Deviant versus Aspirational Risk Taking: The Effects of Performance Feedback on Bribery Expenditure and R&D Intensity

TLDR

Behavioral theory of the firm has linked both low‑ and high‑performing firms to similar risk‑taking behaviors. The study tests a motivation‑based theory that low‑performing firms exhibit deviant risk‑taking (bribery) while high‑performing firms engage in aspirational risk‑taking (R&D). Using 9,633 firm‑year observations from 2,224 Chinese listed firms, the authors analyze how performance relative to aspiration predicts abnormal entertainment spending (bribery proxy) and R&D intensity. Results show that lower performance relative to aspiration is linked to higher bribery expenditure but not higher R&D, whereas higher performance is linked to higher R&D but not bribery, with legal development and industry competition moderating these effects.

Abstract

Combining the theses of "problemistic search" and "slack search," past research in the behavioral theory of the firm suggests that both low- and high-performing firms may engage in the same type of risk-taking activity. We counter this view with a consistent, motivation-based logic in the theory: low-performing firms are fixated on finding short-term solutions to immediate problems, so they have an increased probability of exhibiting deviant risk-taking behavior such as bribery, whereas high-performing firms are concerned about sustaining their competitive advantage in the long run and will more likely engage in aspirational risk taking such as research and development (R&D). Using a sample of 9,633 firm-year observations covering 2,224 listed companies in China, we find that, as a firm's performance falls further below its aspiration level, it has larger abnormal entertainment spending, an implicit measure of bribery expenditure, but not higher R&D intensity. However, as a firm's performance rises further above its aspiration level, it has greater R&D intensity, but not more bribery expenses. Legal development and industry competition moderate the relationship between performance feedback and risk-taking behavior.