LAUSR

Abstract Although the behavioral theory of the firm posits that performance shortfalls trigger problemistic search, the actual performance consequences of problemistic search remain an open question. We argue that certain cognitive, affective, and behavioral mechanisms triggered by performance shortfalls make managers more aware, attentive, motivated, and disciplined, resulting in adaptation, learning, and enhanced firm value. Furthermore, differences in the extent to which managers feel pressured to adapt, and have the ability to adapt, can shape managerial awareness, motivation, and capability, and hence firm value. Our empirical analysis, using data for a sample of US manufacturing firms (1994–2013), confirms that problemistic search enhances firm value, and this association is strengthened when firms face greater pressure to adapt or have a greater ability to adapt.