Search for Whom? Performance Feedback, Female Directors, and Search Prioritization

Abstract We advance the behavioral theory of the firm (BTOF) by theorizing the prioritization of different types of searches (i.e., shareholder- versus stakeholder-oriented) in response to performance feedback, as well as the convergence versus divergence between such performance feedback-driven prioritization and executive propensities. We first posit that negative feedback pushes firms to prioritize R&D over CSR, while positive feedback encourages them to prioritize CSR over R&D. Furthermore, we theorize the alignment versus misalignment between performance feedback-driven prioritization and executive propensities. Focusing on female directors’ traits of risk aversion and ethicality, we posit that they mitigate firms’ prioritization of R&D over CSR in response to negative feedback due to the misalignment that leads to search direction divergence. In contrast, female directors amplify the prioritization of CSR over R&D in response to positive feedback because of the alignment that leads to search direction convergence. Using panel data on S&P 1500 firms in 2002–2020, we find support for our arguments. Moving beyond prior BTOF research on identifying specific search directions in response to performance feedback, we develop a new theory illustrating how firms prioritize distinct types of searches. We further deepen our theory to offer novel insights into how executive propensities are aligned or misaligned with search prioritization driven by performance feedback.