Strategic Upward Striving Toward $100 Million Revenue: Setting Goals to Attract External Attention

Daniel Dongil Keum () and Stephen Ryan ()
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Daniel Dongil Keum: Management, Columbia University Business School, New York, New York 10027
Stephen Ryan: Accounting, NYU Stern School of Business, New York, New York 10012

Organization Science, 2024, vol. 35, issue 3, 974-993

Abstract: We provide evidence that in certain contexts, firms set upward-striving goals and that this upward striving yields significant performance and visibility benefits. We develop a model of variable attention in which, as firms’ performance levels approach cognitively salient round numbers, managers strategically shift their focus from easier-to-reach goals based on historical and social reference points to more challenging goals that provide external visibility and capital market benefits. As one specific yet important instance of an upward shift in attention, we document a significant increase in revenue growth rates as firms’ annual revenue approaches $100 million. Firms achieving this goal obtain discontinuous increases in analyst and media coverage, investment by new institutional investors, and executive compensation. We find no evidence of decreased investment efficiency or profitability, suggesting that managers typically build slack into their goal levels. Our theory extends to goals based on other salient round numbers, such as revenue of $10 million, $500 million, and $1 billion. This study recasts behavioral theory of firm research in an open systems perspective, highlighting the externally directed aspects of firm goal setting.

Keywords: reference points; aspirations; behavioral theory of the firm; firm growth; attention (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:35:y:2024:i:3:p:974-993

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