPF WAPF HAPF SAPF WAPF

Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
Constant –5.492 0.034 63.3*** –59.7*** –8.8*** –8.0*** –2.663 6.748 –17.9*** –15.5*** –14.1*** –10.7***
Lag. ROA/ R&D Int. 1.38*** 1.39*** 0.50*** 1.95*** 1.86*** 1.87*** 1.42*** 1.42*** 1.99*** 1.99*** 1.88*** 1.87***
Board strength –0.002*** 0.010*** –0.000*** –0.001** –0.000** 0.000
Board effectiveness –1.134*** 4.013*** 0.786*** –0.086 0.550*** 0.477***
Strength*Effectiveness 0.002*** –0.011*** –0.000** 0.001 0.00 0.00
Independent directors –0.023*** –0.009*** –0.033*** –0.029*** –0.005*** –0.011***
Women directors –0.007 0.011*** –0.003 –0.007 0.007*** 0.004*
Board size –2.504*** –3.861*** 0.095 –0.029 0.000*** –0.217
Board meetings 1.708*** 1.805*** 1.682*** 1.645*** 0.835*** 0.980***
Growth opportunity 0.000 0.000 0.000 0.000*** 0.000 0.000 0.000 0.000* –0.000*** –0.000*** 0.000 0.000
Size –0.009* –0.004 3.979*** 1.512*** –0.002** –0.002* –1.240*** –1.107*** –0.211*** –0.173*** –0.396*** –0.317***
Leverage 0.045*** 0.049*** –0.120*** –0.014*** 0.001 0.006*** 0.027*** 0.025*** 0.000 –0.001 0.005*** 0.004***
Liquidity –0.181** –0.081 –1.737*** –1.230*** –0.075*** 0.033* 0.212 0.271 0.014 0.039* 0.031 0.071*
EMDEVDUM –0.295 –0.352 2.271*** –4.499*** –1.290*** –1.602*** –1.336*** –1.750*** –1.718*** –1.707*** –1.656*** –1.692***
LEGSYSDUM –1.522*** –0.822** 2.072*** –2.536*** –2.352*** –1.652*** –2.222*** –0.903** –4.347*** –4.016*** –3.912*** –3.380***
IPRDUM 1.546*** 1.250*** –2.976*** –4.032*** –0.01 –0.341*** 0.716* 0.123 0.201*** 0.138** 0.274** 0.158
NACULDUM –1.691*** –0.023*** –3.679*** –1.766*** –2.344*** –2.495*** 0.890** 0.121 –1.036*** –1.145*** –0.665*** –0.960***
Observations 18,805 18,199 18,377 17,897 18,724 18,168 15,866 15,139 15,868 15,272 15,932 15,245
R-Square 0.658 0.662 0.324 0.481 0.484 0.485 0.638 0.64 0.495 0.492 0.483 0.483
DW Stat 1.671 1.585 1.005 1.549 1.495 1.576 1.615 1.547 1.121 1.145 1.532 1.525
AR(1)/AR(2) p 0.00/0.72 0.03/0.85 0.02/0.89 0.00/0.92 0.00/0.69 0.00/0.85 0.07/0.88 0.00/0.82 0.00/0.80 0.00/0.73 0.00/0.79 0.00/0.96
Hansen-J-Stat (p) 0.28 0.14 0.19 0.22 0.26 0.16 0.15 0.36 0.25 0.18 0.27 0.33

ROA: return on assets; SD: standard deviation.

Notes: This table reports CG impact on its performance feedback (i.e., Firm’s HAPF or SAPF or WAPF (Equations 3 and 4) for all firms under both ROASD and R&D intensity. Here, firm’s HAPF, SAPF,
or WAPF is the main dependent variable, respectively, and board strength, board effectiveness, and strength*effectiveness are the main independent variables (under Model 1) and independent directors,
women directors, board size, and board meetings are the main independent variables (under Model 2).
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
15
16
In all our results, the economic status, national culture,
and legal systems of respective countries are strongly
influencing firm’s search behaviors negatively. However,
in case of positive performance feedback firms, both
national culture and legal systems are having a positive
influence toward such search behaviors.
CG mediation impact on firm’s performance
feedback-search behavior relationships
We perform two-way and three-way interaction analyses.
Six variables are constructed for the two-way interaction
analysis, that is, Board strength × HAPF, Board effective-
ness × HAPF, Board strength × SAPF, Board effectiveness
× SAPF, Board strength × WAPF, and Board effectiveness
× WAPF, to further capture the effect of the CG in mediat-
ing firm’s performance feedback condition to undertake
search behaviors. The results are reported in Table 8.
Interestingly, under all interactions the coefficients are pos-
itive and significant for the two measures of search behav-
iors. It implies that both board strength and board
effectiveness mediate firm’s performance feedback condi-
tion to undertake search behaviors. These results are in line
with Hypotheses 3 and 4. These results are further validated
by the two-way interaction results for positive and negative
performance feedback firms (see Tables 10 and 11). The
negative coefficients across aspiration measures for such
negative firms authenticate that both board strength and
board effectiveness of a firm-board moderate firm’s prob-
lem-driven and innovative search behaviors. On the con-
trary, for positive performance feedback firms, the positive
coefficients imply that if growth opportunities prevail both
board strength and board effectiveness significant posi-
tively mediate such performance feedback conditions to
undertake both problem-driven and innovative search
behaviors. These further validate Hypotheses 3 and 4.
From our three-way interaction analyses variables, that
is, Board strength × Board effectiveness × HAPF, Board
strength × Board effectiveness × SAPF, and Board strength
× Board effectiveness × WAPF, we also report significant
positive coefficients (see Tables 10–12). All these imply
that CG mediates the influence of firm’s performance feed-
back on its search behaviors. The negative coefficients
across aspiration measures under our three-way interaction
results further substantiate that for negative performance
feedback firms, board strength and board effectiveness of a
firm-board combinedly moderate firm’s problem-driven
search behaviors. For positive performance feedback firms,
we report significant positive combined effect of board
strength and board effectiveness, which further strengthens
their innovative search behaviors.
Conclusion
The primary objective of this study was to examine how a
firm’s differential performance feedback driven by its
Business Research Quarterly 
internal capabilities and external conditions propels its
innovative and problem-driven search behaviors. We
report that negative performance feedback positively
influences firm problem-driven search behaviors, whereas
positive performance feedback positively impacts innova-
tive search behaviors. We, therefore, augment the BT
(Cyert & March, 1963) and didn’t substantiate the
Ansoffian (Ansoff, 1979) view of negative performance
feedback firms. However, Ansoffian’s (Ansoff, 1979) ST
viewpoint is exclusively evident for positive performance
feedback firms in undertaking innovative search behav-
iors. According to us, this might be due to the internal
environment, structures, and policies and also the external
environment including the economic, legal, and country-
specific risk-oriented national culture.
Therefore, in line with our secondary objective, we fur-
ther examine how the internal CG mechanisms moderate a
firm’s performance feedback condition to influence its
search behaviors. We investigate the mediation impact of
board strength and board effectiveness of firm boards
comprising of higher percentage of independent and
women directors, large board size, and higher frequency of
board meetings, respectively. We find a strong negative
influence of board strength whereas a significant positive
influence of board effectiveness on a firm’s performance
feedback condition to undertake search behaviors. More
specifically, an effective firm board augments the firm’s
problem-driven search behavior, but shows a mixed impact
on innovative search activities under our aspiration meas-
ures. Our findings substantiate the reputation hypothesis
(Pathan, 2009) and the monitoring hypothesis (Brick &
Chidambaran, 2008; Pathan, 2009) for firm boards.
Furthermore, we find board effectiveness through its advi-
sory function and resource provider responsibility (De
Andres & Vallelado, 2008; Erkens et al., 2012) take a cata-
lyst role in problemistic search behaviors of negative per-
formance feedback firms. The interactions’ impact of both
board strength and board effectiveness further strengthens
our above mediation impact results. These results, how-
ever, prompt us to study in-depth individual CG mecha-
nisms’ impact on our studied associations.
On an overall basis, we find that higher independent
directors’ presence on a firm board negatively mediates the
firm’s performance feedback condition to undertake search
activities. This proves the reputation hypothesis (Pathan,
2009) impact in our cross-country context. Similarly, we
report that board size is impacting a firm’s performance
feedback significantly negatively in the case of their prob-
lem-driven search behaviors. This reports the presence of
diversification of opinions effect (Sah & Stiglitz, 1986,
1991) in studied firms. However, higher women directors’
presence has a significant positive influence on this action.
This is due to excessive monitoring (Adams & Ferreira,
2009) that the women directors do on firms’ strategies.
Also, meeting frequency results are showing a significant
positive influence on a firm’s performance feedback under
Table 10. Firm’s performance feedback–CG interactions (ROASD and R&D intensity results).
DasGupta and Mishra

Variables ROAσ R&D intensity

HAPF SAPF WAPF HAPF SAPF WAPF

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Constant 19.845*** 21.619*** 19.531*** –15.8*** –3.822 –3.753 20.023*** 18.181*** 728.537* 750.398* 737.393* 637.935 491.314 612.47 707.791 776.427* 735.369
Lag ROA/ R&D Int. –0.205*** –0.404*** –0.198*** –0.10*** –0.10*** –0.10*** –0.20*** –0.317*** –0.198*** –13.451*** –17.570*** –13.354*** –18.45*** –8.009*** –18.30*** –11.436*** –19.833*** –11.198***
HAPF*Strength 0.000*** –0.001***
HAPF*Effectiveness 0.329*** 3.749***
HAPF*Strength* 0.000*** –0.002
Effectiveness
SAPF*Strength 0.000*** 0.005***
SAPF*Effectiveness –0.000* –0.016***
SAPF*Strength* 0.000*** 0.005***
Effectiveness
WAPF*Strength 0.000*** –0.004***
WAPF*Effectiveness 0.144*** 3.574***
WAPF*Strength* 0.000*** –0.005***
Effectiveness
Growth opportunity 0.000 0.000 0.000 –0.000** –0.000** –0.000** 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Size –0.037*** –0.029*** –0.037*** –0.198* 0.203* 0.093 –0.03*** –0.029*** –0.033*** –70.405*** –65.808*** –70.672*** –69.58*** –57.31*** –69.42*** –76.796*** –73.950*** –77.839***
Leverage –0.029*** –0.033*** –0.029*** –0.01*** –0.02*** –0.01*** –0.02*** –0.024*** –0.028*** –1.499*** –1.497*** –1.493*** –1.658*** –1.286*** –1.677*** –1.645*** –1.591*** –1.627***
Liquidity 0.213*** –0.01 0.210*** –0.227** –0.55*** –0.44*** 0.236*** 0.112** 0.233*** 72.253*** 68.106*** 72.886*** 63.055*** 48.903*** 62.291*** 78.983*** 72.935*** 81.289***
EMDEVDUM 0.187 –0.025 0.189 1.343*** 1.199*** 1.314*** 0.415** 0.350* 0.415** –1.074 6.732 –2.775 11.554 –3.224 16.431 –9.332 6.385 –15.391
LEGSYSDUM 1.006*** 1.432*** 1.029*** –0.544** –0.297* –0.245 1.233*** 1.505*** 1.251*** 106.342*** 104.551*** 106.851*** 80.371*** 38.687** 82.211*** 119.404*** 115.253*** 120.725***
IPRDUM –0.091 –0.665*** –0.041 2.431*** 2.250*** 2.298*** 0.075 0.017 0.113 –25.968 –26.925 –26.964 –39.295 –25.01 –34.037 –21.833 –27.835 –26.076
NACULDUM –0.22 –0.015 –0.229 –0.101 –0.539** –0.387 –0.144 –0.045 –0.154 23.891 28.724 22.544 68.523*** 48.049** 68.461*** 11.222 37.582* 7.284
Observations 18,805 18,806 18,805 18,947 18,949 18,947 18,724 18,724 18,724 15.803 15,803 15,803 15,859 15,860 15,859 15,857 15,857 15,857
R-Square 0.053 0.195 0.051 0.046 0.044 0.044 0.048 0.062 0.047 0.059 0.062 0.059 0.068 0.128 0.067 0.07 0.063 0.072
DW Stat 1.541 1.829 1.541 1.51 1.508 1.509 1.531 1.555 1.531 1.201 1.188 1.202 1.192 1.284 1.191 1.196 1.181 1.198
AR(1)/AR(2) p 0.00/0.66 0.00/0.77 0.00/.84 0.00/0.58 0.00/0.79 0.00/0.80 0.00/0.68 0.00/0.78 0.000.99 0.00/0.2 0.00/0.88 0.00/0.95 0.00/0.85 0.00/0.77 0.00/0.95 0.00/0.87 0.00/0.81 0.00/0.97
Hansen-J-Stat (p) 0.22 0.33 0.4 0.26 0.42 0.55 0.33 0.58 0.6 0.25 0.39 0.48 0.24 0.36 0.45 0.18 0.25 0.30

ROA: return on assets.

Notes: This table reports two-way and three-way firm’s performance feedback (i.e., Firm’s HAPF or SAPF or WAPF, and CG interactions impact on its problem-driven or innovative search behaviors (i.e.,
ROASD or R&D intensity) for all firms. Here, ROASD or R&D intensity is the main dependent variable, and interaction variables (i.e., HAPF/SAPF/WAPF*Strength, HAPF/SAPF/WAPF*Effectiveness, and
HAPF/SAPF/ WAPF*Strength*Effectiveness) are the main independent variables, respectively, under Models 1–3.
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
17
 18

Table 11. Firm’s performance feedback-CG interactions for negative performance feedback firms (ROASD and R&D intensity results).
Variables ROAσ R&D intensity

HAPF SAPF WAPF HAPF SAPF WAPF

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Constant 2.424 2.913 2.467 –5.836 –7.144 –6.166 1.285 1.007 1.271 5.319 6.569 5.808 3.274 3.03 3.988 3.44 3.765 3.048
Lag ROA/ R&D Int –0.336*** –0.254*** –0.335*** –0.272*** –0.276*** –0.272*** –0.410*** –0.348*** –0.408*** –21.49*** –30.39*** –21.43*** –17.01*** –23.71*** –16.28*** –18.48*** –27.32*** –17.871***
HAPF*Strength –0.000*** –0.008***
HAPF*Effectiveness –0.191*** –7.512***
HAPF*Strength* –0.000*** –0.009***
Effectiveness
SAPF*Strength –0.000*** –0.014***
SAPF*Effectiveness 0.000 –4.271***
SAPF*Strength* –0.000*** –0.018***
Effectiveness
WAPF*Strength 0.000 –0.014***
WAPF*Effectiveness –0.075*** –1.156
WAPF*Strength* 0.000 –0.017***
Effectiveness
Size 0.251** 0.215* 0.233* 0.005 0.064 0.013 0.282** 0.284** 0.281** –70.20*** –63.21*** –72.05*** –57.899** –63.34*** –63.63*** –63.85*** –67.02*** –68.826***
Leverage –0.011** –0.012** –0.012** –0.001 –0.002 –0.002 –0.004 –0.004 –0.004 –0.886 –0.946 –0.91 –0.848 –0.807 –0.932 –0.895 –0.796 –0.966
Liquidity –0.283** –0.249** –0.268** –0.100 –0.141 –0.127 –0.278** –0.328** –0.281** 78.182*** 82.659*** 79.698*** 51.547** 70.816*** 54.498** 59.760** 76.837*** 62.822**
EMDEVDUM 0.416 0.400 0.411 1.355*** 1.259*** 1.348*** 0.389 0.374 0.39 1.518 11.795 1.247 5.289 11.676 5.645 7.254 13.232 6.905
LEGSYSDUM 0.679** 0.582** 0.671** 0.058 0.044 0.014 0.697** 0.472* 0.680** 11.614 57.07 10.952 –21.049 29.638 –26.751 –13.983 38.148 –18.464
IPRDUM 0.196 0.148 0.197 2.000*** 2.064*** 1.985*** 0.26 0.256 0.258 –27.312 –17.699 –27.032 –31.04 –16.596 –31.552 –27.317 –15.274 –27.957
NACULDUM –0.613** –0.519** –0.607** –0.538 –0.779* –0.517 –0.610** –0.532** –0.597** 33.668 5.991 34.231 74.623* 41.93 81.908** 68.761* 37.117 74.072*
Observations 9,351 9,351 9,350 9,434 9,436 9,434 9,273 9,273 9,273 7,777 7,777 7,777 7,830 7,829 7,829 7,830 7,830 7,830
R-Square 0.237 0.264 0.237 0.174 0.172 0.174 0.254 0.26 0.254 0.097 0.093 0.097 0.143 0.093 0.149 0.135 0.094 0.139
DW Stat 1.343 1.386 1.342 1.205 1.203 1.205 1.386 1.396 1.387 1.305 1.277 1.304 1.327 1.245 1.335 1.319 1.246 1.324
AR(1)/AR(2) p 0.00/0.64 0.00/0.87 0.00/0.99 0.00/0.85 0.00/0.99 0.00/0.92 0.00/0.90 0.00/0.85 0.00/0.79 0.00/0.87 0.00/0.74 0.00/0.83 0.00/0.95 0.00/0.65 0.00/0.99 0.00/0.91 0.00/0.85 0.00/0.81
Hansen-J-Stat (p) 0.25 0.32 0.4 0.19 0.34 0.44 0.21 0.44 0.65 0.28 0.19 0.45 0.26 0.33 0.31 0.4 0.5 0.51

ROA: return on assets.

Notes: This table reports two-way and three-way firm’s performance feedback (i.e., Firm’s HAPF or SAPF or WAPF, and CG interactions impact on its problem-driven or innovative search behaviors (i.e., ROASD or R&D
intensity) for below aspiration level firms. Here, ROASD or R&D intensity is the main dependent variable, respectively, and interaction variables (i.e., HAPF/SAPF/WAPF*Strength, HAPF/SAPF/WAPF*Effectiveness, and HAPF/SAPF/
WAPF*Strength*Effectiveness) are the main independent variables under Models 1–3.
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
Business Research Quarterly 
Table 12. Firm’s performance feedback-CG interactions for positive performance feedback firms (ROASD and R&D intensity results).
DasGupta and Mishra

Variables ROAσ R&D intensity

HAPF SAPF WAPF HAPF SAPF WAPF

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Constant 6.582** 9.718** –6.24 –16.59*** –18.00*** –16.53*** –3.084 11.998* –2.937 –19.838 –19.035 –21.779 3.39 4.234 3.097 4.368 5.088 4.077
Lag. ROA/ R&D Int. 0.037** –0.353*** 0.046*** 0.183*** 0.187*** 0.183*** 0.225*** –0.241*** 0.221*** –0.570*** –0.469*** –0.559*** –0.031** –0.031* –0.035** –0.031** –0.029* –0.034**
HAPF*Strength 0.000*** 0.000***
HAPF*Effectiveness 0.603*** 0.045
HAPF*Strength* 0.000*** 0.000***
Effectiveness
SAPF*Strength 0.000** 0.000***
SAPF*Effectiveness 0.000*** 0.019*
SAPF*Strength* 0.000** 0.000***
Effectiveness
WAPF*Strength 0.000* 0.000***
WAPF*Effectiveness 0.351*** 0.018*
WAPF*Strength* 0.000 0.000***
Effectiveness
Growth opportunity 0.000*** 0.000*** 0.000*** 0.000 0.000 0.000 0.000** 0.000*** 0.000** 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Size –2.909*** –1.696*** –2.921*** –0.948*** –0.792*** –0.960*** –2.267*** –2.386*** –2.273*** –15.94*** –15.65*** –15.91*** –2.520*** –2.458*** –2.537*** –2.534*** –2.467*** –2.548***
Leverage –0.011* –0.013*** –0.011** 0.010** 0.007 0.010** –0.005 –0.007 –0.005 –0.078* –0.069* –0.079* –0.028*** –0.027*** –0.029*** –0.028*** –0.027*** –0.029***
Liquidity 0.861*** 0.123 0.827*** 0.341** 0.151 0.343** 0.739*** 0.419** 0.743*** 10.671*** 10.805*** 10.602*** 2.847*** 2.842*** 2.829*** 2.878*** 2.875*** 2.862***
EMDEVDUM –0.046 0.509** 0.051 2.181*** 1.971*** 2.208*** –0.463 0.39 –0.467 –2.534 –2.873 –2.32 –3.016*** –3.037*** –2.960*** –3.014*** –3.037*** –2.961***
LEGSYSDUM –0.739** –0.127 –0.793** –0.896*** –1.055*** –0.902*** –0.513* 0.091 –0.513* 4.159** 5.114** 4.111** 0.676** 0.811*** 0.644** 0.750** 0.881*** 0.719**
IPRDUM 0.835** 0.698** 0.963** 3.578*** 3.500*** 3.595*** 0.860** 1.091** 0.840** 0.989 1.3 1.245 –0.318 –0.254 –0.282 –0.342 –0.279 –0.306
NACULDUM 3.883*** 2.542*** 3.965*** 1.015*** 0.890** 1.054*** 2.094*** 3.187*** 2.114*** 13.616*** 11.746*** 13.740*** 0.271 0.017 0.368 0.253 –0.014 0.339
Observations 9,455 9,455 9,455 9,526 9,526 9,526 9,451 9,451 9,451 8,043 8,043 8,043 8,043 8,043 8,043 8,038 8,038 8,038
R-Square 0.067 0.622 0.066 0.14 0.141 0.14 0.061 0.121 0.061 0.073 0.071 0.073 0.096 0.094 0.097 0.096 0.095 0.097
DW Stat 1.138 1.709 1.138 1.544 1.549 1.544 1.193 1.247 1.193 1.021 1.02 1.02 1.072 1.071 1.072 1.073 1.072 1.073
AR(1)/AR(2) p 0.00/0.97 0.00/0.85 0.00/0.68 0.00/0.85 0.01/0.56 0.04/0.78 0.00/0.99 0.00/0.85 0.00/0.75 0.00/0.85 0.00/0.92 0.00/0.97 0.00/0.98 0.00/0.87 0.00/0.74 0.00/0.48 0.00/0.64 0.00/0.55
Hansen-J-Stat (p) 0.4 0.45 0.33 0.25 0.45 0.34 0.52 0.65 0.4 0.25 0.36 0.3 0.35 0.25 0.14 0.19 0.4 0.38

ROA: return on assets.

Notes: This table reports two-way and three-way firm’s performance feedback (i.e., Firm’s HAPF or SAPF or WAPF, and CG interactions impact on its problem-driven or innovative search behaviors (i.e., ROASD or R&D
intensity) for above aspiration level firms. Here, ROASD or R&D intensity is the main dependent variable, respectively, and interaction variables (i.e., HAPF/SAPF/WAPF*Strength, HAPF/SAPF/WAPF*Effectiveness, and HAPF/SAPF/
WAPF*Strength*Effectiveness) are the main independent variables under Models 1–3.
***, **, and * indicate significant correlation at the 0.001, 0.05, and 0.01 levels (two-tailed).
19
20
our aspiration measures for both problem-driven and inno-
vative search behaviors. This is in contradiction with exist-
ing empirical evidence such as Francis et al. (2012). So, it
is evident that each of these CG mechanisms has its unique
mediation impact on a firm’s performance feedback condi-
tion to undertake different search activities distinctively.
The study results are also generalizable across countries
as we include four emerging and four developed countries
with divergent legal systems and national cultures. In all
our results, the national culture and legal systems of respec-
tive countries are strongly influencing firms’ search behav-
iors and such performance feedback conditions. Only in the
case of negative performance feedback firms, are influenc-
ing negatively their problem-driven search activities and
positively their innovative search behaviors which implies
that it might be due to inbuilt strong legal systems and risk-
averse national culture that these firms could not undertake
such actions frequently. So, these national characteristics
do mediate the firm’s performance feedback condition’s
impact on its search behaviors for these firms.
Theoretical, managerial, and policy
implications
Overall, our findings would help the regulators and policy-
makers to strengthen their existing CG mechanisms and
regulations as we prove that these are strong pillars of con-
trolling firms in their search behaviors and enroot perfor-
mance feedback. Accordingly, shareholders’ interests could
get protected which would further mitigate the rising
agency issues and corporate frauds across the world.
Though we try to control most internal and country-specific
characteristics and also most critical CG mechanisms in
line with the existing literature, drivers such as CEO dual-
ity, executive compensation, and shareholdings pattern
could have a significant bearing in our CG mediation in a
firm’s performance feedback-search behavior associations.
Furthermore, firm managers can use our findings to use
search behaviors in a better way in line with the existing
internal and external firm-level conditions in mind. They
should also understand that based on performance feed-
back conditions, they need to adopt their strategic behav-
iors, for example, if the firm falls below its aspired level, it
should indulge in more conservative problemistic searches
rather than exploratory or innovative searches. This find-
ing has incrementally contributed toward the BT of the
firm’s tenets. Firm managers should also cater for the
internal CG mechanisms requirements and regulations in
this regard. This in turn would avoid any future chances of
bankruptcy for their respective firms.
However, future researchers could also look into the solu-
tions to the above conflicts from the firm’s accounting con-
servatism or earnings management dimensions and/or
empirically tested slack search behaviors contexts along with
institutional contexts such as legal origin or national culture
Business Research Quarterly 
in-depth. This is one of the limitations of this study that we
didn’t examine institutional characteristics in detail here.
Acknowledgements
We acknowledge the suggestions received from our peers at dif-
ferent points of time while preparing this article.
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The author(s) received no financial support for the research,
authorship, and/or publication of this article.
Notes
1. Problemistic search behavior is defined as a search under-
taken when firm performance drops below aspirations to
identify and resolve problems and raise performance levels
to (at least) the aspiration level (Cyert & March, 1963).
2. Innovative search behavior is based on the idea that “devel-
oping innovations is a form of organizational search”
(Greve, 2003a, p. 685). We use R&D-driven behaviors here
to proxy that specifically for firms who achieve higher per-
formance than aspired performance.
3. A firm is facing a negative performance feedback situa-
tion when its actual financial performance is lower than its
aspired financial performance for the year.
4. Typically, ROASD is not a search behavior proxy. It implies
income stream uncertainty for a firm. However, here we
have used ROASD to proxy problem-driven search (risk)
behavior of firms to examine how they behave when facing
a performance feedback (specifically negative). Our argu-
ment is that when a typical firm is facing a negative per-
formance feedback situation, it would be fallen into income
stream uncertainty (i.e., high ROASD). So, surely there
would be relationship between firm’s performance feedback
and ROASD. This income stream uncertainty would actu-
ally be representative of the firm’s problem-driven search
behaviors arising out of negative performance feedback
situations. Therefore, we argue in favor of ROASD as a
representative proxy of problemistic search behaviors amid
a negative performance feedback situation specifically.
Earlier also this has been used as a firm’s risk measure (see
Miller & Bromiley, 1990) for measuring firm’s strategic
behavior-based performance variability.
5. Though we have calculated this as part of our robustness
analyses, but, don’t show the results here for the sake of
brevity. However, results are absolutely in line with our
main analyses.
6. We have calculated growth opportunities by percentage
change in property, plant, and equipment (PPE) exclud-
ing depreciation. We measure firm size by net sales of
each study year that implies “market power,” and thereby
we assume that large-size firms are less prone to search
behaviors (see Venkatesh, 1989). Consistent with Graham
et al. (2004) and Bhagat and Bolton (2008), we compute
DasGupta and Mishra
leverage as average of long term debt plus current portion of
long term debt divided by average total assets, and liquid-
ity as average of cash and cash equivalents across the year
(Subramaniam et al., 2011).
7. The parameters are allowance of proxy vote by e-mail; the
restrictions to block shares before general meeting; propor-
tional representation by minority shareholders; rights to
minority shareholders to challenge the directors’ decision in
court and the right to force the company to repurchase the
shares on certain fundamental decisions such as merger; the
shareholders have pre-emptive rights to buy the new issue
with an intention to protect shareholders from dilution; and
the percentage of shareholders capital needed to call extra
ordinary shareholder’s meetings. We have used the Djankov
et al.’s (2008) revised and extended original version of this
index as presented in La Porta et al. (1998).
8. We use an uncertainty avoidance index (UAI) score and
power distance index (PDI) score as part of the cultural
country controls here. Low UAI and PDI countries would be
risk seeking in regard to search behaviors and vice versa (see
Growiec & Growiec, 2011; Hofstede, 2001; Kanagaretnam
et al., 2011; K. Li et al., 2013).
9. It implies that firms for which present year’s performance
is higher than their aspiration level are in positive (i.e., hold
a positive performance feedback) cluster. On the contrary,
firms having lower present year’s performance in regard to
their aspiration levels are in the negative performance feed-
back cluster.
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