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The question of how the firm responds to performance feedback forms the backbone of the behavioral theory of the firm. Although the literature works with goals aspirations and additional determinants of a firm’s search activity – proximity to bankruptcy and slack resources – the majority of the empirical research assumes the firm’s response to performance feedback to be linear with a spline at the aspiration level. The purpose of this paper is to study possible curvilinear properties of performance feedback itself that may yield insight on the behavior of firms responding differently from the theory’s predictions.

The research uses data from exchange-listed German industrial firms followed from 2001 to 2015. It evaluates hypotheses using historical aspiration models with ROA as a measure of performance and with a spline specification. The fixed-effects panel data models serve as an estimation technique.

The research supports an inverted U-shape relationship between performance feedback and research and development (R&D) intensity for firms below their aspiration levels, and a U-shape relationship for firms above their aspiration levels.

The research is one of the first to directly study curvilinearity in performance feedback relationships. Arguably, there is no such a study directly focusing on a firm’s search as represented by R&D, despite the fact, that R&D forms the backbone of performance feedback research. Also, the population of German industrial firms is new in the literature.

The behavioral theory of the firm (BTOF) has been used to explain the research and development (R&D) investment behavior of firms in numerous multi industry studies. However, their partially contradictory results point to the possible need for a single industry perspective that would reduce heterogeneity of business trends, models and other characteristics. This study aims to test this theoretical assumption within the challenging context of the US pharmaceutical industry.

The research uses data from 20 firms, which number among the largest in the US pharmaceutical industry, over the period 2002-2014. These data are analyzed using fixed- and random-effect panel models.

The findings generally support the need for a thorough understanding of the industry under study and its specific characteristics. The firms analyzed in this research behave slightly differently from theoretical assumptions, and it is argued that this is caused by industry specific factors. Moreover, the use of two separate aspiration measures – for historical and social aspirations – is supported as it provides more in-depth insight into the firms’ behavior.

This paper, which is based on research presented at the 4th International Conference on Innovation and Entrepreneurship, represents the first inquiry into the R&D investment behavior of pharmaceutical firms using the BTOF. It also represents an argument for conducting single-industry rather than multi industry studies when using this theory.

A firm will respond to performance feedback, i.e. a comparison of its current performance with the goals to which it aspires, by means of changes in its search activity. There is an emerging body of literature that studies how such behavioral responses are shaped by important decision-makers inside firms. The study focuses on the corporate board – one of the most influential decision-making groups in terms of strategy. More specifically, the study aims to study the moderation effect of the size, turnover and age diversity of the board.

The sample is based on the largest listed German automobile and manufacturing firms followed between the years 2001 and 2015. The sample is analyzed using fixed-effects panel data models.

The findings indicate that the age diversity of the corporate board and, partially, also the turnover of its members moderate firms' responsiveness to performance feedback. On the other hand, the size of the board does not seem to play a role. The study, therefore, supports the notion of taking into account the characteristics of the corporate board when analyzing strategic decision-making and points to areas for further research.

The study contributes to the literature by empirically testing the moderating effect of three characteristics of corporate boards that have not been largely tested in the literature to date.