How Performance Matters:The Impact of Multi-Level Performance Framing on Competitive Behaviors

We investigate the implications of multi-level performance framing on unit-level competitive activity. Based on prospect and behavioral theories of the firm, we empirically tested the effects of multi-level performance framing on unit-level competitive activity using data from the U.S. automobile industry between 1980 and 1999. First, at the unit level, we found that the performance of a firm unit relative to the other units of the same firm has important implications for the unitlevel competitive activity. Results suggest that unit-level competitive performance serves as an aspirational reference point against which unit managers frame the performance of other units. Second, we tested the joint (multi-level) effect of firm-level and unit-level framing on competitive activity. The results show that in loss-making firms with profitable units, the firm-level performance has moderating effects that cause the unit to undertake riskier behavior. In addition, when both the firm and unit are profitable, the moderating effect of firm-level performance causes the unit to undertake less risky behavior.