Performance feedback and strategic decision making: evidence from China

© 2019 Dr. Renfei GaoMy dissertation aims to advance the behavioral theory of the firm (BTOF) by examining how Chinese firms make strategic decisions in response to performance feedback. In the first study, I integrate BTOF with the institution-based view (IBV) to develop a contextualized behavioral model to explain Chinese firms’ technological search, explicitly accounting for the context of institutional transitions in shaping decision makers’ response to performance feedback. Using panel data on Chinese listed firms, I find an inverse V-shaped relationship between performance feedback and technological search, enhanced by pro-market reforms but weakened by state ownership. In the second study, incorporating the socio-political goals of state-owned enterprises (SOEs), I aim to advance the BTOF research by accounting for nonmarket pressure in explaining firms’ goal-directed decision making. I examine how SOEs’ capacity expansion is driven by their socio-political feedback on employment provision. Using panel data on Chinese SOEs, I find that they promote capacity expansion as the socio-political performance of employment provision deviates from the aspiration level on both negative and positive sides, partly weakened by profitability feedback and strengthened by government pressure. In the third study, I theorize political connection building as a form of problemistic search in response to performance shortfalls—pursuing potential gains while taking the associated risks. In the context of director selection of Chinese listed firms, I find that firms performing below aspirations are more inclined to appoint new independent directors with political backgrounds, contingent upon the identity of dominant coalitions and regional market institutions. Overall, my three studies advance the BTOF literature by incorporating distinct institutional factors of China and enhance our understanding of Chinese firms’ strategic decision making