Attentional Allocation and Firm Performance: The Interactive Effects of Product Diversification

How does a firm’s attentional allocation to issues influence firm performance? Although an attention-based view of the firm indicates that a firm’s attention to each specific issue formulates its cognitive schemas and behaviors, few studies have explored types of attentional allocation and their performance consequences. Based on the attention-based view, we propose that the diversity of attended issues within a focal firm, and the difference of attended issues between a focal firm and its competitors in the industry, influence firm performance because a firm’s attentional allocation shapes its reaction to problems, opportunities, and threats in the competitive landscape. Further, we also propose that attentional allocation and product diversification strategy interactively determine firm performance. Using a topic modeling on annual security reports filed by Japanese listed firms, we identified a firm’s patterns of attentional allocation and found general support for the hypothesized relationships.