This paper seeks to explore the effect of performance duration (rather than intensity) on the subsequent initiation of strategic change by firms. Specifically, the effect of outperformance and underperformance duration on strategic change, as well as the moderating effect of environmental dynamism, is studied.
Using a fixed-effects model, analyzing a sample of 34,907 firm-year observations from 1980 to 2018 across 112 industries mostly supported proposed hypotheses.
Results revealed a U-shaped relationship between outperformance duration and strategic change and an inverted U-shaped relationship between underperformance duration and strategic change. The moderation role of environmental dynamism was only partially supported.
This study examines a new dimension of performance feedback, namely duration, rather than the widely used intensity of performance feedback, to enhance our understanding of the behavioral theory of the firm.
