Firm performance is often evaluated by comparing ROA performance with aspirations (i.e., performance feedback) while comparing financial analysts’ earnings forecasts with targets (i.e., performance prospects), which could create inconsistencies in signaling weak or strong performance. Two contrasting decision rules—problem-solving vs self-enhancing—have been proposed to explain inconsistent performances. However, the lack of theoretical clarity and equivocal results regarding when each decision rule prevails have limited our understanding of how decision-makers interpret inconsistent performances. We develop a behavioral framework of firms’ multiple reference points to explain how inconsistent performances influence types of organizational change. The results show that when underperforming firms shift to positive prospects, problemistic search motivates increasing rates of acquisition and divestiture. Conversely, when outperforming firms shift to negative prospects, self-enhancement leads to decreasing acquisition rates possibly to cover up potential problems although this does not necessarily apply to divestiture activity. Empirical results based on archival data and qualitative evidence from personal interviews with corporate executives contribute fresh insights by highlighting the significance of factoring in the interplay between performance feedback and performance prospects when distinguishing between problem-solving and self-enhancing mechanisms.