A Behavioral Theory of Market Retrenchment: Role of Changes in Market Shares and Market Attractiveness

While the behavioral theory of the firm clarifies how performance relative to aspiration levels influences strategic actions, the integration of market performance and business opportunities for resource allocation by firms is less understood. This study investigates how multiregional firms' market retrenchment decisions are influenced by the interplay between changes in regional market share and market attractiveness, drawing on the behavioral theory of the firm. Analyzing prefecture-level sales data from Japanese life insurance companies (2006–2019), I examine the combined influence of market share changes and attractiveness. Results show that in markets with average attractiveness, market share changes have no clear effect on retrenchment. However, this influence is contingent on market attractiveness: in highly attractive markets, both share loss and gain decrease retrenchment, whereas in low attractiveness markets, both increase it. This research demonstrates that responses to performance feedback are critically shaped by the perceived strategic value of the market, leading to complex retrenchment behaviors.