Research seminar by Murat Tarakci

Abstract: Research on the Behavioral Theory of the Firm (BTF) has traditionally treated performance aspirations as inward-facing reference points for organizational learning. Recent work shows that aspirations also face outward and firms avoid visibly failing what they announce. High-performing firms, with the most to lose from a public failure, should be the most careful of all. We argue this self-protection logic breaks down because firms cannot always revise aspirations quietly and missing aspirations might be financially penalized. Here, aspiration-setting becomes an act of signaling: only firms confident in their capability can afford a demanding aspiration, so ambition communicates commitment precisely because failure must be paid for, and a visible miss reads as evidence of a demanding aspiration rather than of incompetence. We test our theory on the Sustainability-Linked Bond (SLB) market from 2019 to 2025, where bond terms are priced on pre-announced sustainability aspirations and failing to attain the aspirations triggers contractual penalties. We find that firms with strong prior ESG performance set aspirations 15 percentage points more ambitious than low-performing firms, yet attain them roughly half as often; low-performing firms set modest aspirations and attain them reliably. These findings recast aspiration-setting as a strategic signal rather than a self-protective adjustment.

 

 

About Murat Tarakci

 

Murat Tarakci is Professor of Innovation Strategy at IMD. His research focuses on the social and psychological foundations of innovation and strategy, examining how organizations adapt to and shape their environments. Tarakci’s work highlights that winning strategies stem from individuals and teams who think, feel, and care. Hence, understanding why strategies thrive or fail must consider individuals’ cognition, emotion, and motivation. His work also aims to create a positive impact by helping organizations better address societal challenges through a deeper understanding of their behavioral dynamics and mechanisms. Tarakci’s research has been published in leading academic journals such as the Academy of Management Journal, MIS Quarterly, Organization Science, and Strategic Management Journal and has featured in Harvard Business Review, MIT Sloan Management Review, and The Wall Street Journal. 

For more about Professor Murat Tarakci, please see his full bio HERE