Understanding 'Misfits': Aspirations and Systematic Deviations from Firm-Specific Optimal Multinationality

Transaction cost and internalization theory predicts that there are firm-specific optimal levels of multinationality, and deviations from firm-specific optimal multinationality should decrease performance. However, one important unanswered question is why some firms continuously deviate from their firm-specific optimal levels of multinationality. In this conceptual analysis, I argue that continuous deviations from firm-specific optimal levels of multinationality can be explained by decision-makers' use of aspirations. Specifically, if a firm deviates from its optimal level of multinationality and performance decreases, but aspirations are still being met, decision makers will not perceive a problem and will not engage in search processes to identify and implement changes that align the firm with its optimal level of multinationality. In addition, decision makers in smaller firms may respond to shortfalls between aspirations and actual performance with greater rigidity. Additionally, narcissistic decision makers, and decision makers who are highly accountable to external audiences, may retrospectively revise aspirations in the face of shortfalls in actual performance.