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Understanding 'misfits': Aspirations and systematic deviations from firm-specific optimal multinationality.

Abstract 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.

Keywords Multinationality and performance . Aspirations . Transaction cost and internalization theory . Multinationality alignment

1 Introduction

For several decades, a large and growing body of literature has sought to assess links between multinationality and performance (M-P) (e.g., Almodovar 2012; Contractor et al. 2003; Grant 1987; Shaked 1986). This research has helped us to understand the multinationality and performance constructs (e.g., Goerzen and Beamish 2003; Verbeke et al. 2009), but empirical results have been inconsistent and this research has been criticized for lacking theoretical clarity (Hennart 2007, 2011; Verbeke and Brugman 2009; Verbeke et al. 2009). Additionally, much of the M--P research treats multinationality as a random exogenous construct. Yet, it is reasonable to argue that decision makers within organizations will have various motives, and will consider firm resources and attributes when making decisions, such as decisions about multinationality, to optimize performance (Dastidar 2009; Powell 2014; Verbeke et al. 2009). As a result, it is reasonable to acknowledge that firm multinationality is not a random construct. Instead, individual firm factors should influence internationalization decisions. Furthermore, any claim for a "general" relationship between absolute levels of multinationality and performance is questionable.

Alternatively, Hennart (2011) has highlighted the potential for an approach rooted in transaction cost and internalization (TCI) theory (Buckley and Casson 1976; Hennart 1982). TCI theory offers that 'firm-specific' assets determine when it is beneficial to internalize foreign operations to protect against freeriding that can chip away at a firm's reputation, to ensure that knowledge is not transferred to potential competitors, and to reduce transaction costs in other ways (Hennart 2001, 2010). This emphasis on 'firm-specific' transaction cost factors means that optimal levels of multinationality will also be 'firm-specific' When a firm is aligned with its specific optimal level of multinationality, performance should be optimal. Alternatively, deviation from firm-specific optimal levels of multinationality should be negatively related to performance (Hennart 2001, 2011; Powell 2014). Unlike the extensive body of M--P research, TCI theory offers a functional theoretical chain with clear implications, and as a result, it is important to explore key questions within this promising, but still nascent, approach.

In particular, Hennart (2011) asks why some firms systematically deviate from their firm-specific optimal levels of multinationality, and offers two possible explanations. First, "misfits" may be temporarily misaligned, as the ability to quickly adjust to optimal levels will differ between firms. This explanation makes intuitive sense, as differences in how quickly misaligned firms can adjust to their firm-specific optimal levels of multinationality could come from barriers to adaptation, including the specificity of existing assets, or even institutional characteristics of home and host countries. Additionally, even though managers are motivated to proactively or reactively adjust multinationality to achieve optimal performance (Nickerson and Silverman 2003), continuous environmental change could lead to prolonged misalignment with firm-specific optimal levels of multinationality. However, all else being equal, these types of deviations should be random (Hennart 2007, p. 442). Hence, we can anticipate specific cases where individual firms take more time to align themselves with their firm-specific optimal levels of multinationality, and specific cases where individual firms in continuously changing environments never fully align with their firm-specific optimal levels of multinationality, but these should be random cases. The second explanation is that top managers may resist adjustments towards firm-specific optimal levels of multinationality for various reasons, even if there are performance benefits. At this point, the reasons why decision makers would be willing to continuously accept suboptimal performance are still unclear. Yet, it is important to understand the reasons for continuous deviations because the cumulative negative performance implications of continuous deviation could be quite large. Hence, the motivation behind this conceptual analysis is to offer one explanation for systematic stable deviations from firm-specific levels of multinationality and a willingness of managers to accept sub-optimal performance.

Given that it is decision makers who accept stable deviations in 'misfit' firms, we should be able to understand such deviations through the prism of decision maker cognition. Consistent with recent calls to better incorporate the micro foundations of strategy into strategy theory and research (e.g., Baer et al. 2013; Gavetti 2012), international business researchers have noted the simultaneous lack of attention given to decision maker cognition, and the great explanatory potential of incorporating cognitive processes (Barkema and Shvyrkov 2007; Brouthers and Hennart 2007; Hennart and Slagen 2015). While there were early efforts in this area (e.g., Aharoni 1966), the business of filling this gap in understanding decision maker cognitive processes in internationalization has largely been left collecting dust on the metaphorical shelf of the academy, with the recent exception of Maitland and Sammartino (2015) who offer that the sense making process of individual managers will be influenced by the richness and connectedness of their own mental modes.

In this analysis, I argue that the behavioral theory of the firm and its descendent theories (Cyert and March 1963; Greve 2003a) are particularly well suited for explaining when decision makers respond to problems such as poor performance that could result from misalignment with firm-specific optimal levels of multinationality. Additionally, the behavioral theory and its descendent theories are especially attractive for an effort to link decision-maker cognition to firm-level outcomes such as multinationality, and subsequently performance. Hence, in the current study I draw upon behavioral theory to argue that decision makers will accept suboptimal performance, resulting from deviation from firm-specific optimal levels of multinationality, if aspirations are being met. In addition, I argue that firm size, decision-maker narcissism, and decision-maker accountability to external audiences may also affect this relationship.

2 Theory and Propositions

2.1 Alignment with Firm-Specific Multinationality and Performance

Transaction cost economics offers that in a competitive environment it is more efficient to organize exchanges via markets. However, when it is difficult to accurately estimate values and prices, or when it is difficult to monitor exchange partners, it may be more efficient to organize exchanges within a firm through internalization (Coase 1937; Williamson 1979). While transaction cost economics looks at individual exchanges and stresses the importance of assets specificity, the complementary TCI theory approach (Buckley and Casson 1976; Hennart 1982) has been applied to a firm's overall collection of decisions on whether to organize international interdependencies via markets or hierarchy. Specifically, TCI theory offers that a firm's collection of decisions on how to organize international interdependencies can also be related to efforts to protect organizational reputation from freeriding partners and efforts to internalize markets for knowledge (Hennart 2001).

Given that organizational standing and knowledge are firm-specific assets, optimal configurations of international interdependencies will also be firm specific. This means that depending upon firm-specific transaction-cost factors, the optimal level of multinationality for some firms could be zero multinationality, or no foreign activities organized via hierarchy. On the other hand, depending upon firm-specific transaction cost factors, the optimal level of multinationality for other individual firms can include specific levels of multinationality, where foreign activities are organized via hierarchy. Firm-specific transaction cost factors will determine firm-specific optimal levels of multinationality, and firm performance will depend upon alignment with firm-specific optimal levels of multinationality. If a firm's multinational footprint goes beyond its optimal level of multinationality, or is 'excessive', performance should decrease (Hennart 2011). Similarly, if a firm's multinational footprint is below its optimal level of multinationality, or is 'insufficient', performance should decrease (Hennart 2011). And finally, if a firm's multinational footprint is aligned with its optimal level of multinationality, performance should be optimal. The TCI approach offers a clear functional theoretical chain of relationships explaining how firm-specific multinationality and performance should be related.

However, as mentioned above, TCI theory also leads to an important unanswered question: why do some firms systematically and continuously deviate from their specific optimal levels of multinationality (Hennart 2011)? Specifically, top managers may resist adjustments towards a firm-specific optimal level of multinationality for various reasons, even if there are performance benefits (Hennart 2011). The TCI theory approach to linking firm-specific multinationality to performance does not by itself incorporate the cognitive processes of decision makers, so the answer to this question is still unclear. Simply, TCI theory suggests that if a firm is aligned performance will be optimal, and if a firm is misaligned performance will be suboptimal. Yet, the notion that decision makers accept sub-optimal performance suggests that they undergo cognitive processes to assess satisfaction with the current situation and willingness to continue. Offering one explanation for these continuous systematic deviations is the subject of this conceptual analysis.

2.2 Incorporating Aspirations

As Hennart (2011) notes, some managers may be willing to accept suboptimal performance. This idea is consistent with insights from the behavioral theory of the firm (Cyert and March 1963; Greve 2003a), which acknowledges that decision makers are boundedly rational (Greve 2003a; Simon 1955) and decisions are often made with input from multiple individuals and coalitions with their own interests. It is unlikely that each coalition will agree upon a single optimization-type goal (Cyert and March 1963; Simon 1979). Instead, coalitions bargain and engage in satisficing to agree upon imperfectly rationalized goals (Cyert and March 1963; Greve 2003a; Levitt and March 1988) framed in simple terms (Greve 2003a; Levitt and March 1988; Sterman 1989).

Organizational goals may be framed as aspirational performance, where decision makers agree that they want to achieve performance levels that are equal to, or greater than, the performance of some reference group (Greve 2003a, 2008; Miller et al. 1988; Wheeler and Koestner 1984) or the past performance of the focal firm (Greve 2003a; Lant 1992; Lant and Montgomery 1987). With regards to reference groups, the firms that decision makers in multinationals make comparisons with could be highly idiosyncratic, depending on industry, stock markets listed on, stakeholder relationships, and other factors. Additionally, the use of reference groups in forming performance aspirations highlights the reality that aspiration formation occurs in competitive environments, and even though goals may be imperfectly rationalized in terms of optimization, they do not form in a competitive vacuum. Instead, aspirations set with reference to the competitive field illustrate a powerful role for competition in the behavioral approach. At the same time, decision makers may find comparisons with their own firm's historical performance to be more acceptable. In both cases, comparisons with other firms or the decision makers' firms' historical performance, these aspirations satisfy the need for a simplified decision rule, and also satisfy the need for a goal that many competing coalitions can agree upon.

If aspirations are met or exceeded, decision makers are satisfied (Schneider 1992). Additionally, if aspirations are exceeded, this represents a gain situation, and from the perspective of prospect theory (Kahneman and Tversky 1979), decision makers may perceive less value in additional gains, thereby reducing managerial tolerance for risk (Greve 2003a). Hence, performance above aspirations may reduce managerial openness to risky strategic change. In this case, changes considered by managers, if any, are likely to remain incremental and center upon proximate or existing activities or knowledge stocks (Greve 1998), as in the case of an emphasis on sales subsidiaries and/or stable markets that are proximate to existing operations and low risk. Changes that are considered by managers are likely to center around the familiar because there will not be a perceived problem that urgently needs to be resolved through outwardly expanding search for solutions. In the context of multinational enterprises, this notion suggests that managers in firms which satisfy aspirations will prefer to maintain current activities, or perhaps pursue incremental and less risky changes that are not driven by the need to correct problems with existing performance. Of course, some scholars offer that this negative relationship between performance and managerial risk taking can be countered when organizations have slack resources that offer some sort of buffer from failure and encourage decision makers to explore (Cyert and March 1963; Geiger and Cashen 2002; Greve 2003a; Sharfman et al. 1988). However, if one controls for organizational slack, performance at or above aspirations should decrease managerial tolerance for risk (Greve 2003a). Overall, this idea suggests that if a firm deviates from its firm-specific level of optimal multinationality and experiences sub-optimal performance, but still achieves a level of performance that is above its aspirations, managers will be more risk averse and less likely to consider activities and actions that are distant from current activities.

On the other hand, if actual performance falls below aspirations, decision makers may view this as being problematic (Barnett and Sorenson 2002; Cyert and March 1963; Greve 2003a). In addition, prospect theory suggests that in loss situations, decision makers perceive greater value in reducing losses or creating gains (Kahneman and Tversky 1979). Hence, when actual performance falls below aspirations, managerial tolerance for risk may increase (Greve 2003a). At the same time, performance below aspirations can trigger "problemistic search," where alternative solutions in the immediate environment are identified and tried in an attempt to resolve problems that are negatively impacting performance (Cyert and March 1963; Greve 2003a, 2008). For example, if a multinational enterprise's actual performance falls short of aspirations set with reference to key competitors, decision-makers within the multinational will search for a solution that allows them to improve performance relative to these competitors. If a solution is not identified in the immediate environment, the problemistic search process will spiral outwards to identify more distant solutions to the problem (Greve 2003a). Thus, when performance falls below aspirations, managers will have greater tolerance for risk (Kahneman and Tversky 1979), and they will actively search for solutions.

Importantly, perceived problems in performance, managerial risk tolerance, and awareness of potential solutions identified through problemistic search can influence the cognitive managerial decision making process (Cyert and March 1963, p. 126; Greve 2003a, p. 60). More specifically, solutions may be perceived as risky in the sense that they are different from known and familiar activities (Sitkin and Pablo 1992), and decision makers evaluate solutions based upon their relevance to focal problems (Cyert and March 1963, p. 126; Greve 2003a, p. 59) and acceptability given levels of managerial risk tolerance (Buckley et al. 2016; Greve 2003a, p. 59). Managers are more likely to decide to pursue new solutions in loss situations, even though they may be perceived as risky departures from current activities, because managerial tolerance for risk is higher in loss situations (Kahneman and Tversky 1979). Hence, managerial decisions can result from the cognitive process of considering and weighing perceived problems, relevant solutions, and risk tolerance (Audia and Greve 2006; Cyert and March 1963; Greve 2003b; Kacperczyk et al. 2015; Sitkin and Pablo 1992).

In the context of firm-specific multinationality, managerial decisions to adjust a firm's multinational footprint to improve performance may involve a cognitive process that starts with decision makers perceiving a problem and then searching for a solution. The behavioral conception of the firm suggests that one critical point at which decision makers perceive a problem and start searching for solutions is the point at which actual performance falls below aspirations. Given the link between firm-specific levels of multinationality and performance, relevant solutions would involve adjustments that bring a firm's multinational footprint closer to its optimal levels. The managerial decision to adjust a multinational's footprint should result from the cognitive process of evaluating the relevance of an adjustment solution to the problem at hand, and the acceptability of the adjustment solution given levels of managerial risk tolerance.

So far, this discussion suggests that if we frame organizational performance goals in terms of aspirations, we gain a slightly different understanding of how decision makers might react to poor performance resulting from deviations from firm-specific levels of optimal multinationality, as illustrated in Fig. 1. Specifically, graph 'a' in Fig. 1 illustrates a simplified depiction of initial expectations on the relationships between deviation, performance, and changes to a firm's multinational footprint. The solid line and the y-axis on the left side of the graph corresponds to firm performance. In line with the expectations of TCI theory (Hennart 2007, 2011), deviations from firm-specific optimal levels of multinationality, as indicated by the center of the x-axis, are associated with decreases in performance. In addition, empirical research has found support for this relationship (e.g., Powell 2014). Next, the dashed line and the y-axis on the right side of the graph correspond to the likelihood that decision makers will adjust a firm's multinational footprint, to improve performance. In graph 'a,' as soon as performance falls below optimal levels, managers are more likely to make adjustments. Of course, for illustrative purposes, this graph offers the strictest interpretation of the expectations of the TCI theory approach. As described in the introduction section, TCI theorists acknowledge that it might be impossible for managers to exactly identify firm-specific optimal levels of multinationality, and there may be barriers to adaptation that slow the process of alignment with firm-specific optimal levels of multinationality (Hennart 2011). Yet, even if we accept that optimal levels of multinationality can be difficult to specify exactly and there may be barriers to rapid adaptation in specific cases, or barriers to full alignment in dynamic environments, TCI theory suggests that performance decreases resulting from deviations from firm-specific optimal levels of multinationality will correspond to an increased likelihood of change in multinationality towards a firm's specific level of optimal multinationality.

[FIGURE 1 OMITTED]

Alternatively, graph 'b' in Fig. 1 offers a different story. The expectations on performance, as indicated by the solid line and the left side y-axis, are still in line with TCI theory predictions. However, the dashed line and the right-side y-axis reflect the likelihood of adjustments to a firm's multinational footprint, indicating that decision makers attempt to improve performance after aspirations are not met. In graph 'b,' if a firm is experiencing suboptimal performance because of deviation from firm-specific optimal levels of multinationality, decision makers are only more likely to make adjustments if performance also dips below aspirations. Hence, one answer to the question of why some firms systematically deviate from their firm-specific optimal levels of multinationality, could be that even though they are not performing at optimal levels, they are still meeting or exceeding aspirations. This idea is reflected in the following propositions.

Proposition 1 All else being equal, managers are likely to accept deviations from firm-specific levels of multinationality, and suboptimal performance, as long as aspirations are met or exceeded.

Proposition 2 All else being equal, when actual performance falls short of aspirations, managers are likely to perceive a problem and will begin searching for solutions leading to adjustments to multinationality in an effort to satisfy aspirations.

2.3 The Role of Firm Size

Research suggests that larger firms tend to be more rigid than smaller firms in their preferences for actions that are consistent with past activities (Audia and Greve 2006; Greve 2010; Hannan and Freeman 1977; Park 2003). In international contexts, this idea suggests that smaller firms will have greater entrepreneurial agility in responding to various environmental needs across markets. It follows that, on balance, we can expect larger firms to have greater levels of positional rigidity. However, decision makers in small and large firms may differ in how they adjust their levels of positional rigidity when faced with poor performance.

The notion that decision makers in small and large firms may differ in how they adjust levels of positional rigidity in the face of poor performance comes out of research seeking to reconcile the differing expectations of performance feedback theory and threat rigidity theory (Audia and Greve 2006). Performance feedback theory argues that decision makers are more likely to engage in risky change when performance falls short of aspirations (Greve 1998, 2003a, b), but threat rigidity theory suggests that poor performance decreases the likelihood that decision makers will pursue new and uncertain activities (D'Aunno and Sutton 1992; Greve 2010; Staw et al. 1981). Specifically, threat rigidity theory offers that decision makers may perceive performance below aspirations to be an existential threat to organizations, and these decision makers may respond to this perceived threat under conditions of anxiety and extreme pressure (Greve 2010; Shimizu 2007; Staw et al. 1981). As a result, decision-making control becomes more centralized and decision makers resist change, preferring instead to follow familiar routines and strategic options (D'Aunno and Sutton 1992; Greve 2010; Staw et al. 1981). This idea suggests that if firms are not aligned with their specific optimal levels of multinationality, and are performing below aspirations, decision makers would be less likely to make changes that move the firms closer to their firm-specific optimal levels of multinationality.

In an attempt to reconcile the contradictory ideas presented in threat rigidity theory and performance feedback theory, authors have noted that risk taking and rigidity may be driven by different factors (Audia and Greve 2006; Greve 2010). In particular, threat rigidity theory suggests that risk aversion and resistance to change is triggered when performance below aspirations causes decision makers to perceive some sort of danger and threat to the very survival of the firm (Audia and Greve 2006; Greve 2010; Sitkin and Pablo 1992; Staw et al. 1981). If performance shortfalls are perceived as being an existential threat to the firm, managers should also perceive a threat to their positions within the firm and in the wider market for managerial talent, and the resulting anxiety causes a constriction in behavioral responses and a preference for familiar activities and routines (Greve 2010; Staw et al. 1981). On the other hand, in performance feedback theory, shortfalls between actual performance and aspirations are perceived as being problematic (Cyert and March 1963; Greve 2003a, b), but not necessarily an existential threat to the firm and the positions of decision makers within the firm and the wider market. Hence, whether decision makers respond to shortfalls with problemistic search or increased rigidity depends on whether they perceive a performance shortfall as being a threat to their position in the firm or wider industry. Additionally, Audia and Greve (2006) offer that the key organizational characteristic that determines whether decision makers perceive shortfalls as being problems that can or cannot be solved, is the stock of resources available to them. Decision makers in larger firms with larger resource stocks are less likely to view shortfalls in aspirational performance during one period as being unsolvable threats to the existence of the firm and their positions within the firm and wider market, and they are more likely to view these shortfalls as solvable problems (Audia and Greve 2006; Greve 2010). In other words, decision makers in large firms are already more rigid on balance, and are also less likely to increase their levels of positional rigidity in the face of performance shortfalls. Alternatively, small-firm decision makers start off less rigid, and resource constraints lead them to perceive performance shortfalls as threats to their positions in the firm or wider market. Hence, decision makers in small firms should be more likely than decision makers in large firms to increase positional rigidity following shortfalls between aspirations and actual performance. These ideas are offered in the following proposition.

Proposition 3 When actual organizational performance falls below aspirations, decision makers in small firms are more likely than decision makers in large firms to increase their positional rigidity, reducing their propensity to adjust multinationality to improve performance.

2.4 Retrospective Revision of Aspirations

Importantly, research has also offered that under certain conditions decision makers may be more likely to retrospectively revise aspirations in the face of performance shortfalls (Jordan and Audia 2012). To begin with, decision-maker narcissism could lead to the retrospective revision of aspirations in the face of shortfalls. High levels of narcissism are associated with inflated positive estimates of one's abilities, as well as a need confirm these perceptions (Campbell and Foster 2007; Chatterjee and Hambrick 2007; John and Robins 1994; Jordan and Audia 2012). When actual organizational performance falls below aspirations, highly narcissistic decision makers feel uncomfortable and threatened (Jordan and Audia 2012; Judge et al. 2006). As a result, narcissistic decision makers may retrospectively revise aspirations (Jordan and Audia 2012) to reconfirm inflated estimates of their capabilities while simultaneously avoiding acknowledgment of poor performance. These decision makers may be able to retrospectively revise aspirations without highlighting their failure to meet original aspirations, because aspirations are simple thresholds cast in terms of historical and/or social comparisons. For example, a decision maker whose organization failed to satisfy aspirations to do as well or better than competitors may make retrospective revisions by assessing performance relative to a more restricted subset of poorer performing competitors. Or, the same decision maker may retrospectively revise aspirations by comparing performance using a more restricted subset of performance metrics that makes performance look better. It follows that shortfalls in performance caused by deviation from firm-specific optimal levels of multinationality may cause narcissistic decision makers to retrospectively revise aspirations. These ideas lead to the following proposition.

Proposition 4 When actual organizational performance falls below aspirations, highly narcissistic decision makers are more likely to retrospectively revise aspirations for favorable performance assessment.

Similarly, it is possible that when decision makers are accountable to external audiences, they would be more likely to retrospectively revise aspirations to enhance perceived performance and decrease negative consequences (Jordan and Audia 2012). Decision makers are accountable when they must explain and defend themselves to external audiences (Fang et al. 2014; Jordan and Audia 2012; Tetlock 2002). The power of external audiences is in their ability to award or punish decision makers depending upon how satisfactory they view the performance of decision makers. If actual performance falls below aspirations, this represents a threat to decision makers, who might respond by trying to enhance their performance by retrospectively revising aspirations (Jordan and Audia 2012). In essence, these decision makers attempt to enhance perceptions of their performance to defend against negative consequences (Peecher and Kleinmuntz 1991). This self-enhancing reaction may be especially strong in cases where external audiences are most interested in outcomes, rather than processes (Jordan and Audia 2012). There are fewer alternative ways for decision makers to portray their actions and performance in positive ways when audiences are focused narrowly on summative outcomes that have already been rendered, leaving retrospective revision of aspirations as the only option for self-enhancement. This discussion suggests that when performance falls short of aspirations due to misalignment with firm-specific optimal levels of multinationality, decision makers that are accountable to external audiences are more likely to opt for retrospective revision of these aspirations. This idea leads to the final proposition in this analysis.

Proposition 5 When actual organizational performance falls below aspirations, decision makers that are highly accountable to external audiences are more likely to retrospectively revise aspirations for favorable performance assessment.

Propositions 4 and 5 illustrate manipulations of comparisons between aspirations and actual performance. This phenomenon is relevant in the current theoretical analysis because it is related to changes in the key comparison that is used to decide whether the negative performance consequences of misalignment with firm-specific optimal multinationality are acceptable of not. This phenomenon blurs the key comparison in the framework. However, simply retrospectively revising aspirations to generate more favorable assessments does not necessarily mean that decision makers will then continue to accept deviations from firm-specific optimal levels of multinationality. Instead, any continued deviation, or problemistic search, that results from these shortfalls should be related to additional context-specific factors. For example, in some cases the threat posed by poor performance in the face of accountability to external audiences, or the threat of decision-maker egos, may cause decision makers to double down and escalate commitment to past decisions and actions (Fox and Staw 1979; Jordan and Audia 2012). In this case, retrospective revision of aspirations would serve as justification for continuous deviation from firm-specific optimal levels of multinationality. Yet, at the same time, it is easy to anticipate cases where managers are fearful of the consequences of negative assessments by institutional investors, analysts, and shareholder coalitions. In these cases, we might expect decision makers to simultaneously retrospectively revise aspirations to downplay short falls and engage in problemistic search to improve performance.

3 Conclusion and Discussion

Within the broader literature on multinationality and performance, the nascent literature on firm-specific optimal levels of multinationality determined by firm-specific transaction cost factors is promising because it offers a clear theoretical chain of functional relationships. To quote Hennart (2011), in transaction cost and internalization theory, "what counts is fit". However, at this point there is perhaps less clarity on the factors that might lead to systematic deviation from firm-specific optimal levels of multinationality. Or, why are there 'misfits?' One intriguing possibility is that decision makers may be willing to accept poor performance that results from deviation (Hennart 2011).

Drawing upon the behavioral theory of the firm (Cyert and March 1963; Greve 2003a, b), this conceptual analysis offers that stable deviation from firm-specific levels of multinationality can be explained by decision maker use of aspirations. When actual performance equals or exceeds aspirations, decision makers are satisfied with performance (Greve 2003a, b) and are less likely to search for solutions that lead to strategic changes to improve performance. Hence, if a firm is misaligned with its firm-specific level of multinationality and is experiencing suboptimal performance, this situation may be acceptable to decision makers as long as aspirational performance goals are being met or exceeded. This idea illustrates one theoretical explanation for why firms might systematically deviate from their specific levels of optimal multinationality. Additionally, I have argued that decision makers in small firms will be more likely than decision makers in large firms to increase their positional rigidity if actual performance dips below aspirational performance. I have also argued that narcissistic decision makers have highly inflated perceptions of their own abilities (Campbell and Foster 2007; John and Robins 1994) and may retrospectively revise aspirations to improve performance assessments and satisfy the need for self-enhancement (Jordan and Audia 2012). In the same way, decision makers that are highly accountable to outside audiences may retrospectively revise aspirations for self-enhancement (Jordan and Audia 2012) and to receive rewards or avoid punishment (Peecher and Kleinmuntz 1991). Yet, in both cases where aspirations may be retrospectively revised, decision makers' continuous acceptance of deviation, or problemistic search and learning behaviors to move the firm's multinational footprint closer to its optimal level, will be influenced by context-specific factors.

The contribution of this research is in further developing the emerging body of literature that centers upon alignment with firm-specific optimal levels of multinationality, as determined by firm-specific transaction cost factors, and resulting performance. In particular, this work seeks to offer one explanation for continuous deviation from firm-specific optimal levels of multinationality. However, the ideas presented within this study may also help to better understand the possible mechanisms by which decision makers realize that multinational footprints are not optimal. The point at which actual performance falls below aspirations is a trigger for search and scanning processes directed at solving problems and improving performance. The search and scanning process involves analysis, and potentially multiple attempts at improvements, that is continued until performance is improved. If misalignment with firm-specific optimal multinationality is what is driving poor performance, then decision makers will continue to search for solutions until multinationality is adjusted towards optimal until performance meets or exceeds aspirations. In other words, shortfalls in aspirations create awareness of the problem, and the search and scanning process is when decision makers realize that the problem is misalignment. The search and scanning process is also when decision makers gain a better, but perhaps still approximate, understanding of what the optimal level of multinationality is for their firms.

In this analysis, aspirations and the search process have deliberately been cast in a broad and abstract sense, to create a broad theoretical understanding that can be further explored as the firm-specific optimal multinationality and performance literature develops. In particular, decision makers in multinational contexts potentially have more reference groups than decision makers in entirely domestic contexts, or they may find it difficult to specify reference groups. Hence, future research is needed to sort out the factors leading to specific approaches used by decision makers to form aspirations. For example, could a history of reciprocal competitive interactions lead decision makers to use domestic competitors as reference firms, even after they begin to compete globally with firms from other markets'? Or, could having multiple groups of competitors in different locations lead decision makers to use multiple reference groups, or even a preference for aspirations based upon their firm's past performance? The question of how decision makers in multinational contexts form aspirations is ripe for exploration. Similarly, the scanning and search process in multinationals may depend upon factors such as locational diversity, distances experienced, and institutional factors. Questions related to search and scanning processes to improve performance are also ripe for exploration.

Of course, the current study is a conceptual analysis, which means that the arguments and propositions presented have not been subjected to empirical testing. Hence, at this point the role of aspirations in explaining continuous deviations from firm-specific optimal levels of multinationality is an entirely theoretical argument. From one perspective, this lack of empirical analysis could be considered a weakness. However, I would argue that the process of explaining misfits should start with a theoretical discussion for two reasons. First, an initial explanation of misfits at a higher level of abstraction may inspire further theoretical debate and rigor before empirical norms are established, for better or worse. Second, and on a similar note, initial conceptual analyses could result in a greater level of epistemological diversity in subsequent studies, as researchers may seek to explore the phenomenon of continuous misalignment with theoretical a touchstone, but not an empirical straight jacket. Furthermore, the value in starting this discussion at a theoretical level can be seen in both transaction cost economics (Coase 1937) and the behavioral theory of the firm (Cyert and March 1963). Early efforts in these areas were largely theoretical, and early theoretical rigor is certainly one of the reasons why both of these theories have proven to be relevant up until the present. The current study is an integration of the decedents of transaction cost economics and the behavioral theory, and I would argue that it is wise to begin with a theoretical discussion just like this study's ancestors did.

Acknowledgements The author would like to thank the College of Business and Economics at Western Washington University for offering summer research funding in support of this research.

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K. Skylar Powell (1)

Received: 26 January 2016/Revised: 30 December 2016/Accepted: 11 January 2017/

K. Skylar Powell

skylar.powell@wwu.edu

(1) College of Business and Economics, Western Washington University, Bellingham. USA
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Title Annotation:RESEARCH ARTICLE
Author:Powell, K. Skylar
Publication:Management International Review
Article Type:Report
Date:Jul 1, 2017
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