Underperformance duration and strategic change: an attention-based view of the firm

Performance feedback, especially underperformance feedback, is a vital factor influencing a firm’s strategic change; yet, there is little evidence on underperformance duration. Drawing on attention-based view and cognitive literature within psychology, we argue that the length of time that a firm has been underperforming leads to firms’ strategic change, while this effect could be moderated by the TMT stability, the firm’s goals, and the family governance of a firm. Specifically, we proposed that the TMT stability will weaken the effect of underperformance duration on strategic change, while the firm’s growth orientation will strengthen this effect. Furthermore, both of these moderating effects will be flattened by family ownership. Our hypotheses were supported by a ten-year panel data of 2070 firms listed on the National Equities Exchange and Quotations (NEEQ) in China. We also discussed the statistical and practical significance of the results.