DEVIANT VERSUS ASPIRATIONAL RISK TAKING: THE EFFECTS OF PERFORMANCE FEEDBACK ON BRIBERY EXPENDITURE AND R&D INTENSITY

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.