Shareholder Satisfaction or Societal Benefit? Coalition Support and Goal Prioritization

Abstract

Research on the behavioral theory of the firm has established that the profitability goal triggers various firm actions, but it has yet to thoroughly explore which other goals may gain prominence in directing firm resources if the profitability goal has been achieved. We identify shareholder satisfaction and societal benefit as two additional organizational goals and predict that when firms have achieved their profitability aspirations, the financial resources allocated to pursue these goals depend on the dominance of coalitions supporting or opposing them. Drawing on the coalition theory within the behavioral theory of the firm, we theorize that the prioritization and pursuit of a goal depend on the relative power of its supporting coalition within a firm’s governance body, including top decision-makers like CEOs and board members. By examining 2071 Chinese listed firms, we find that the relative strength of the shareholder-value coalition (supporting shareholder satisfaction) and the state-endorsement coalition (supporting societal benefit) affects firms’ resource allocation toward dividend payments and corporate philanthropy in distinct ways.