Pacing and path dependence: how strategic consistency in capital reallocation shapes firm performance

• Discontinuous capital reallocation degrades firm performance. • Engaging in reallocation activities that deviate from past decreases profitability. • Reallocations that differ from past practices may reduce internal efficiency. • Capital reallocation cannot predict firm’s future value decrease or increase. • Alignment with history improves outcomes relative to misalignment. While capital reallocation is essential for maintaining competitiveness, it presents a dilemma: large-scale changes disrupt existing routines and harm performance. Prior research has focused on the level of reallocation, overlooking how its effects are conditioned by a firm’s historical context. To shed light on this dilemma, We examine how the performance impact of capital reallocation depends not only on its pace (discontinuous vs. incremental) but also on a path-dependent mechanism: consistency with past strategies. Analyzing Japanese panel data, we find that discontinuous (large-scale) reallocation harms performance more than incremental (small-scale) reallocation. Critically, this relationship is strongly contingent on a firm’s past patterns: the negative impact is mitigated for firms with a history of discontinuous change, whereas performance suffers most when organizations accustomed to incremental change reallocate discontinuously. Our study introduces strategic consistency as a new channel in reallocation research and empirically suggests that dynamic capabilities are cultivated within organizational history and inertia.