Performance Below Aspirations in Core and Peripheral Business Sectors and Acquisition Activities

Drawing on performance feedback theory, this study examines how firms respond to performance shortfalls in core and peripheral business sectors through acquisition strategies. Analyzing the acquisition activities of U.S. manufacturing firms, I found that underperformance in core business sectors motivates firms to engage in unrelated acquisitions, while underperformance in peripheral sectors lead the firms to engage in related acquisitions. The findings indicate that the failure in core areas spurs firms to adopt explorative approach to seek novel growth opportunities beyond their core competencies, while the failure in non-core areas motivates firms to take more conservative, exploitative approach to reinforce their core competitiveness. In so doing, I also found that a firm’s overall performance shortfall amplifies the effect of performance shortfall in core sectors on unrelated acquisitions. This study contributes to the literature on performance feedback by offering a business sector-specific view of how organizations respond to performance shortfall relative to aspirations.