How do you think you are doing? Managerial perceptions, aspirations and innovation

Empirical studies on the behavioral theory of the firm have been mostly silent on the possibility that managerial perceptions of relative performance may diverge from the relative performance measured using objective firm performance metrics. Considering this presents an opportunity to deepen the literature on firm-level aspirations and the behavioral theory of the firm. Using organizational-level survey data we examine how the inconsistency between managerial perception of relative performance and actual relative performance, affects the propensity to launch innovative products or processes. Based on literature on managerial cognition, we also consider two types of social and historical inconsistencies – one, when perceptual performance is markedly above actual performance change, which we term as overestimation, and, two when perceptual performance change falls markedly below actual performance change, which we term as underestimation. In line with broader BTOF literature, the main results show that inn...