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Causality rules: Performance feedback on hierarchically related goals and capital investment variability

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>1/12/2019
<mark>Journal</mark>Journal of Management Studies
Issue number8
Volume56
Number of pages25
Pages (from-to)1630-1654
Publication StatusPublished
Early online date7/01/19
<mark>Original language</mark>English

Abstract

We extend March and Simon's (1958) analysis of strategic decisions by distinguishing between two rules for allocating attention – priority versus causality. We develop theory concerning causality rules which have been largely overlooked in prior literature. Specifically, we examine how performance feedback on the intermediate productivity goal and the higher‐order profitability goal independently and jointly influence the variability of firm capital investments. Panel analysis of 2,477 Spanish manufacturing firms reveals that these goals jointly affect the variability of capital investments through both priority and causality attention rules. Our study provides new insights on how firms handle multiple goals, deconstruct performance feedback, and cope with the attentional constraints of bounded rationality.