A Behavioral Theory of Firm Growth: Sequential Attention to Size and Performance Goals

Abstract

According to the behavioral theory of the firm, managers pay sequential attention to goals and apply aspiration levels to each goal. Although many goals have been proposed for organizations, research has so far concentrated on profitability. Here it is proposed that managers form an aspiration level for size through social comparison. This proposal leads to predictions on how performance and size goals jointly affect growth. Supporting this sequential attention hypothesis, evidence from the general insurance industry shows that firms grow more when they are below the aspiration level for size, especially when performance goals are satisfied.