The expectancy violation effect: how negative performance feedback affects firms’ M&A intensity

Purpose Building on expectancy violations theory, this study aims to investigate the role of negative performance feedback in firm’s mergers and acquisitions (M&A) intensity, a typical risky strategic option which might entail negative reactions from shareholders, and also examine the moderating effects of top management teams (TMTs) regulatory focus on this relationship. Design/methodology/approach The authors use a longitudinal panel sample of 2,042 Chinese A-share listed manufacturing firms and data for the years between 2007 and 2019 collected from multiple data sources. Furthermore, the authors also conducted supplementary analyses and various robustness checks of the key variables. Findings The findings show that both the intensity and duration of negative performance feedback negatively impact firms’ M&A intensity. Besides, the effect of negative performance feedback on M&A intensity will be magnified when the focal firm of TMTs with high prevention focus. Practical implications During the period of performance depression, TMTs are supposed to focus on stability, keep an eye on potential risks and be prudent in making decisions like walking on eggshells to avoid making further losses. Originality/value This study develops a core mechanism – managers of underperformance firms prioritize meeting shareholder expectations as their foremost task to ensure minimal negative repercussions – and also highlights the role of fit between TMT prevention focus and negative performance feedback on M&A intensity.