Aspiration levels, performance, and change in governance mode

Building on the prior research on aspiration levels and managerial decision making, we examine the conditions under which computer software firms change their governance modes across time. Using insights drawn from behavioral theory of the firm, we suggest that any change in governance mode is considered risky, and is triggered by the gap between actual performance and aspirational performance (developed on the basis of historical and social comparisons). Testing a sample of 1723 computer software firms from 1990 to 2006, we find partial support for our hypotheses. Our results suggest that firms are more likely to change governance modes when performing below aspirational levels (based on either historical or social comparisons).