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Strategic Management Journal

Impact factor: 3.367 5-Year impact factor: 6.393 Print ISSN: 0143-2095 Online ISSN: 1097-0266 Publisher: Wiley Blackwell (John Wiley & Sons)

Subjects: Business, Management

Most recent papers:

  • Collective action and market formation: An integrative framework.
    Brandon H. Lee, Jeroen Struben, Christopher B. Bingham.
    Strategic Management Journal. October 20, 2017
    Research Summary: While extant research recognizes the importance of collective action for market formation, it provides little understanding about when and to what extent collective action is important. In this article, we develop a novel theoretical framework detailing what collective action problems and solutions arise in market formation and under what conditions. Our framework centers on the development of market infrastructure with three key factors that influence the nature and extent of collective action problems: perceived returns to contributions, excludability, and contribution substitutability. We apply our framework to diverse market formation contexts and derive a set of attendant propositions. Finally, we show how collective action problems and solutions evolve during market formation efforts and discuss how our framework contributes to strategic management, entrepreneurship, and organization literatures. Managerial Summary: This article lays out the key considerations that players operating in new markets should contemplate when making nontrivial investments in those spaces. As collective action problems can thwart efforts to establish new markets, we ask: When and under what conditions should market players collaborate rather than act independently? And if players collaborate, how should they coordinate to establish a new market? To address these research questions, we develop a novel generalizable framework of collective action in market formation. Our framework assesses the presence and type of collective action problems that hinder market formation and identifies potential solutions tied to those collective action problems. Copyright © 2017 John Wiley & Sons, Ltd.
    October 20, 2017   doi: 10.1002/smj.2694   open full text
  • Do ongoing networks block out new friends? Reconciling the embeddedness constraint dilemma on new alliance partner addition.
    Han Jiang, Jun Xia, Albert A. Cannella, Ting Xiao.
    Strategic Management Journal. October 20, 2017
    Research Summary: This study addresses a theoretical dilemma regarding how alliance network constraint (reflected by network cohesion) affects a firm’s alliance formation with new partners. Using a network pluralism approach, we separate a firm’s ego alliance network into two activity‐based networks—an exploratory network and an exploitative network—based on the primary value chain activity involved in each alliance. We argue that the cohesion of exploratory or exploitative networks has an inverted U‐shaped effect on the addition of new partners in the same activity‐based network, and a positive effect on the addition of new partners in the other network. Results based on data from the biotechnology industry largely support our predictions with one exception. Our study contributes to both scholarly understanding of network embeddedness and alliance practice. Managerial Summary: The structure of firms’ ongoing alliance networks may have paradoxical implications for their efforts to search for and form alliance with new partners. That is, when a firm’s alliance partners are tightly connected with each other, the cohesive network tends to both encourage and impede the focal firm to add new partners. We resolve this dilemma by showing that when a firm is deeply entrenched in a cohesive alliance network conducting a certain type of activities (e.g., R&D activities), it may not easily add new R&D alliance partners. However, it may still be able to escape from the cohesive R&D alliance network by seeking new partners conducting other activities (e.g., manufacturing activities).
    October 20, 2017   doi: 10.1002/smj.2695   open full text
  • BS in the boardroom: Benevolent sexism and board chair orientations.
    Abbie G. Oliver, Ryan Krause, John R. Busenbark, Matias Kalm.
    Strategic Management Journal. October 20, 2017
    Research Summary: Though research has focused on the ascent and acceptance of female CEOs, the post‐promotion circumstances female CEOs face remain unclear. In this study, we focus on a critical post‐promotion circumstance: the board chair–CEO relationship. Drawing on the gender stereotype literature, agency theory, and stewardship theory, we posit that firms appointing a female CEO are more likely to adopt a collaboration board chair orientation and less likely to adopt a control orientation. We further predict this effect is attenuated by female board representation. Using a sample of new S&P 1500 CEOs, we find support for our predictions regarding the collaboration orientation but not the control orientation. This research provides some evidence of benevolent sexism in the boardroom, with female directors acting as a countervailing influence. Managerial Summary: Whereas the notion that females encounter a glass ceiling on their path toward CEO is well documented, the conditions female CEOs encounter after promotion are less understood. The relationship between the board chair and the CEO is one important post‐promotion condition. Board chairs can focus on monitoring and/or working together with the CEO. We suggest board chairs are more likely to work in close collaboration with female CEOs than with male CEOs. We attribute this to benevolent sexism, which explains that board chairs are more likely to collaborate with female CEOs because they view females as more conducive to, and in need of, this type of relationship. We also suggest this benevolent sexism is less prevalent when there are more females on the board.
    October 20, 2017   doi: 10.1002/smj.2698   open full text
  • Bringing cognition into strategic interactions: Strategic mental models and open questions.
    Anoop Menon.
    Strategic Management Journal. October 19, 2017
    Research Summary This article explicitly introduces cognitive considerations into the treatment of strategic interactions, using the value‐based framework as an extended example. Through real‐world examples and prior empirical findings, it shows that many of the implicit assumptions of the framework are regularly violated in practice when actors simplify their complex realities into incomplete, inaccurate mental models. These violations lead to outcomes that are often contrary to the predictions of the classical framework. As initial steps toward developing a cognitively grounded theory of strategic interactions, the article characterizes the core components of strategic mental models that might form the foundation of such a theory and then lays out some open questions that this theory would need to address. These questions, when answered, can point to novel cognitive capabilities. Managerial Summary This article argues that a realistic analysis of interactions between strategic agents requires us to include the mental models, that is, belief systems, of those agents into the analysis. Real‐world examples and prior empirical findings are used to show that if such mental models are not accounted for, the outcomes predicted by the analysis could be quite different from those obtained in reality. The article identifies a few key aspects of these strategic mental models that deserve attention. It also identifies a few central questions that, when answered, could allow firms to develop novel cognitive capabilities that confer competitive advantage.
    October 19, 2017   doi: 10.1002/smj.2700   open full text
  • Towards an Integrated Theory of Strategy.
    Maurizio Zollo, Mario Minoja, Vittorio Coda.
    Strategic Management Journal. October 01, 2017
    Research summary We develop an integrative approach to the study of strategic management in a four‐step logical sequence. First, we discuss one of the rare conceptual frameworks of integrated firm strategy, introduced by Coda (1984). Second, we focus on competitive, growth, and stakeholder strategies and identify four integrative mechanisms underlying the creation of joint outcomes from the combination of different strategic choices. Third, we study how these mechanisms might allow specific binary combinations of strategic choices to create higher levels of value for stakeholders. Lastly, we study the likelihood of alternative three‐way bundles of strategies to generate the highest expected value. This analysis identifies two bundles of strategic decisions that can potentially maximize performance outcomes. Managerial Summary Our integrative approach to strategic management can potentially contribute to the improvement of managerial decision making in three main ways. First, by raising managers’ awareness that decisions in different strategic domains – e.g. competitive, growth, and stakeholder strategies – produce joint effects on value created for stakeholders and, thus, should be selected as an internally coherent bundle. Second, by identifying the factors that influence different strategic decisions and the consequent production of joint results. Some of these factors can be directly learnt and leveraged by managers to shape a more internally coherent and effective portfolio of strategic decisions. Third, by proposing specific bundles of internally coherent choices that might provide useful reference points within the context of the three strategies considered.
    October 01, 2017   doi: 10.1002/smj.2712   open full text
  • A Basic Theory of Inheritance: How Bad Practice Prevails.
    Freek Vermeulen.
    Strategic Management Journal. October 01, 2017
    Research Summary This paper develops an inheritance theory explaining the diffusion and persistence of detrimental management practice. Received wisdom, in both management theory and practice, would suggest that a practice that lowers the life expectancy of adopting firms, over time, will vanish because it puts those firms at a competitive disadvantage. In this paper, I challenge this view. I develop a conceptual model that details how a practice that lowers the survival chances of adopting organizations may still spread and continue to exist across a population of firms. I propose that a combination of three basic conditions is sufficient to bring about this phenomenon: if the practice is somehow associated with success, if there exists causal ambiguity, and if the rate of its diffusion is high compared with the rate at which it accelerates firms' demise, the practice may continue to thrive and become a widespread and persistent feature in an industry. A pivotal conceptual insight is that the endurance of particular management practices and strategies is not merely a corollary of the competitiveness of the organizations that use them but that they have fitness levels of their own. Managerial Summary All organizations have “best practices”: habits that they have picked up in the past or mimicked from others. Managers often believe that these must be the best ways of doing things, because otherwise market forces would have eliminated them. The theory in the paper explains why this belief may be wrong. Some enduring practices may be harmful, without managers realizing it, because it is not necessarily the most optimal practices that survive (just like harmful viruses persist in nature). As a corollary, the paper discusses how the identification and cessation of detrimental practices can form a new source of and way to understand innovation.
    October 01, 2017   doi: 10.1002/smj.2713   open full text
  • Government's Green Grip: Multifaceted State Influence on Corporate Environmental Actions in China.
    Ruxi Wang, Frank Wijen, Pursey P.M.A.R. Heugens.
    Strategic Management Journal. October 01, 2017
    Research summary Emerging economies such as China enjoy economic expansion but also face dramatic environmental challenges. China's government is a central actor in both stimulating economic activities and pursuing environmental protection. Drawing on panel data and in‐depth interviews, we examined the influence of the Chinese state at multiple levels on the environmental actions of publicly listed firms. The results show that corporate environmental actions follow an inverted U‐shape as control of environmental practices moves from the central government to the most decentral administrative level. This curvilinear relationship is positively moderated by the stringency of environmental regulation and negatively moderated by environmental monitoring capacity. We conclude that state influence on corporate environmental actions in China is multifaceted and subject to ‘policy‐policy decoupling'. Managerial summary As China's environmental awareness is growing, the country's government is increasingly concerned with the question as to how it can improve the environmental performance of the firms it controls. Our evidence shows the concurrence of two contravening government influences on corporate environmental practices: a performance‐enhancing effect of the regulatory pressure by multiple authorities and a performance‐diminishing effect of the autonomy enjoyed by local governments. Both the most centrally and the most decentrally controlled firms in China show significantly weaker environmental performance than those controlled by intermediary levels of government. The stringency of sectorial environmental regulation and environmental monitoring capacity affect the strength of the Chinese government's green grip.
    October 01, 2017   doi: 10.1002/smj.2714   open full text
  • The Growth of The Firm: An Attention‐Based View.
    John Joseph, Alex James Wilson.
    Strategic Management Journal. October 01, 2017
    Research summary Although most theories of growth presume that growth varies with the focus and limits of managerial attention, the actual role played by attention has remained largely implicit. In contrast, this paper explicitly considers attention structure and the processes that place sustained focus on growth issues. We explain how attention structure—specialized attention within a particular unit and integrated attention between units—affects both bottom‐up (stimulus‐driven) and top‐down (schema‐driven) attentional processing of new issues. We also examine the relationship between attention structure and divisional interdependencies, identifying conditions under which different attentional patterns generate organizational tensions that lead to architectural elaboration: the delineation of new organizational units. This logic is illustrated with examples from Motorola, a large telecommunications equipment provider, during a period of sustained growth. In linking theories of growth with the attention‐based view, we augment both perspectives and offer an approach which provides a better understand growth's cognitive underpinnings. Managerial summary We examine how, within a multi‐divisional firm, the pattern of organizational attention affects firm growth. We highlight the attention focus within and between divisions and the corporate office and specific processes that shape the intensity and direction of attention in the firm's constituent units. In particular, we examine how corporate interventions, appointment of managerial resources, prototyping, and corporate charters direct managerial attention and the identification and advancement new opportunities in support of growth. Our approach also considers how attention patterns and formal organizational structure interact to cause tensions between managers, and when these tensions lead to the delineation of new subunits. To illustrate our logic, we use examples drawn from Motorola, a large telecommunications equipment provider during a period of sustained growth. Our approach offers managers insights into attentional design of the multi‐divisional firm.
    October 01, 2017   doi: 10.1002/smj.2715   open full text
  • Undervaluation of Directors in the Board Hierarchy: Impact on Turnover of Directors (and CEOs) in Newly Public Firms.
    Sam Garg, Qiang (John) Li, Jason D. Shaw.
    Strategic Management Journal. September 30, 2017
    We examine the consequences of the formalization of the board leadership structure at IPO for board‐level turnover. We introduce the concept of director undervaluation. It indicates the degree to which a director's qualifications based on normatively accepted criteria for board leadership are not duly reflected in his/her appointments to the board chair and committee chair positions. We find that the higher the average undervaluation of directors on the board (“board undervaluation”), the greater the turnover levels of undervalued directors. This effect is stronger when board interaction frequency is higher. We contribute to the behavioral perspective on corporate governance by introducing justice‐based legitimacy as a key normative institution, and by providing a novel predictor of aggregate turnover of directors (as well as the firm's CEO). Managerial Summary Why do outside directors exit the board? We offer a novel answer to this question in the context of newly public firms. We suggest that when directors are passed over for the board chair and committee chair positions despite having higher qualifications than their peers, they have been “undervalued,” and a negative board climate is likely to develop. We find that the higher the average undervaluation of directors on the board, the higher the turnover levels of these undervalued directors. More frequent board meetings exacerbate these turnover levels. Further, these turnover effects are not restricted to undervalued directors–even the CEO is more likely to exit. This study demonstrates the critical importance of developing a legitimate and fair board leadership structure.
    September 30, 2017   doi: 10.1002/smj.2716   open full text
  • The Impact of Strategic Dissent on Organizational Outcomes: A Meta‐Analytic Integration.
    Codou Samba, Daan Van Knippenberg, C. Chet Miller.
    Strategic Management Journal. September 22, 2017
    Research summary Strategic dissent represents divergence in ideas, preferences and beliefs related to ideal and/or future strategic emphases. Conventional wisdom in strategic management holds that such differences in managerial cognitions lead to higher‐quality strategic decisions, and thus to enhanced firm performance. However, four decades of empirical research have not provided consistent findings or clear insights into the effects of strategic dissent. Hence, we analyze the relative validity of predictions about these effects from both social psychological theories of group behavior and information processing perspectives on decision‐making. Then, we conduct a meta‐analytic path analysis (MASEM) based on current empirical evidence. Synthesizing data from 78 articles, we put to rest the notion that strategic dissent leads to positive outcomes for organizations and estimate how negative its effects actually are. Managerial summary Top management teams (TMTs) set the tone and direction for their firms in important ways. Top managers, however, often disagree over fundamental issues related to strategy. Such strategic dissent affects how important decisions are made, and thus how the firm performs. In more specific terms and contrary to popular belief, strategic dissent creates not only dysfunctional relationships among top managers, but also disrupts the process by which these managers exchange, discuss, and integrate information and ideas in making strategic decisions. In short, firms have not yet generated value through numerous perspectives, ideas and opinions among their top managers. We discuss interventions that could prove helpful in efforts to benefit from having diverse cognitions in a TMT.
    September 22, 2017   doi: 10.1002/smj.2710   open full text
  • An Economic Case for CSR: The Comparative Efficiency of For‐Profit Firms in Meeting Consumer Demand for Social Goods.
    Aseem Kaul, Jiao Luo.
    Strategic Management Journal. September 22, 2017
    Research summary We develop a formal model of CSR, with both a for‐profit and a non‐profit organization providing social goods to needy recipients and competing for resources from consumers. We show that CSR results in financial benefit if it is either related to the firm's core business, or non‐overlapping with non‐profit efforts, but only leads to social benefit if both conditions apply, with these relationships being moderated by the firm's core business capabilities. Our paper thus makes a case for CSR based on the comparative efficiency of for‐profits in providing social goods relative to non‐profits, while also highlighting the potential divergence between the financial and social impact of CSR. In addition, it offers new insights into the heterogeneity of CSR, and the role of non‐profits and hybrids. Managerial Summary Firms that undertake socially responsible actions are often rewarded for these actions by supporters of social causes, enabling the firms to make additional profits from CSR. Whether CSR is socially beneficial, however, depends on how the firm compares to a non‐profit serving the same cause. CSR activities that are non‐overlapping with existing non‐profit efforts, and that are closely related to the firm's core business, are likely to most strongly benefit society, especially when undertaken by high‐performing firms. Where this is not the case, CSR adds little social value and may even be harmful. Managers seeking to maximize both firm profits and social welfare through CSR should thus ask themselves: what is my firm's unique advantage in serving this cause relative to alternative providers, e.g., non‐profits?
    September 22, 2017   doi: 10.1002/smj.2705   open full text
  • The Sources of Dynamism in Dynamic Capabilities.
    Carlo Salvato, Roberto Vassolo.
    Strategic Management Journal. September 18, 2017
    RESEARCH We develop a multi‐level theory of dynamic capabilities (DCs) that explains resource dynamics by giving a central role to persons and interpersonal interactions rather than to abstract, firm‐level entities. Our theory integrates the contrasting approaches to DCs in individual‐, interpersonal‐, and organization‐level scholarship. Existing organization‐level approaches portray DCs as collective endeavors but do not specify how they emerge and operate within organizations, while micro‐foundational approaches illuminate actors' contributions but reduce a firm's DCs to the cognitions and actions of a few top managers. Our integrated theory instead explains DCs as effortful social accomplishments emerging from individual employees' capacity to leverage interpersonal relationships conducive to productive dialogue. The framework we propose offers new ground for understanding how DCs can be sources of sustainable competitive advantage. MANAGERIAL How can firms navigate the transformations that relentlessly raise new threats and opportunities in dynamic environments? We suggest that firms develop dynamic capabilities to navigate change when their employees are connected through high‐quality relationships, empowering their innovative potential. Strategic adaptation is possible when people are given the opportunity to act, think, and feel creatively while performing tasks, thus envisioning opportunities to improve how the firm operates. This ability supports sustainable, firm‐level innovation when employees are connected through interpersonal relationships founded on constructive dialogue. Dialogue allows participants to advance and accept proposals for change even in the presence of conflicting interests and viewpoints. Managers may therefore enhance their firm's capacity for change by fostering individual integration and developing contexts that facilitate dialogue and constructive opposition.
    September 18, 2017   doi: 10.1002/smj.2703   open full text
  • Surrendering Control to Gain Advantage: Reconciling Openness and the Resource‐based View of the Firm.
    Oliver Alexy, Joel West, Helge Klapper, Markus Reitzig.
    Strategic Management Journal. September 18, 2017
    Research Summary Strategic openness—firms voluntary forfeiting of control over resources—seemingly challenges the premise of the resource‐based view (RBV), which posits that firms should control valuable, rare, and inimitable (VRI) resources. We reconcile this apparent paradox by formalizing whether and when firms—consisting of resource bundles and deriving competitive advantage from exploiting selected VRI resources—may maximize profitability by opening parts of their resource base. As such, our paper refines RBV‐related thinking while supporting the theory's core tenets. Notably, we illustrate how a common‐pool resource can become a source of competitive advantage and how firms may use openness to shape inter‐firm competition. Managerial Summary Conventional wisdom holds that firms must control scarce and valuable resources to obtain competitive advantage. That being said, over the past decade many firms – amongst them Computer Associates, IBM, and Nokia – embarked on open strategies and made parts of their valuable resources available for free. These decisions pose an obvious conundrum, which we solve in our paper. We use a mathematical model, grounded in principles of the resource‐based view, to show why and under what conditions open strategies will succeed. Firms significantly improve their performance when (1) opening resources reduces their cost base while (2) strongly increasing demand for their still‐proprietary resource(s). We also explain how openness can reshape markets by weakening competitors, particularly in highly rivalrous environments.
    September 18, 2017   doi: 10.1002/smj.2706   open full text
  • A Property Rights Theory of Competitive Advantage.
    Roland Bel.
    Strategic Management Journal. September 18, 2017
    Research summary This paper proposes a formal organizational economics approach to strategic management. Using a Property Rights Theory (PRT) framework, it rationalizes and provides a constructive contribution to two of the main strategy theories: the Resource‐Based View (RBV) and Porter Generic Strategies (PGS). The paper shows that the welfare maximizing PRT conditions that characterize the existence and boundaries of a firm parallel both the RBV and Porter conditions for a sustainable competitive advantage, and provides a formal rationalization of Barney's categorization of resources and Porter's generic strategies. The article reveals some underexplored aspects of current informal theories, and extends their scope with the integration of strategic networks of complementors and social welfare considerations, opening up new avenues for research. Managerial summary The paper brings two new insights for managers. First, showing that a firm can garner rents when it is a socially optimal form of organization for the assets it controls, it rationalizes the importance of control and adds a social welfare perspective to strategy. The Resource‐Based View (RBV) and Porter Generic Strategies (PGS), besides theories of competitive advantage, can also be viewed as theories of control. Second, taking into consideration the growing importance of networks and complementors in the knowledge economy, this paper highlights the strategic importance of two resource characteristics – collaborative and easy to combine – and opens up new doors for the consideration of two business strategies for managers – platform and coordination – in addition to the traditional cost, differentiation and focus strategies.
    September 18, 2017   doi: 10.1002/smj.2707   open full text
  • Toward a Dynamic Notion of Value Creation and Appropriation in Firms: The Concept and Measurement of Economic Gain.
    Marvin B. Lieberman, Natarajan Balasubramanian, Roberto Garcia‐Castro.
    Strategic Management Journal. September 18, 2017
    Research Summary ‘Value creation' is central to strategy. Even so, confusion arises because it can be defined in different ways, e.g., as the sum of producer and consumer surplus in a given time period, or as the change in surplus over time. To formalize the latter notion we introduce the concept of economic gain, defined as the increase in total surplus. Economic gain can arise through innovation or when a superior firm displaces competitors. We provide a firm‐level measurement framework to quantify economic gain and its distribution among stakeholders, including the firm's shareholders, employees, suppliers, and customers. As an empirical illustration, we compare the creation and distribution of economic gain by Southwest Airlines and American Airlines between 1980 and 2010. Managerial Summary Most managers and the business press regard ‘value creation' as the increase in shareholder wealth represented by a rise in corporate profit or stock price. A broader conception of value creation goes beyond shareholders to include the value that is distributed to additional stakeholders of the firm, including employees, suppliers, and customers. We develop a mathematical framework that allows this broader notion of value creation and distribution to be assessed and quantified in many cases. We illustrate the framework using historical data on Southwest Airlines and American Airlines over three decades.
    September 18, 2017   doi: 10.1002/smj.2708   open full text
  • Capabilities, Technologies, and Firm Exit During Industry Shakeout: Evidence from the Global Solar Photovoltaic Industry.
    Nathan Furr, Rahul Kapoor.
    Strategic Management Journal. September 18, 2017
    Research Abstract Explanations of entrants' survival in an emerging industry are premised on pre‐entry capabilities or technology entry choices prior to the emergence of the dominant design. We consider how these drivers interact to strengthen or nullify firms' pre‐entry advantage, and facilitate adaptation as the industry evolves. We also expand the treatment of exit by separating dissolution from acquisition, in which firms' capabilities continue to be utilized in the industry. Studying a recent shakeout in the global solar photovoltaic industry, we find that pre‐entry capabilities and technology choices act in a complementary manner for some firms, thereby enhancing survival, and as buffers against exit for others. Nearly half of exits were via acquisitions, and technology choice at entry played an important role in determining how firms exited. Managerial Abstract New industries are often characterized by intense technology competition that culminates in a dominant technology followed by industry shakeout. Although prior research underscores the central role of technology choice and firm capabilities to survival, we do not actually know how firms with different capabilities and who have made competing technology choices, survive an industry shakeout. In this paper, we show how entrants capabilities and technology choices can act in a complementary manner for some firms, enhancing their chance of survival, and as buffers against failure for others. Moreover, we explain why some firms that do exit are acquired, when others are dissolved.
    September 18, 2017   doi: 10.1002/smj.2709   open full text
  • Who does (not) Benefit from Entrepreneurship Programs?
    Elizabeth Lyons, Laurina Zhang.
    Strategic Management Journal. September 15, 2017
    Research summary We evaluate a technology entrepreneurship training program by comparing career decisions among applicants accepted into the program with unaccepted applicants who are program finalists. We find that program participation is associated with an increased likelihood of subsequent entrepreneurship but that this is not uniform across participants; the estimated relationship between program participation and subsequent entrepreneurial activity is disproportionately lower for applicants with ex‐ante resources and capabilities in entrepreneurship, measured by prior entrepreneurship experience. Moreover, we only observe this reduced impact of the program on subsequent entrepreneurial activity for participants that have prior experience in founding a technology company as opposed to other forms of entrepreneurial activity. This suggests the program is more effective for individuals that have otherwise limited access to technology entrepreneurship opportunities. Managerial summary Given the increasingly competitive landscape for entrepreneurship education programs, it is important to understand when and for whom they have the greatest impact. Using five years of data from a technology entrepreneurship training program, we show that individuals with a higher predisposition toward the type of entrepreneurship being taught by the program, measured by prior technology entrepreneurship experience, are less likely to benefit from training. Our findings imply that individuals who enter programs with the skill set being taught benefit less from the program at the margin, and that individuals without prior experience can be trained in entrepreneurship. These patterns have implications for entrepreneurial program strategy, individuals considering entry into entrepreneurial careers, and firms deciding whether to develop entrepreneurial capabilities in‐house or acquiring them externally.
    September 15, 2017   doi: 10.1002/smj.2704   open full text
  • On the Duality of Political and Economic Stakeholder Influence on Firm Innovation Performance: Theory and Evidence from Chinese Firms.
    Jing Li, Jun Xia, Edward J. Zajac.
    Strategic Management Journal. September 14, 2017
    Research Summary In this study, we propose and test a multi‐stakeholder perspective to address variation in innovation performance across firms. Specifically, we analyze how a focal firm's innovation performance is shaped by its political stakeholders (local and central governments) and economic stakeholders (suppliers, buyers, and competitors). Using a dataset consisting of over 26,400 Chinese firms, we first find support for our predictions that a focal firm's innovation performance will be enhanced by both its government connections and the innovativeness of its economic stakeholders. We then analyze whether the interdependent effect of these political and economic stakeholders is more likely to be synergistic versus antagonistic, and find evidence consistent with the antagonistic view. Managerial Summary We show how a firm's innovativeness is influenced strongly by its relationships to external stakeholders. Specifically, we examine the potentially dual‐edged role of political stakeholders (local and central governments) and economic stakeholders (suppliers, buyers, and competitors). Using extensive data on Chinese firms, we find: (1) that the higher the level of government connections, the greater a firm's innovativeness; (2) that firms located in proximity with more innovative economic stakeholders also tend to have higher innovation performance. We also look beyond these independent positive effects to examine the joint effect of these two forms of stakeholder influence, and here we see that more influence is not always better. Specifically, we find that the innovation benefit that typically accrues to firms in proximity to more innovative economic stakeholders is weakened when those firms also have higher‐level government connections.
    September 14, 2017   doi: 10.1002/smj.2697   open full text
  • Text Matching to Measure Patent Similarity.
    Sam Arts, Bruno Cassiman, Juan Carlos Gomez.
    Strategic Management Journal. September 14, 2017
    Research summary We propose using text matching to measure the technological similarity between patents. Technology experts from different fields validate the new similarity measure and its improvement on measures based on the United States Patent Classification System, and identify its limitations. As an application, we replicate prior findings on the localization of knowledge spillovers by constructing a case–control group of text‐matched patents. We also provide open access to the code and data to calculate the similarity between any two utility patents granted by the United States Patent and Trademark Office between 1976 and 2013, or between any two patent portfolios. Managerial summary We propose using text matching to measure the technological similarity between patents. The method can be used by various practitioners such as inventors, attorneys, patent examiners, and managers to search for closely related prior art, to assess the novelty of a patent, to identify R&D opportunities in less crowded areas, to detect in‐ or out‐licensing opportunities, to map companies in technology space, and to find acquisition targets. We use an expert panel to validate the improvement of the new similarity measure on measures based on the United States Patent Classification System, and provide open access to the code and data to calculate the similarity between any two utility patents granted by the USPTO between 1976 and 2013, or between any two patent portfolios.
    September 14, 2017   doi: 10.1002/smj.2699   open full text
  • Virtuous or Vicious Cycles? The Role of Divestitures as a Complementary Penrose Effect within Resource‐Based Theory.
    Elena Vidal, Will Mitchell.
    Strategic Management Journal. September 14, 2017
    Research summary Studies of how divestitures affect firm performance offer mixed results. This paper unpacks relationships between divestitures and subsequent performance, focusing first on the moderating role of prior performance and then on mechanisms through which divestitures by higher and lower performing firms affect performance. The study suggests that divestitures can exacerbate weakness and reinforce strength: Divestitures by lower performers improve profits but inhibit sales growth and tend to speed the firms’ exits as independent actors; by contrast, higher performing divesters invest in support of existing assets and gain new growth, while avoiding becoming acquisition targets. Most generally, divestitures help reduce constraints to changing a firm's resource base, which we refer to as a complementary Penrose effect. Managerial summary Divestitures help both struggling firms and high performers free financial and managerial resources that they can reinvest in more productive uses. In doing so, divestitures reinforce the strength of high performers but may exacerbate weaknesses of struggling firms. Divestitures by lower performers improve their profits but inhibit their sales growth and increase the chances that the firms will be acquired. By contrast, higher performing divesters gain new growth by investing in support of existing and recently acquired assets and, by doing so, are less likely to become targets of acquirers who seek their productive assets. Thus, divestiture is part of a downward cycle for struggling firms but supports a virtuous cycle for superior firms.
    September 14, 2017   doi: 10.1002/smj.2701   open full text
  • I Can Do That Alone… or Not? How Idea Generators Juggle Between the Pros and Cons of Teamwork.
    Dirk Deichmann, Michael Jensen.
    Strategic Management Journal. September 14, 2017
    Research summary The advantages of working with a team to develop an idea are well established but surprisingly little is known about why some idea generators ignore these advantages by developing their ideas alone. To answer this question, we study two important trade‐offs. First, working with a team provides access to additional resources but also leads to increased coordination costs. Second, sharing the risks and costs of developing an idea necessitates sharing the potential rewards of a successful idea. We use unique data on idea generators and their submission of ideas to an innovation program in a large European company between 1996 and 2008 to show how the two different trade‐offs affect the decision of idea generators to collaborate with a team. Managerial summary Organizations usually form teams to develop and execute innovative ideas. When people have the choice, however, will they also form a team or will they develop ideas alone? By studying idea generators and their voluntary submissions of breakthrough ideas to an innovation program, we find that the success rate is much higher for team ideas. Although teamwork has important benefits, idea generators will often develop incremental ideas alone and only accept increased coordination costs for developing radical ideas—this is even more so when they have prior team experiences. Moreover, only when idea generators were successful before and—even more so—when they developed that idea alone, will they be more open to sharing the rewards and risks of developing another idea with a team.
    September 14, 2017   doi: 10.1002/smj.2696   open full text
  • The decline of science in corporate R&D.
    Ashish Arora, Sharon Belenzon, Andrea Patacconi.
    Strategic Management Journal. September 14, 2017
    Research summary In this paper, we document a shift away from science by large corporations between 1980 and 2006. We find that publications by company scientists have declined over time in a range of industries. We also find that the value attributable to scientific research has dropped, whereas the value attributable to technical knowledge (as measured by patents) has remained stable. These trends are unlikely to be driven principally by changes in publication practices. Further science continues to be useful as an input into innovation. Our evidence points to a reduction of the private benefits of internal research. Large firms still value the golden eggs of science (as reflected in patents) but seem to be increasingly unwilling to invest in the golden goose itself (the internal scientific capabilities). Managerial summary There is a widespread belief among commentators that large American corporations are withdrawing from research. Large corporations may still collaborate with universities and acquire promising science‐based start‐ups, but their labs increasingly focus on developing existing knowledge and commercializing it, rather than creating new knowledge. In this paper, we combine firm‐level financial information with a large and comprehensive dataset on firm publications, patents and acquisitions to quantify the withdrawal from science by large American corporations between 1980 and 2006. This withdrawal is associated with a decline in the private value of research activities, even though scientific knowledge itself remains important for corporate invention. We discuss the managerial and policy implications of our findings.
    September 14, 2017   doi: 10.1002/smj.2693   open full text
  • Strategic Intelligence: The Cognitive Capability to Anticipate Competitor Behavior.
    Sheen S. Levine, Mark Bernard, Rosemarie Nagel.
    Strategic Management Journal. September 11, 2017
    Research summary: Pursuing sources of entrepreneurial and competitive advantage, researchers have been exploring cognition. We examine how cognitive capabilities affect competitive performance, drawing on two constructs rooted in psychology and economics. A familiar one is analytic skill, the ability to solve abstract problems. To that, we add strategic intelligence — the ability to anticipate competitors' behavior and preempt it. Using incentivized experiments, we measure the constructs in participants, then let them compete for cash in a highly competitive market. Although the market is designed to eliminate any advantages, whether from market structure or strategic resources, some profit much more than others. We trace performance differences to heterogeneity in analytic skill and strategic intelligence, and show how the two fuel superior performance, even against tough competition. Managerial summary: Why do some entrepreneurs outperform others? How can companies succeed against tough competition? Certainly, some benefit from unique resources, such as patents, and others can winnow competition, as through mergers. But some have entered highly competitive markets, lacking obvious resources, yet managed to achieve impressive success: think Under Armour, Wal‐Mart or Home Depot. Here we test how advantage can stem from managerial cognition. We measure two kinds of cognitive skill in market participants, and then let them vie for cash in intensely competitive markets. Some end up with far more profit than others. Tracing the root of high performance, we find it is predicted by a combination of analytic skills, the ability to solve abstract problems, and strategic intelligence—ability to anticipate competitors' behavior and preempt it. Copyright © 2017 John Wiley & Sons, Ltd.
    September 11, 2017   doi: 10.1002/smj.2660   open full text
  • Acquisition Motives and the Distribution of Acquisition Performance.
    Maryjane R. Rabier.
    Strategic Management Journal. September 07, 2017
    Research summary: I examine how acquisition motives relate to the distribution of post‐acquisition performance. I argue that acquisitions motivated by operating synergies have the potential to experience greater gains than acquisitions driven by financial synergies but are harder to value and implement, making them more uncertain. Using SEC filings, conference calls and press releases to capture acquisition motives, I find that acquirers pursuing operating synergies are more likely to experience highly positive and highly negative long‐term returns than acquirers pursuing financial synergies. I also find that acquisition experience and geographic proximity to targets soften acquirers' extreme downside outcomes in operating synergy acquisitions. My theory and results suggest that approaches that emphasize average outcomes for acquirers and use industry classifications to capture acquisition motives may be incomplete. Managerial summary: Managers engage in acquisitions for various reasons. In this study, I find that reasons related to operating synergies (e.g., revenue growth through new product offerings or cost savings through economies of scale) are more likely to result in extreme high and low performance outcomes for the acquiring firm compared to reasons related to financial synergies (e.g., diversification of cash flow streams). In addition, I find that the acquirer's prior acquisition experience and the geographic proximity between the target and acquirer help soften the extreme low performance outcomes related to operating synergies. Copyright © 2017 John Wiley & Sons, Ltd.
    September 07, 2017   doi: 10.1002/smj.2686   open full text
  • Time and Space in Strategy Discourse: Implications for Intertemporal Choice.
    Donal Crilly.
    Strategic Management Journal. August 18, 2017
    Research summary: When describing the future, executives draw analogies between time and space (“we are on the right path,” “the deadline is approaching”). These analogies shape how executives construe the future and influence attitudes to action with long‐term benefits but short‐term costs. Ego‐moving frames (“we are approaching the future”) prompt a focus on the present, whereas time‐moving frames (“the future is approaching”) underscore the advent of the future as inevitable. Ultimately, action that prioritizes long‐term returns depends both on how executives conceive of the future and whether they believe they can engender favorable outcomes. This balance between recognizing the inevitability of the future (time‐moving frame) and the capacity to shape outcomes (control beliefs) stands in contrast to the more agentic forms of discourse that are dominant in strategy. Managerial summary: Executives often prioritize maximizing immediate returns over investing to build a long‐term competitive advantage. How they think about the future offers one explanation for this short‐termism. This article distinguishes two ways of framing the future with implications for decision‐making. Are we approaching the future (the ego‐moving frame) or is it approaching us (the time‐moving frame)? As long as executives have confidence in their ability to achieve forecasted results, they focus on long‐term returns in their decision‐making when they recognize the advent of the future as inevitable (the time‐moving frame). In contrast, though executives use the ego‐moving frame to show that they are active agents, they weigh future returns less heavily when framing the future in this way. Copyright © 2017 John Wiley & Sons, Ltd.
    August 18, 2017   doi: 10.1002/smj.2687   open full text
  • Incentive Redesign and Collaboration in Organizations: Evidence from a Natural Experiment.
    Sunkee Lee, Phanish Puranam.
    Strategic Management Journal. August 08, 2017
    Research summary: Separating the individual from the social effects of incentives has been challenging because of the possibility of synergies in team production. We observe a unique natural experiment in a South Korean e‐commerce company in which a switch from pay‐for‐performance to fixed (but different) salaries took place in a staggered and effectively random manner across employees. In this case, social and individual effects perspectives make opposing predictions, enabling a critical test. We find evidence consistent with social effects of incentives, particularly as predicted by goal framing theory. The results have implications for the design of incentives to foster collaboration, organizational learning, and organizational performance. Managerial summary: Managers often neglect the deeper hypothesis behind pay‐for‐performance schemes—that people primarily care about how much they are individually paid. An opposing school of thought contends that incentives have social effects too—that individuals care about not only what they receive but also what their peers receive. It is difficult to say whether individual or social effects would be more salient in a context, without a proper experiment with randomization. We exploit a rare opportunity provided by a company that changed its incentive system in a random order, thus unintentionally creating a natural experiment. The results strongly validate the existence of social effects of incentives, but also make the general case for the opportunity to learn from experimenting with organization design in a systematic manner. Copyright © 2017 John Wiley & Sons, Ltd.
    August 08, 2017   doi: 10.1002/smj.2685   open full text
  • Investor Reaction to Covert Corporate Political Activity.
    Timothy Werner.
    Strategic Management Journal. August 07, 2017
    Research summary: Citizens United v. Federal Election Commission and subsequent developments created a covert channel for firms to allocate resources from corporate treasuries to political activity. Through the use of a financial market event study of an accidental disclosure of firms' contributions to a Republican nonprofit organization, I examine investors' reactions to covert investment in independent political expenditures. I find that, on average, contributing firms experienced positive abnormal returns around the disclosure event and that these abnormal returns were more positive for firms in heavily regulated industries as well as those previously making campaign contributions to candidates. However, firms that recently faced a shareholder resolution on political spending disclosure experienced negative abnormal returns, suggesting that the controversial nature of covert activity moderated investors' reactions. Managerial summary: The purpose of this study is to examine how investors reacted to an accidental disclosure of firms' investments in “dark money,” a new form of corporate political activity allowed by the U.S. Supreme Court in its Citizens United decision. I find that, on average, investors reacted positively toward firms identified as making these new political investments, especially if the firms previously engaged in electoral politics or operate in heavily regulated industries. However, this reaction turned negative if the firm recently faced a shareholder resolution asking that it voluntarily disclose all of its political investments. An implication for managers is that they should consider their firms' legal and information environments as fully as possible before committing resources to new and potentially controversial political tactics. Copyright © 2017 John Wiley & Sons, Ltd.
    August 07, 2017   doi: 10.1002/smj.2682   open full text
  • Little Fish in a Big Pond: Legitimacy Transfer, Authenticity, and Factors of Peripheral Firm Entry and Growth in the Market Center.
    J. Cameron Verhaal, Jake D. Hoskins, Leif W. Lundmark.
    Strategic Management Journal. August 04, 2017
    Research summary: How do peripheral firms compete and secure future growth? Building on literature in strategy and organizational theory, we test a model of peripheral entry and growth in the mainstream market segment. Using data from 289 craft breweries over 11 years, we find evidence that niche producers are increasingly entering the mainstream market and competing with market‐center firms. We identify two mechanisms contributing to these actions: legitimacy transfer and cognitive claims of authenticity. As hypothesized, imitation of niche products by macro breweries facilitates craft beer entry into mainstream markets. Moreover, two authenticity‐based identity codes are found to reliably influence craft brewery growth: a local identity (i.e., operating in one's local market) and a product proliferator identity (i.e., offering a more diverse set of products). Managerial summary: How can small niche firms compete with larger, more established organizations? By examining the rapidly expanding craft beer industry, this study explores how craft breweries are able to both enter the market space of these larger competitors and secure sustained patterns of growth. Specifically, we highlight two factors influencing the success of craft breweries. First, as major beer producers mimic niche products (i.e., faux craft beer), smaller niche firms are allowed to enter the market by exposing the typical consumer to the tastes of craft beer. Second, craft breweries enjoy increased success if they (a) emphasize the local elements of their company, and/or (b) offer a larger number of products. Copyright © 2017 John Wiley & Sons, Ltd.
    August 04, 2017   doi: 10.1002/smj.2681   open full text
  • How Do Social Media Affect Analyst Stock Recommendations? Evidence from S&P 500 Electric Power Companies' Twitter Accounts.
    Eun‐Hee Kim, Yoo Na Youm.
    Strategic Management Journal. July 31, 2017
    Research summary: The importance of firm‐stakeholder relationships is gaining increasing attention. Although a theory of the drivers and consequences of stakeholder pressure has been developing, it focuses on pressures from organized stakeholders such as shareholders, NGOs, and activists, and does not incorporate the emerging possibility that individual voices may matter. By exploring corporate Twitter, which facilitates movement of individual stakeholders such as customers to a higher stakeholder class by providing them with a greater sense of power and urgency, we study the circumstances under which customer voices significantly affect analyst stock recommendations. We find that favorable reactions to firm‐initiated messages matter, directly or indirectly, depending on the messages' growth implications. Customer‐initiated negative messages have a significant impact only with high volume and formal institutions that support customer opinions. Managerial summary: Social media is increasingly used by firms for disclosing information and engaging stakeholders. Yet, we know little about whether and how social media usage matters. We show how corporate Twitter usage may influence analyst stock recommendations. Our interviews of securities analysts suggest that social media is not institutionalized yet, but increasingly used as a source of channel checks, especially for vibes, validations, and so on. Our analyses of corporate Twitter accounts show that both firm‐initiated and customer‐initiated tweets can have significant impact on analyst recommendations under certain conditions. For firm‐initiated tweets, the extent of retweets is an important factor, along with the content of tweets, in particular, growth implications. For customer‐initiated tweets, negative tweets matter, but only with high volume and regulatory structure that supports customer protection. Copyright © 2017 John Wiley & Sons, Ltd.
    July 31, 2017   doi: 10.1002/smj.2678   open full text
  • Valuing Stakeholder Governance: Property Rights, Community Mobilization, and Firm Value.
    Sinziana Dorobantu, Kate Odziemkowska.
    Strategic Management Journal. July 31, 2017
    Research summary: While research has shown that good stakeholder relations increase the value of a firm, less is known about how specific types of stakeholder governance affect firm value. We examine the value of one such governance mechanism—community benefits agreements (CBAs) signed by firms and local communities—intended to minimize social conflict that disrupts access to valuable resources. We argue that shareholders evaluate more positively CBAs with local communities with strong property rights and histories of institutional action and extra‐institutional mobilization because these communities are more likely to cause costly disruptions and delays for a firm. We evaluate these arguments by analyzing the cumulative abnormal returns associated with the unexpected announcement of 148 CBAs signed between mining companies and local indigenous communities in Canada. Managerial summary: With firms across many industries facing escalating costs associated with social conflict, new tools are emerging to help firms mitigate these risks by seeking the support of the local communities in which they operate. Community benefits agreements (CBAs) are contracts in which a community provides consent for a new investment in return for tangible benefits, such as local hiring and revenue sharing. We argue that although CBAs are costly for the firm, they are particularly valuable when communities can cause costly disruptions and delays for a firm. Our study of investor reactions to the announcement of 148 CBAs signed between mining companies and local indigenous communities in Canada shows that investors value more CBAs signed with communities with strong property rights and histories of protest. Copyright © 2017 John Wiley & Sons, Ltd.
    July 31, 2017   doi: 10.1002/smj.2675   open full text
  • Emerging Market Firms' Internationalization: How Do Firms' Inward Activities Affect Their Outward Activities?
    Haiyang Li, Xiwei Yi, Geng Cui.
    Strategic Management Journal. July 28, 2017
    Research summary: In this study we examine how an emerging market firm's inward international activities (“inward activities”) are related to its outward international activities (“outward activities”) by focusing on the role of the firm's gain from its inward activities. On the one hand, drawing upon the organizational learning perspective, we propose that a firm's gain from inward activities may facilitate its outward activities through improving its resource fungibility. On the other hand, we draw upon the prospect theory to propose that a firm's gain from inward activities may hinder its outward activities by discouraging the firm's top managers from taking risks that are inherent in outward activities. With detailed data from a sample of manufacturing firms in China, we find empirical support for both lines of arguments. Managerial summary: Are emerging market firms with higher inward gain more likely to engage in outward internationalization activities? We argue that it depends upon how a firm uses its gain from inward activities. If the firm can improve its resource fungibility (particularly organizational resource fungibility) from its inward gain, it is more likely to engage in outward activities. If the firm cannot improve its resource fungiblity, the answer is no. Our findings suggest that for emerging market firms, internationalization is not just a path toward new markets; instead, it reflects how these firms exploit and explore what they have learned from their interactions with foreign firms at home in foreign markets. Therefore, managers must think more strategically on developing (organizational) resource fungibility from their inward activities. Copyright © 2017 John Wiley & Sons, Ltd.
    July 28, 2017   doi: 10.1002/smj.2679   open full text
  • Multimarket Contact and Rivalry over Knowledge‐based Resources.
    Matt Theeke, Hun Lee.
    Strategic Management Journal. July 25, 2017
    Research summary: Research shows that multimarket contact (MMC) reduces rivalry involving downstream activities. Yet, studies showing that MMC can increase the threat of imitation suggest a need to better understand how MMC affects upstream rivalry over knowledge‐based resources. In this study, we argue that MMC increases rivalry over knowledge‐based resources since the deterrent threat of retaliation that typically leads to mutual forbearance in downstream activities will not be sufficient to restrain firms from protecting their knowledge from imitation in upstream activities. In support of these arguments we find that MMC increases the likelihood that a firm initiates patent litigation against a rival. This study suggests the relationship between MMC and rivalry may depend on the competitive domain and the type of resources over which firms are competing. Managerial Summary: How does market overlap or MMC affect rivalry between two competitors? Prior studies have largely found that an increase in market overlap decreases rivalry in less knowledge‐intensive context because of the deterrent threat of retaliation. However, in this paper, we argue that an increase in market overlap may not reduce rivalry in more knowledge‐intensive context because of heterogeneity in capabilities to protect knowledge. We find that a firm is more likely to initiate patent litigation against a rival as market overlap increases. Our findings suggest that the incentive to protect value across multiple product markets may surpass the motivation to cooperate with rivals and that managers should have a more nuanced view of how market overlap with competitors affects rivalry in more knowledge‐intensive contexts. Copyright © 2017 John Wiley & Sons, Ltd.
    July 25, 2017   doi: 10.1002/smj.2676   open full text
  • Stakeholder Orientation and Acquisition Performance.
    Emanuele L. M. Bettinazzi, Maurizio Zollo.
    Strategic Management Journal. July 12, 2017
    Research summary: In this article, we study how a firm's stakeholder orientation affects the performance of its corporate acquisitions. We depart from prior literature and suggest that orientations toward employees, customers, suppliers, and local communities will affect long‐term acquisition performance both directly and through its interactions with process characteristics, such as preacquisition relatedness and postacquisition integration. Analyses of data on a sample of 1884 acquisitions show overall a positive association between acquirers' stakeholder orientation and acquisition performance. In addition, we find support for a positive moderation of business relatedness on the performance impacts of stakeholder orientation. Structural integration has a similarly positive moderation effect only for some of the stakeholder categories. Managerial summary: Does collaboration with stakeholders during an acquisition pay off in terms of performance? The results of this research show that it is worth engaging stakeholders during the M&A process, but that the efficacy of involvement practices may depend on the type of stakeholders and the characteristics of the acquisition. While acquiring firms that take account of suppliers and local communities consistently overperform in their acquisitions, the inclusion of employees might be not beneficial (and even harmful) when the target firm operates in a dissimilar business or when managers do not plan to maintain it as a separate entity. Copyright © 2017 John Wiley & Sons, Ltd.
    July 12, 2017   doi: 10.1002/smj.2672   open full text
  • How Much Does Ownership Form Matter?
    Markus Fitza, Laszlo Tihanyi.
    Strategic Management Journal. July 12, 2017
    Research summary: Previous studies have emphasized firm and industry effects on variation in firm performance, but the relationship between forms of ownership and firm performance has been the focus of limited research. This article examines the extent to which ownership form (i.e., public or private ownership) and ownership structure (including diffused ownership and blockholding) affect firm performance. The results of an analysis of 30,525 European Union (EU) firms indicate that form of ownership is an important explanatory factor in the difference in performance among firms. These results underscore the need to study firms characterized by different ownership arrangements and to provide empirical evidence for the study of firm ownership in strategic management. Managerial summary: Motivated by growing evidence on the involvement of different types of owners in the strategies of firms, we studied the extent to which a firm's ownership form (type of legal incorporation, such as public and private ownership forms) and ownership structure (diffused ownership and blockholding) affect its performance. Our study of more than 30,000 firms from the European Union shows that ownership form differences explain some of the performance differences between firms. Our results also indicate that firms with different ownership forms are differently affected by their competitive environment. Overall, the study suggests that choosing the right ownership form can have important strategic consequences. Copyright © 2017 John Wiley & Sons, Ltd.
    July 12, 2017   doi: 10.1002/smj.2671   open full text
  • Environmental Performance and the Market for Corporate Assets.
    Luca Berchicci, Glen Dowell, Andrew A. King.
    Strategic Management Journal. July 10, 2017
    Research summary: Scholars and policy‐makers have tended to assume that asset sales have a negative effect on stakeholders, but quantitative evidence to inform the debate has been scarce. In our research, we explored one way such sales could be beneficial: by facilitating the transfer of specialized capabilities used for environmental improvement. Employing quantitative data from a longitudinal sample of U.S. manufacturers, we find evidence consistent with the transfer of capabilities to or from acquired assets. Our results inform theories of ownership change and the conditional flow of capabilities among operations. They provide evidence as well of the existence of environmental capabilities. For policy‐makers they provide needed evidence and insight on the merits of regulations designed to limit asset sales. Managerial summary: It is often assumed that acquisitions harm environmental performance‐‐acquisition leads to greater emphasis on efficiency, while focusing on environmental performance is driven by managerial discretion. We propose instead that acquisitions might lead to improvement in environmental outcomes; the key is in knowing where to look for improvement. We studied thousands of facility‐level acquisitions and find that when a clean firm buys a facility from a dirtier firm, that facility's environmental performance improved. When a dirtier firm buys from a cleaner one, however, it is the dirtier firm's other facilities in the same industry of the target that improved. These results, along with extensions we undertook, suggest that managers and policy‐makers should view acquisitions as conduits rather than impediments in transferring environmental capabilities. Copyright © 2017 John Wiley & Sons, Ltd.
    July 10, 2017   doi: 10.1002/smj.2670   open full text
  • Battle on the Wrong Field? Entrant Type, Dominant Designs, and Technology Exit.
    Tianxu Chen, Lihong Qian, Vadake Narayanan.
    Strategic Management Journal. July 04, 2017
    Research summary: Startups often compete with diversifying entrants in the technology race to define dominant designs, which can be platform technology‐based or non‐platform technology‐based. However, little research has examined the relative risk of technological exits for startups vs. diversifying entrants in such “dominance battles.” We develop a contingency framework that links a firm's technology exit to its pre‐entry experience and the characteristics of the dominance battle. With a sample of 134 technologies involved in 31 dominance battles in the information technology industry from 1979 to 2007, we show that technologies of startups were more likely than those of diversifying entrants to exit from platform technology‐based dominance battles; however, this relationship did not exist in non‐platform technology‐based dominance battles, or after the emergence of dominant designs. Managerial summary: How can a startup that tries to create a dominant design strategize to survive the fierce technology race? This study demonstrates that choosing the right battlefield is of paramount importance. Two aspects of a battlefield are shown as relevant: the type of technology and the stage of industrial evolution. Our results show that technologies sponsored by startups tend to have higher exit rates than those sponsored by diversifying entrants in dominance battles characterized by platform technologies, but this penalty is not evident in dominance battles characterized by non‐platform technologies or after the emergence of dominant designs. Furthermore, our study suggests that lack of organizational legitimacy, complementary assets, and integrative capabilities may explain why startups have a higher risk of technology exit than diversifying entrants. Copyright © 2017 John Wiley & Sons, Ltd.
    July 04, 2017   doi: 10.1002/smj.2669   open full text
  • Alliance or Acquisition? A Mechanisms‐Based, Policy‐Capturing Analysis.
    Thomas Mellewigt, Adeline Thomas, Ingo Weller, Edward J. Zajac.
    Strategic Management Journal. June 23, 2017
    Research summary: While alliance researchers view prior partner‐specific alliance experience as influencing firms' subsequent alliance or acquisition decisions, empirical evidence on the alliance versus acquisition decision is surprisingly mixed. We offer a reconciliation by proposing and testing an analytical framework that recognizes prior partner‐specific experiences as heterogeneous along three fundamental dimensions: partner‐specific trust, routines, and value certainty. This allows us to use a policy‐capturing methodology to rigorously operationalize and test our mechanism‐level predictions. We find that all three mechanisms can increase the likelihood of a subsequent alliance or acquisition, and in terms of the comparative choice between alliances versus acquisitions, partner‐specific trust pulls towards alliances, and value certainty pulls towards acquisitions. We conclude with a discussion of the theoretical and empirical implications of our approach and method. Managerial summary: This study focuses on an important corporate decision: When a firm has had an alliance with another firm, how would that experience affect the likelihood of a future alliance or acquisition with that same firm? We first suggest that it will depend on three factors: the level of trust that existed in that prior alliance, the extent to which specific work routines were developed, and the degree to which the firm was able to confidently assess the value of the partner firm's resources. We then find that trust is a particularly strong predictor of future alliances, while confidence regarding value more strongly predicts future acquisitions. In this way, we demonstrate more precisely how past corporate choices can affect (consciously or unconsciously) future ones. Copyright © 2017 John Wiley & Sons, Ltd.
    June 23, 2017   doi: 10.1002/smj.2664   open full text
  • Repeating A Familiar Pattern In a New Way: The Effect of Exploitation and Exploration on Knowledge Leverage Behaviors in Technology Acquisitions.
    Seungho Choi, Gerry McNamara.
    Strategic Management Journal. June 21, 2017
    Research summary We identify two types of knowledge leverage behaviors undertaken by acquiring firms: integrated and independent knowledge leverage. We address how the prior exploitation or exploration orientation of acquirers influence these two modes of knowledge leverage behaviors. The degree of exploitation of acquirers promotes integrating their existing knowledge with acquired knowledge in innovative actions. In contrast, the degree of exploration of acquirers increases the likelihood that new innovations will use acquired knowledge without integrating it with their prior knowledge. In addition, the firm’s prior acquisition rate moderates the relationship between the acquiring firms’ previous exploitation or exploration orientation and their knowledge leverage mode. The findings of this paper suggest that pre‐acquisition innovation capabilities are distinct from but influence the post‐acquisition innovation actions. Managerial summary Firms often undertake acquisitions to gain access to new knowledge, but they can differ dramatically in how they leverage acquired knowledge. We show that the firm’s prior innovation patterns drive this choice. Firms that have previously focused on incremental innovations in their internal innovation efforts tend to integrate acquired knowledge with their own prior knowledge. In contrast, firms that have previously pursued bold innovations tend to leverage acquired knowledge alone in new innovations. Thus, we show that firms use acquisitions as a means to extend their internal innovation patterns – firms who have focused on incremental innovations extend that with acquisitions by linking new innovations to their prior knowledge while firms that have pursued bold initiatives use acquired knowledge to move in new technology directions.
    June 21, 2017   doi: 10.1002/smj.2677   open full text
  • Interorganizational Imitation and Acquisitions of High‐tech Ventures.
    Umit Ozmel, Jeffrey J. Reuer, Cheng‐Wei Wu.
    Strategic Management Journal. June 15, 2017
    Research summary: This article shows that there is a positive association between the changes in the number of prior acquisitions or the changes in the prominence of prior acquirers within the focal venture's subfield and the venture's likelihood to be acquired. Results are in line with the existence of frequency‐ and trait‐based imitation in acquisitions targeting tech ventures. More importantly, these positive associations are more pronounced when (a) exogenous technological uncertainty within the venture's subfield increases and (b) there are significant differences between the focal venture's and acquirer's technological resources. Our findings are in accord with the suggestion that uncertainty in the technology domain is an important boundary condition in moderating the extent of imitation in technology acquisitions. We also discuss alternative explanations and implications. Managerial summary: The findings of this article suggest that when deciding whether or not to acquire a technology venture (i.e., startup company in a high‐tech industry), managers infer information by observing other acquisitions in the venture's subfield to make assessments about the underlying value of the potential targets. We also find that receiving some informational cues from previous acquisitions would be more useful when there is high technological uncertainty in the potential target's subfield about which technologies will be dominant, and when the potential acquirer and the tech venture operate in dissimilar technological areas. This article shows that imitation can be one way to deal with decision‐making under uncertainty when making acquisition decisions in high‐tech environments. Copyright © 2017 John Wiley & Sons, Ltd.
    June 15, 2017   doi: 10.1002/smj.2666   open full text
  • Strategic NPV: Real Options and Strategic Games under Different Information Structures.
    Han T. J. Smit, Lenos Trigeorgis.
    Strategic Management Journal. June 13, 2017
    Research summary: Among the most difficult firm strategic choices is the trade‐off between making a long‐term commitment or holding off on investment in the face of uncertainty. To operationalize strategic management theory under demand, technological and competitive uncertainty, we develop a Strategic Net Present Value (NPV) framework that integrates real options and game theory to quantify value components and interactions at the interface between NPV, real options, and strategic games. Our approach results in new propositions clarifying the way learning‐experience conditions, technological uncertainty, and proprietary information interact to tilt the balance in the interplay between wait‐and‐see flexibility and strategic commitment. As such, Strategic NPV adds to our understanding of the conditions where NPV, real options, or strategic thinking are more relevant. Managerial summary: This study develops and elucidates implementation of a new valuation construct, “Strategic Net Present Value (NPV),” that integrates real options and game theory to more accurately portray strategic decisions underlying management theory. Among the most difficult firm strategic choices in capital intensive industries, such as energy, mining, chip manufacturing, and infrastructure development, is the trade‐off between making a long‐term commitment or holding off on investment in the face of demand, technological, and competitive uncertainties. The study provides new insights on the way various conditions, such as learning‐experience effects, technological uncertainty, and proprietary information, interact to tilt the balance in the interplay between commitment and wait‐and‐see flexibility. As such, Strategic NPV adds to our understanding of when NPV, real options, or strategic thinking matter more critically for decision making. Copyright © 2017 John Wiley & Sons, Ltd.
    June 13, 2017   doi: 10.1002/smj.2665   open full text
  • Home Alone: The Effects of Lone‐Insider Boards on CEO Pay, Financial Misconduct, and Firm Performance.
    Michelle L. Zorn, Christine Shropshire, John A. Martin, James G. Combs, David J. Ketchen.
    Strategic Management Journal. May 31, 2017
    Research summary: Corporate scandals of the previous decade have heightened attention on board independence. Indeed, boards at many large firms are now so independent that the CEO is “home alone” as the lone inside member. We build upon “pro‐insider” research within agency theory to explain how the growing trend toward lone‐insider boards affects key outcomes and how external governance forces constrain their impact. We find evidence among S&P 1500 firms that having a lone‐insider board is associated with (a) excess CEO pay and a larger CEO‐top management team pay gap, (b) increased likelihood of financial misconduct, and (c) decreased firm performance, but that stock analysts and institutional investors reduce these negative effects. The findings raise important questions about the efficacy of leaving the CEO “home alone.” Managerial summary: Following concerns that insider‐dominated boards failed to protect shareholders, there has been a push for greater board independence. This push has been so successful that the CEO is now the only insider on the boards of more than half of S&P 1500 firms. We examine whether lone‐insider boards do in fact offer strong governance or whether they enable CEOs to benefit personally. We find that lone‐insider boards pay CEOs excessively, pay CEOs a disproportionately large amount relative to other top managers, have more instances of financial misconduct, and have lower performance than boards with more than one insider. Thus, it appears that lone‐insider boards do not function as intended and firms should reconsider whether the push towards lone‐insider boards is actually in shareholders' best interests. Copyright © 2017 John Wiley & Sons, Ltd.
    May 31, 2017   doi: 10.1002/smj.2661   open full text
  • Blocked But Not Tackled: Who Founds New Firms When Rivals Dissolve?
    Seth Carnahan.
    Strategic Management Journal. May 05, 2017
    Research summary: This article examines the role of competitive shocks in creating opportunities for new firm foundings. I argue that the sudden dissolution of rival firms may release resources that create opportunities for firm formation, particularly among employees facing impediments to capturing value in their current organizations. Analyzing microdata from the legal services industry, I use unexpected deaths of solo‐practicing attorneys as quasi‐exogenous sources of rival dissolution. Results indicate that these shocks increase the odds of founding by about 30%, with stronger effects among attorneys with weaker social connections or higher competition for promotion. The article thus highlights the role that founders play in reallocating dissolved rivals' resources while demonstrating that founding may be an important outlet for “blocked” employees to capture value from opportunities. Managerial summary: This article finds that the shutdown and dissolution of a rival organization may spur employees to found new firms. As a consequence, managers may find it valuable to pay attention to employees' turnover intentions following the dissolution of a rival. Findings suggest that employees who are having trouble advancing in the firm may be the most likely to found a new organization when a rival dissolves, so managers may want to focus retention efforts on these individuals. To the extent that managers wish to capture customers, employees, and other resources that were formerly attached to a dissolved rival, managers may wish to be aware that they could be in competition with their own employees for these resources and opportunities. Copyright © 2017 John Wiley & Sons, Ltd.
    May 05, 2017   doi: 10.1002/smj.2653   open full text
  • Offshoring Pollution while Offshoring Production?
    Xiaoyang Li, Yue M. Zhou.
    Strategic Management Journal. May 03, 2017
    Research summary: We examine the role of firm strategy in the global effort to combat pollution. We find that U.S. plants release less toxic emissions when their parent firm imports more from low‐wage countries (LWCs). Consistent with the Pollution Haven Hypothesis, goods imported by U.S. firms from LWCs are in more pollution‐intensive industries. U.S. plants shift production to less pollution‐intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. The negative impact of LWC imports on emissions is stronger for U.S. plants located in counties with greater institutional pressure for environmental performance, but weaker for more‐capable U.S. plants and firms. These results highlight the role of local institutions and firm capability in explaining firms' offshoring and environmental strategies. Managerial summary: Using confidential trade, production, and pollution data of more than 8,000 firms and 18,000 plants from the U.S. Census Bureau for years 1992–2009, we find that U.S. plants release less toxic emissions when their parent firm imports more from low‐wage countries (LWCs). In addition, goods imported by U.S. firms from LWCs are in more pollution‐intensive industries. U.S. plants shift production to less pollution‐intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. However, not all U.S. firms choose to “offshore pollution.” U.S. plants located in counties with greater institutional pressure for environmental performance offshore more, but more‐capable U.S. plants and firms offshore less. Copyright © 2017 John Wiley & Sons, Ltd.
    May 03, 2017   doi: 10.1002/smj.2656   open full text
  • Pawn to Save a Chariot, or Drawbridge Into the Fort? Firms' Disclosure During Standard Setting and Complementary Technologies Within Ecosystems.
    Puay Khoon Toh, Cameron D. Miller.
    Strategic Management Journal. May 03, 2017
    Research summary: Within an ecosystem, standard setting coordinates development of complementary technologies across firms. But each firm can itself own multiple of these complementary technologies. We study how a firm's own complementary technologies influence its disclosure inclination during standard setting. We identify a tradeoff: disclosure increases value‐creation of the firm's non‐disclosed complementary technologies, but also heightens expropriation risk. Using data on the U.S. communications equipment industry 1991–2008, we show that the firm's complementary technologies increase its disclosure inclination when its technological areas are less crowded, but decrease such inclination when there are SSO members with strong expropriation abilities. Findings stress that disclosure involves but a piece of the firm's portfolio; a systemic perspective of the entire portfolio provides a more comprehensive picture of value‐creation during standard setting. Managerial summary: Why should a firm disclose its key technology to participate in standard setting within an ecosystem? We urge managers to think beyond “disclosing to ensure compatibility with other firms' complementary technologies within the ecosystem” as a motivation, to also consider how disclosure affects the firm's own complementary technologies within its portfolio. Disclosure in one technological area makes the firm's nondisclosed complementary technologies in other areas more valuable to itself, especially with fewer rivals competing in these other areas. But disclosure also renders the firm susceptible to losing these complementary technologies to rivals, especially when rivals have strong expropriation abilities. Analyzing disclosure decisions by communication equipment firms, we show that this tradeoff is indeed a relevant consideration in managers' strategic calculations when participating in standard setting. Copyright © 2017 John Wiley & Sons, Ltd.
    May 03, 2017   doi: 10.1002/smj.2655   open full text
  • Foreshadowing as Impression Management: Illuminating the Path for Security Analysts.
    John R. Busenbark, Donald Lange, S. Trevis Certo.
    Strategic Management Journal. April 24, 2017
    Research summary: Managers can disclose information to security analysts as a form of impression management, but doing so is problematic because competitors can use that same information at the expense of the firm. We identify an impression management technique we call foreshadowing, which refers to hinting about future potential strategic activity. Foreshadowing provides information of value to analysts that can influence their evaluations of a firm, but not so much information as to put the firm at a competitive disadvantage. We hypothesize and find that managers who foreshadow acquisition announcements receive fewer analyst downgrades following the announcements, especially when there is more analyst uncertainty about the firm. We also hypothesize and find that analysts' responses to foreshadowing positively influence the likelihood that managers eventually acquire other firms. Managerial summary: Security analysts are often suspicious when firms announce acquisitions as those announcements are cumbersome to analyze on short notice and raise questions about managerial motivations that might not represent the best interests of the firm. We find that managers can improve analyst reactions to acquisition announcements by disclosing some information of value to analysts—specifically by hinting that an acquisition could occur in the future. We refer to such hints as foreshadowing. Foreshadowing entails giving analysts information to reduce their suspicions and facilitate their analyses, but not so much information as to degrade the firm's competitive information advantage over other firms. Foreshadowing also allows managers the option to reconsider actually executing the acquisition if analysts respond negatively to its possibility. Copyright © 2017 John Wiley & Sons, Ltd.
    April 24, 2017   doi: 10.1002/smj.2659   open full text
  • Economies of Scope, Resource Relatedness, and the Dynamics of Corporate Diversification.
    Arkadiy V. Sakhartov.
    Strategic Management Journal. April 21, 2017
    Research summary: The dominant view has been that businesses that are more related to each other are more often combined within diversified firms. This study uses a dynamic model to demonstrate that, with inter‐temporal economies of scope, diversified firms are more likely to combine moderately related businesses than the most‐related businesses. That effect occurs because strong relatedness reduces redeployment costs and makes firms redeploy all resources to better performing businesses. The strength of that effect depends on inducements for redeployment measured as the current return advantage of one business over another business, volatilities of business returns, and correlation of those returns. This study develops hypotheses for those relationships and suggests empirical operationalizations, encouraging empiricists to retest the implications of relatedness for the dynamics of corporate diversification. Managerial summary: It is believed that diversified firms are more likely to combine more‐related businesses because relatedness enables sharing of resources between businesses. Indeed, a firm can apply knowledge created in one business to another business, avoiding costly duplication in knowledge development. Resource sharing also adds value when a firm offers several products, adding the convenience of one‐stop shopping and charging higher prices. However, resource sharing is not the only motivation for corporate diversification. In environments where profitability of businesses changes frequently, firms diversify by redeploying part of resources from an underperforming business to a better performing business. This study uses a dynamic model to demonstrate that, with that second motivation for corporate diversification, firms end up combining moderately related businesses rather than the most‐related businesses. Copyright © 2017 John Wiley & Sons, Ltd.
    April 21, 2017   doi: 10.1002/smj.2654   open full text
  • Entry into Nascent Industries: Disentangling a Firm's Capability Portfolio at the Time of Investment Versus Market Entry.
    Mahka Moeen.
    Strategic Management Journal. April 21, 2017
    Research summary: This article examines the capability antecedents of firm entry into nascent industries. Because a firm's technological investments in nascent industries typically occur before market entry, this study makes a distinction between firm capabilities at the time of market entry and at the time of initial investment. At the time of market entry, core technical capabilities and complementary assets influence the likelihood of entry. However, at the time of investment, a firm's integrative capabilities as well as the initial stocks of related technical capabilities and complementary assets become critical, as they enable endogenous development of core technical capabilities and complementary assets by the time of entry. The empirical sample consists of firms involved in field experiments in agricultural biotechnology during the period 1980–2010. Managerial summary: New product commercialization in a nascent industry typically requires access to not only core technologies of the focal industry, but also supporting commercialization assets. However, firms may not possess these critical capabilities when they first invest in the industry. Instead, empirical evidence from the context of agricultural biotechnology shows that at the time of first investment, a firm's integrative capabilities partly explain their likelihood of entry. Integrative capabilities encompass a set of practices that enable effective coordination and communication, and in turn put firms in an advantageous position to develop the needed capabilities by the time of entry. Copyright © 2017 John Wiley & Sons, Ltd.
    April 21, 2017   doi: 10.1002/smj.2642   open full text
  • Alliance Concentration in Multinational Companies: Examining Alliance Portfolios, Firm Structure, and Firm Performance.
    Brenda Bos, Dries Faems, Florian Noseleit.
    Strategic Management Journal. April 05, 2017
    Research summary: This article explores the distribution of alliances across firms' internal structure. Focusing on multinational companies, we examine the impact of alliance portfolio concentration—i.e., the extent to which alliances are concentrated within a limited number of geographic units—on focal firms' performance. Relying on Knowledge‐Based View (KBV) insights, we hypothesize that an increase in alliance portfolio concentration positively influences firm performance and that alliance portfolio size negatively moderates this relationship. Our empirical results enrich the emerging capability perspective on alliance portfolios, point to the relevance of conceptualizing focal firms in alliance portfolio research as polylithic entities instead of monolithic ones, and provide new insights into how firms create value by potentially recombining externally accessed knowledge. Managerial summary: In the setting of multinational companies, we examine whether alliance activities are concentrated in a limited number of subsidiaries or are highly dispersed across multiple subsidiaries. We find that, over time, firms exhibit different patterns in terms of alliance portfolio concentration. In addition, the results show that, for MNCs with a relatively small alliance portfolio, an increase in alliance portfolio concentration is positively related to their financial performance. However, when MNCs' alliance portfolios are relatively large, the relationship between alliance portfolio concentration and firm performance becomes negative. Jointly, these findings suggest that the distribution of alliances across firms' internal structure is an important factor in shaping potential knowledge recombination benefits from alliance portfolios. Copyright © 2017 John Wiley & Sons, Ltd.
    April 05, 2017   doi: 10.1002/smj.2652   open full text
  • Is there a “Dark Side” to Monitoring? Board and Shareholder Monitoring Effects on M&A Performance Extremeness.
    Maria L. Goranova, Richard L. Priem, Hermann A. Ndofor, Cheryl A. Trahms.
    Strategic Management Journal. March 28, 2017
    Research summary: We investigate the effects of monitoring by boards of directors and institutional shareholders on merger and acquisition (M&A) performance extremeness using a sample of M&A deals from 1997 to 2006. Both governance research and legal reforms generally have espoused a “raise all boats” view of monitoring. We instead investigate whether monitoring may serve as a double‐edged sword that limits CEO discretion to undertake both value‐destroying M&A deals and value‐creating ones. Our findings indicate that the relationship between monitoring and M&A performance is more complex than previously believed. Rather than “raising all boats” in a shift towards better M&A outcomes, monitoring instead is associated with lower M&A losses, but also with lower M&A gains. Managerial summary: Mergers and acquisitions (M&As) are a quintessential corporate activity. There were $3.8 trillion worth of M&A deals in 2015, despite scholars and practitioners reporting that M&As often perform poorly. We question the widespread belief that more vigilant monitoring by boards of directors and large shareholders will raise M&A performance, overall. Put differently, does monitoring constrain CEOs' discretion to pursue bad deals, while simultaneously encouraging them to pursue good ones? We find that monitoring limits both large M&A losses and large M&A gains. Contrary to widely held beliefs, our results indicate that constraining executives' ability to pursue value‐destroying M&A deals does not simultaneously encourage or enable CEOs to pursue value‐creating deals. Copyright © 2017 John Wiley & Sons, Ltd.
    March 28, 2017   doi: 10.1002/smj.2648   open full text
  • How Media Coverage of Corporate Social Irresponsibility Increases Financial Risk.
    Julian F. Kölbel, Timo Busch, Leonhardt M. Jancso.
    Strategic Management Journal. March 23, 2017
    Research summary: This article explores the relationship between corporate social irresponsibility (CSI) and financial risk. We posit that media coverage of CSI generates risk by providing conditions that increase the potential for stakeholder sanctions. Through analyzing an international panel of 539 firms during 2008–2013, we find that firms receiving higher CSI coverage face higher financial risk. We show that the reach of the reporting media outlet is a critical condition for this relationship. Once the outlet has a high reach, the severity of CSI coverage is a boundary condition that further reinforces the effect. Our findings complement existing theory about the risk‐mitigating effect of corporate social responsibility by illuminating the risk‐generating effect of CSI coverage. For executives, these insights suggest complementary strategies for corporate risk management. Managerial summary: This article examines the effect of negative news on financial risk. It shows that negative media articles regarding environmental, social, and governance (ESG) issues increase a firm's credit risk. It also provides a detailed analysis of the impact of an article's reach and severity, i.e., how many readers are exposed to the article and how harshly it criticizes the firm. The results allow to quantitatively assess the risk that emanates from negative ESG news. For executives, three strategies are derived for limiting a firm's exposure to this risk: balancing corporate social responsibility programs with operational safety programs, reporting suboptimal environmental and social performance transparently and proactively, and avoiding acquisition targets and markets with a legacy of negative news. Copyright © 2017 John Wiley & Sons, Ltd.
    March 23, 2017   doi: 10.1002/smj.2647   open full text
  • Firm Lifecycles: Linking Employee Incentives and Firm Growth Dynamics.
    Victor M. Bennett, Daniel A. Levinthal.
    Strategic Management Journal. March 23, 2017
    Research summary: While the economic advantages of scale are well understood, implications of the rate of firm growth are arguably less appreciated. Since firms' growth rate influences employees' promotion opportunities, the growth rate can have significant implications for the incentives employees face. Rapid growth, by creating more promotion opportunities, motivates employees to engage in extra‐role behaviors that might result in promotion should an opportunity arise. Building on this argument, we develop a formal model linking the design of firms' incentive structure to their rate of growth. The associated dynamics lead to three distinct epochs of firms' lifecycle: rapid growth and high‐powered incentives driven by frequent promotion opportunities; moderate growth with infrequent promotion opportunities, but large salary increases contingent on promotion; and finally, stagnant firms with low‐powered incentives. Managerial summary: While being innovative can lead to a firm growing quickly, the opposite may also be true. Growing quickly may contribute to a firm's ability to improve its processes. Employees are often a source of process improving ideas. Employees' primary incentive to go “outside the job description” to improve those processes is often promotion. The availability of promotions, however, is linked to the firm's growth rate. Firms that are growing quickly can credibly promise to reward their most innovative employees with promotions. Established and slowly growing firms have fewer opportunities for growth, which gives employees less incentive to go “above and beyond.” This can mean that rapid growth can reinforce a firm's competitive advantage. Copyright © 2017 John Wiley & Sons, Ltd.
    March 23, 2017   doi: 10.1002/smj.2644   open full text
  • Well Known or Well Liked? The Effects of Corporate Reputation on Firm Value at the Onset of a Corporate Crisis.
    Jiuchang Wei, Zhe Ouyang, Haipeng (Allan) Chen.
    Strategic Management Journal. March 23, 2017
    Research summary: We study how two dimensions of reputation (i.e., generalized favorability and being known) and attribution of crisis responsibility affect firm value at the onset of a crisis. Analyzing 126 corporate crises befalling publicly listed firms in China from 2008 to 2014, we find that generalized favorability serves as a buffer, while being known can be a burden, in influencing firm value. We also find that the buffering effect of generalized favorability is stronger when the attribution of crisis responsibility is low (vs. high). In addition, there is a negative interaction effect between the two dimensions of reputation such that the buffering effect of generalized favorability weakens when firms are better known. We discuss our contributions to research on corporate reputation and crisis management. Managerial summary: Corporate reputation is an intangible asset, especially at the onset of a corporate crisis. This research sheds light on the “double‐edged sword” of corporate reputation by examining the effects of two reputation dimensions (i.e., being liked and being known) on firm value. Our results suggest that well‐liked firms can leverage their generalized favorability among stakeholders to assuage firm value loss, whereas well‐known firms may have to better communicate with stakeholders to overcome the burden of stakeholders' attention that escalates firm value loss. To better cope with the onset of a crisis, firms should therefore enhance their generalized favorability and simultaneously avert stakeholders' excessive attention. In addition, well‐liked firms can further buffer against the loss in firm value by reducing the perceived intentionality of a crisis. Copyright © 2017 John Wiley & Sons, Ltd.
    March 23, 2017   doi: 10.1002/smj.2639   open full text
  • Elevating Repositioning Costs: Strategy Dynamics and Competitive Interactions.
    Anoop R. Menon, Dennis A. Yao.
    Strategic Management Journal. March 23, 2017
    Research summary: This article proposes an approach for modeling competitive interactions that incorporates the costs to firms of changing strategy. The costs associated with strategy modifications, which we term “repositioning costs,” are particularly relevant to competitive interactions involving major changes to business strategies. Repositioning costs can critically affect competitive dynamics and, consequently, the implications of strategic interaction for strategic choice. While the literature broadly recognizes the importance of such costs, game‐theoretic treatments of major strategic change, with very limited exceptions, have not addressed them meaningfully. We advocate greater recognition of repositioning costs and illustrate with two simple models how repositioning costs may facilitate differentiation and affect the value of a firm's capability to reduce repositioning costs through investments in flexibility. Managerial summary: This article illustrates how the decision to make a strategic change is affected by both the cost to the firm of making the various strategy modifications, as well as the cost to its rivals of changing their strategies in response. These “repositioning costs” are important because they shape the responses each competitor would likely make to a move by the other competitor, and should be anticipated when considering an initial change to one's own strategy. The paper shows how repositioning costs can be used strategically to facilitate differentiation, and to assess the value of potential investments in flexibility. Copyright © 2017 John Wiley & Sons, Ltd.
    March 23, 2017   doi: 10.1002/smj.2635   open full text
  • Overcoming Institutional Voids: A Reputation‐Based View of Long‐Run Survival.
    Cheng Gao, Tiona Zuzul, Geoffrey Jones, Tarun Khanna.
    Strategic Management Journal. March 22, 2017
    Research summary: Emerging markets are characterized by underdeveloped institutions and frequent environmental shifts. Yet, they also contain many firms that have survived over generations. How are firms in weak institutional environments able to persist over time? Motivated by 69 interviews with leaders of emerging market firms with histories spanning generations, we combine induction and deduction to propose reputation as a meta‐resource that allows firms to activate their conventional resources. We conceptualize reputation as consisting of prominence, perceived quality, and resilience, and develop a process model that illustrates the mechanisms that allow reputation to facilitate survival in ways that persist over time. Building on research in strategy and business history, we thus shed light on an underappreciated strategic construct (reputation) in an undertheorized setting (emerging markets) over an unusual period (the historical long run). Managerial summary: Why are some firms able to persistently survive in challenging, uncertain, and underdeveloped business environments? To explore this question, we analyze in‐depth interviews with leaders of emerging market firms that have survived over decades and even centuries. We find that firm reputation is a key strategic driver, and propose new ideas about the ways through which reputation facilitates survival. We elaborate how a favorable reputation allows a firm to more fully utilize its existing resources by decreasing uncertainty. We also propose that reputation has offensive and defensive properties that make it valuable to firms during both positive and negative economic cycles. Finally, we discuss why a reputation‐based source of competitive advantage is hard to imitate, and outline three general approaches for building reputation. Copyright © 2017 John Wiley & Sons, Ltd.
    March 22, 2017   doi: 10.1002/smj.2649   open full text
  • High‐Reputation Firms and Their Differential Acquisition Behaviors.
    Jerayr J. Haleblian, Michael D. Pfarrer, Jason T. Kiley.
    Strategic Management Journal. March 21, 2017
    Research summary: Emerging reputation research suggests that high‐reputation firms will act to maintain their reputations in the face of high expectations. Yet, this research remains unclear on how high‐reputation firms do so. We advance this research by exploring three questions related to high‐reputation firms' differential acquisition behaviors: Do high‐reputation firms make more acquisitions than similar firms without this distinction? What kind of acquisitions do they make? How do investors react to high‐reputation firms' differential acquisition behaviors? We find that high‐reputation firms make more acquisitions and more unrelated acquisitions than other firms. Yet, we also find that investors bid down high‐reputation firms' stock more than other firms' in response to acquisition announcements, suggesting that investors are skeptical of how high‐reputation firms maintain their reputations. Managerial summary: We know that high‐reputation firms wish to maintain their elite standing in the face of high‐market expectations, but we know little about how they do so. We explore this puzzle by investigating how reputation maintenance influences high‐reputation firms' acquisition behaviors. We classify high‐reputation firms are those firms that make Fortune's Most Admired annual list, and we find that high‐reputation firms make more acquisitions and more unrelated ones than other firms. Surprisingly, we also find that the market tends to react negatively to these acquisitions. Thus, managers may want to reconsider their strategy of making acquisitions as a means to maintain their firms' high reputations. Copyright © 2017 John Wiley & Sons, Ltd.
    March 21, 2017   doi: 10.1002/smj.2645   open full text
  • Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal.
    Timothy D. Hubbard, Dane M. Christensen, Scott D. Graffin.
    Strategic Management Journal. March 20, 2017
    Research summary: Investing a firm's resources in corporate social responsibility (CSR) initiatives remains a contentious issue. While research suggests firm financial performance is the primary driver of CEO dismissal, we propose that CSR will provide important additional context when interpreting a firm's financial performance. Consistent with this prediction, our results suggest that past CSR decisions amplify the negative relationship between financial performance and CEO dismissal. Specifically, we find that greater prior investments in CSR appear to expose CEOs of firms with poor financial performance to a greater risk of dismissal. In contrast, greater past investments in CSR appear to help shield CEOs of firms with good financial performance from dismissal. These findings provide novel insight into how CEOs' career outcomes may be affected by earlier CSR decisions. Managerial summary: In this study, we examined a potential personal consequence for CEOs related to corporate social responsibility (CSR). We explored the role prior investments in CSR play when a board evaluates the firm's financial performance and considers whether or not to fire the CEO. Our results suggest that while financial performance sets the overall tone of a CEO's evaluation, CSR amplifies that baseline evaluation. Specifically, our results suggest that greater past investments in CSR appear to (a) greatly increase the likelihood of CEO dismissal when financial performance is poor, and (b) somewhat reduce the likelihood of CEO dismissal when financial performance is good. Thus, striving to deliver profits in a socially responsible manner may have both positive and negative personal consequences. Copyright © 2017 John Wiley & Sons, Ltd.
    March 20, 2017   doi: 10.1002/smj.2646   open full text
  • Skew and heavy‐tail effects on firm performance.
    Shige Makino, Christine M. Chan.
    Strategic Management Journal. March 09, 2017
    Research summary: Most strategic management studies adopt an average‐centered view that uses the central tendency to explain between‐group variation in performance (i.e., performance differences between business units, firms, industries, and countries). In this study, we explain within‐group variation using a variance‐centered view that focuses on the peripheral characteristics of performance distributions as defined by skew and heavy tails (i.e., variance and kurtosis). Drawing on performance feedback theory, we hypothesize that successful firms tend to develop a positive skew in their performance distributions, which we call a “positive skew effect” in this study, and that heavy tails moderate this effect. Our analysis of the performance of a group of foreign affiliates provides general support for our hypotheses at both the firm and segment (industry and country) levels. Managerial summary: Managers of multi‐business firms use various approaches to improve the aggregate performance of their business units. Some expand the range of upper performance outliers (exploration) or reduce the range of lower outliers (downsizing); others improve the performance of current business units (exploitation). We find that firms with superior performance tend to have a balanced mix of the three approaches. We also find that segments (countries and industries) with higher mean performances provide environments that facilitate the entry of productive firms and the exit of unproductive firms and provide environments in which incumbents can further improve their performance by learning from others. We observe that successful firms and segments have a positive skew in their performance distributions, which we call a “positive skew effect.” Copyright © 2016 John Wiley & Sons, Ltd.
    March 09, 2017   doi: 10.1002/smj.2632   open full text
  • The impact of frictions in routine execution on economies of scope.
    Francisco Brahm, Jorge Tarzijan, Marcos Singer.
    Strategic Management Journal. March 09, 2017
    Research summary: Based on a detailed database of a beverages producer‐distributor that expanded its product variety by leveraging its logistic network, we show that product diversification generates economies of scope and also higher operational costs. The result is an inverted‐U relationship between variety and productivity: When the firm offers few additional categories, productivity grows, but as the number of categories rises, the costs of executing the operational routines increase rapidly and productivity falls. The negative effect on productivity increases if the added product category is more dissimilar to previous ones, and decreases with learning from operational experience. Our results highlight how frictions at the operational level can limit the benefits of diversification, even in the absence of other sources of diseconomies, such as increased coordination needs. Managerial summary: One of the prevalent reasons for companies to expand to adjacent product lines is attaining economies of scope. However, such growth strategy also generates operational frictions, even if the day‐to‐day routines do not appear to change at all. Product diversity is disruptive for routine execution, as it requires coordination and exception handling, and may ultimately overcome any efficiency obtained from growth. We estimate the relevance of such operational friction using data from a beverages distribution network. When product variety is low, additional categories do generate efficiency, but after reaching a given threshold, friction prevails. We find that operational friction increases when products are more dissimilar, but is attenuated when workers learn from their own and other's experience. Copyright © 2017 John Wiley & Sons, Ltd.
    March 09, 2017   doi: 10.1002/smj.2643   open full text
  • Choose to fight or choose to flee? A network embeddedness perspective of executive ship jumping in declining firms.
    Han Jiang, Albert A. Cannella, Jun Xia, Matthew Semadeni.
    Strategic Management Journal. February 24, 2017
    Research summary: Executives in declining firms may engage in ship‐jumping behavior (i.e., voluntarily move to new employers before the failure occurs) to avoid the stigma of failure. However, it is unclear how executives decide whether or not to jump ship. Building on a network embeddedness perspective, we highlight how three network‐based indicators (i.e., executive social capital, the social capital of other peers in the declining firm, and the declining firm's alliance network) influence the executive‐level ship‐jumping decision by shaping its benefits and opportunity costs. Using data from executives at failing firms in China, we find support for our hypothesized relationships. Our research provides important insight into the network mechanisms driving the ship‐jumping decision. Managerial summary: Executives at failing firms have a choice: stay and attempt to rescue the firm from failure or exit and avoid the stigma of the failure (i.e., jump ship). Yet, little is known about what factors affect this choice. We propose that social capital plays an important role in the decision. Our evidence from specially treated (*ST) public firms in China finds that ship jumping is lowest at low and high values of social capital, and highest at moderate levels of social capital (an inverted U‐shaped relationship). In addition, higher levels of peer social capital (in the declining firm) as well as a well‐established firm‐level alliance network discourage the ship‐jumping choice. Copyright © 2017 John Wiley & Sons, Ltd.
    February 24, 2017   doi: 10.1002/smj.2637   open full text
  • Ripple effects of CEO awards: Investigating the acquisition activities of superstar CEOs' competitors.
    Wei Shi, Yan Zhang, Robert E. Hoskisson.
    Strategic Management Journal. February 17, 2017
    Research summary: This study proposes that CEOs may undertake intensive acquisition activities to increase their social recognition and status after witnessing their competitors' winning CEO awards. Using a sample of U.S. S&P 1,500 firm CEOs, we find that CEOs engage in more intensive acquisition activities in the period after their competitors won CEO awards (i.e., postaward period), compared to the preaward period. Moreover, this effect is stronger when focal CEOs themselves had a high likelihood of winning CEO awards. Our findings also show that acquisitions by focal CEO firms in the postaward period realize lower announcement returns compared to acquisitions by the same CEOs in the preaward period. Managerial summary: Each year a few CEOs receive CEO awards from business media and CEOs who receive such awards become instant celebrities, that is, superstar CEOs. This study explores how superstar CEOs' competitors react to not winning CEO awards. We find that superstar CEOs' competitors undertake more intensive acquisition activities in the postaward period compared to the preaward period. This is particularly true for competitors who were close, yet did not win CEO awards. In addition, acquisitions by superstar CEOs' competitors are associated with lower announcement returns in the postaward compared to the preaward period. These findings collectively indicate that acquisitions may be used as a channel for superstar CEOs' competitors to elevate their own social status, but at a cost to shareholders. Copyright © 2017 John Wiley & Sons, Ltd.
    February 17, 2017   doi: 10.1002/smj.2638   open full text
  • Estimating value creation from revealed preferences: Application to value‐based strategies.
    Olivier Chatain, Denisa Mindruta.
    Strategic Management Journal. February 15, 2017
    Research summary: We develop and apply a new set of empirical tools consistent with the tenets of value‐based business strategies, leveraging the principle that “no good deal comes undone” and the methods of revealed preferences, to empirically estimate drivers of value creation. We demonstrate how to use these tools in an analysis of value creation in buyer–supplier relationships in the UK corporate legal market. We show that our approach can uncover evidence of subtle mechanisms that traditional methods cannot easily distinguish from each other. Furthermore, we show how the estimates can be used as parameters of biform games for out‐of‐sample analyses of strategic decisions. With readily available data on relationships between firms, this approach can be applied to many other contexts of interest to strategy researchers. Managerial summary: Managers need to understand the drivers of value creation for customers in order to make competitive positioning decisions and understand when they can capture value under competition. However, estimates of the relative importance of each driver are typically difficult to obtain. In this article, we help remedy this problem by demonstrating a novel method that obtains estimates of the contribution of various drivers of value creation from commonly available data of buyer–supplier relationships. These estimates can then be used to inform the strategy‐making process. Copyright © 2017 John Wiley & Sons, Ltd.
    February 15, 2017   doi: 10.1002/smj.2633   open full text
  • Employee mobility and interfirm relationship transfer: Evidence from the mobility and client attachments of United States federal lobbyists, 1998–2014.
    Joseph Raffiee.
    Strategic Management Journal. February 15, 2017
    Research summary: Employee mobility can erode competitive advantage by facilitating interfirm knowledge and relationship transfer. This study investigates the latter and identifies factors that influence the likelihood of its occurrence. Using a novel database that tracks the employment and client attachments of U.S. federal lobbyists, I show that repeated exchange with employees (firms) increases (decreases) the likelihood clients follow employees who switch firms. Structurally, multiplexity reduces the likelihood of client transfer and weakens the effect of employee–client repeated exchange, with the multiplexity effect strongest when team members have specialized expertise. By examining the main and interactive effects of repeated exchange, multiplexity, and specialized human capital, this study extends prior work by demonstrating how individual, organizational, and structural relationship characteristics affect client transfer and retention ex‐post employee mobility. Managerial summary: When do clients follow employees who switch firms? What can firms do to guard against it? These questions are important in service‐based industries where clients may become loyal to individual employees within the firm rather than to the firm itself. This study provides evidence that helps practicing managers: (a) identify which clients are most at risk of defecting if employees exit, and (b) structure relationships in ways that mitigate the likelihood that employee exit results in client loss. Findings suggest that a client is more likely to defect when she has extensive history working with the exiting employee, particularly if the employee was the sole link between the client and firm. Managers, however, can reduce the risk of client loss following employee exit by structuring relationships so that clients work with teams of employees rather than exclusively with an individual and by increasing the degree of specialization within these teams. Copyright © 2017 John Wiley & Sons, Ltd.
    February 15, 2017   doi: 10.1002/smj.2634   open full text
  • Do individual employees' learning goal orientation and civic virtue matter? A micro‐foundations perspective on firm absorptive capacity.
    Fiona K. Yao, Song Chang.
    Strategic Management Journal. February 15, 2017
    Research summary: In this study, we build on the micro‐foundations perspective and investigate how individual characteristics contribute to the development of firm absorptive capacity. In particular, we assess how individual learning goal orientation affects firm potential and realized absorptive capacity. Furthermore, we study how individuals' civic virtue acts as a micro‐level social integration mechanism that moderates the effect from firm realized absorptive capacity to potential absorptive capacity. Using the multilevel structural equation modeling technique and data from 871 core‐knowledge employees nested in 139 high‐technology firms, we find support to our major hypotheses. Together, this study finds support for the micro‐foundations' perspective and generates novel insights on how individual‐level factors could be linked with firm‐level heterogeneity in absorptive capacity. Managerial summary: We study how employees' characteristics contribute to a firm's absorptive capacity, that is, the ability of a firm to identify, assimilate, and exploit knowledge from the environment. Because firms have increasingly tapped into external resources to foster innovation over the past two decades, absorptive capacity is crucial to firm learning and success. Using data from 871 core‐knowledge employees in 139 high‐technology firms, we find that individual employees' learning goal orientation, the tendency to seek improvements in employees' competence and to understand or master new things advances the development of a firm's potential and realized absorptive capacity. More important, individual employees' civic virtue, the discretionary involvement in company issues, serves as a social integration mechanism that reduces the gap between firm potential and realized absorptive capacity. Copyright © 2017 John Wiley & Sons, Ltd.
    February 15, 2017   doi: 10.1002/smj.2636   open full text
  • Human capital matters: Market valuation of firm investments in training and the role of complementary assets.
    Shawn M. Riley, Steven C. Michael, Joseph T. Mahoney.
    Strategic Management Journal. February 13, 2017
    Research summary: This article empirically examines the economic value to firms of investing in the training of their employees and firm‐level factors that influence how much the firms benefit. Event study methodology is used to obtain a measure of the economic impact of information regarding a firm's human capital management investments and policies. Subsequent regression analyses are then used to test hypotheses regarding possible complementary relationships between firm‐level factors and human capital investments. Results provide robust support for the proposition that effective investments in human capital and training matter, and that these human capital investments are more impactful when combined with complementary assets of R&D, physical capital, and advertising investments. Managerial summary: Do firm investments in training and the development of employee human capital matter with regard to financial performance? We find that, yes, these investments do matter. Our results show that managers who view employee human capital as an asset to be invested in and developed can expect to outperform those who view it as a cost to be minimized. In addition, we find that these human capital investments will be of even greater economic value to firms when they have made complementary investments in R&D, physical capital, and advertising. Copyright © 2016 John Wiley & Sons, Ltd.
    February 13, 2017   doi: 10.1002/smj.2631   open full text
  • Does a long‐term orientation create value? Evidence from a regression discontinuity.
    Caroline Flammer, Pratima Bansal.
    Strategic Management Journal. February 07, 2017
    Research summary: In this paper, we theorize and empirically investigate how a long‐term orientation impacts firm value. To study this relationship, we exploit exogenous changes in executives' long‐term incentives. Specifically, we examine shareholder proposals on long‐term executive compensation that pass or fail by a small margin of votes. The passage of such “close call” proposals is akin to a random assignment of long‐term incentives and hence provides a clean causal estimate. We find that the adoption of such proposals leads to (1) an increase in firm value and operating performance—suggesting that a long‐term orientation is beneficial to companies—and (2) an increase in firms' investments in long‐term strategies such as innovation and stakeholder relationships. Overall, our results are consistent with a “time‐based” agency conflict between shareholders and managers. Managerial summary: This paper shows that corporate short‐termism is hampering business success. We show clear, causal evidence that imposing long‐term incentives on executives—in the form of long‐term executive compensation—improves business performance. Long‐term executive compensation includes restricted stocks, restricted stock options, and long‐term incentive plans. Firms that adopted shareholder resolutions on long‐term compensation experienced a significant increase in their stock price. This stock price increase foreshadowed an increase in operating profits that materialized after two years. We unpack the reasons for these improvements in performance, and find that firms that adopted these shareholder resolutions made more investments in R&D and stakeholder engagement, especially pertaining to employees and the natural environment. Copyright © 2016 John Wiley & Sons, Ltd.
    February 07, 2017   doi: 10.1002/smj.2629   open full text
  • Let them go? How losing employees to competitors can enhance firm status.
    David Tan, Christopher I. Rider.
    Strategic Management Journal. February 07, 2017
    Research summary: Because employees can provide a firm with human capital advantages over competitors, firms invest considerably in employee recruiting and retention. Departing from the retention imperative of strategic human capital management, we propose that certain employee departures can enhance a firm's competitiveness in the labor market. Specifically, increased rates of career‐advancing departures by a firm's employees can signal to potential future employees that the firm offers a prestigious employment experience that enhances external mobility opportunities. Characterizing advancement based on subsequent employers and positions, we analyze data on U.S. law firm hiring and industry surveys of perceived firm status between 2004 and 2013. We find that increased rates of employee departures lead to increases in a firm's prestige when these departures are for promotions with high‐status competitors. Managerial summary: Firms often emphasize employee retention. Employee departures, especially as a result of being hired away by competitors, are often viewed as threats to a firm's competitive advantage. We propose, however, that employee retention need not be an unconditional strategic imperative. We argue that certain employee departures can enhance a firm's competitiveness in the market for human capital by signaling to potential employees that the firm offers a prestigious employment experience, which can help them obtain attractive positions with other employers. Analyzing data on U.S. law firm hiring and industry surveys of firm associates between 2004 and 2013, we find that increased rates of employee departures lead to increases in a firm's prestige when these departures are for promotions with high‐status competitors. Copyright © 2016 John Wiley & Sons, Ltd.
    February 07, 2017   doi: 10.1002/smj.2630   open full text
  • Corporate sexual equality and firm performance.
    Liwei Shan, Shihe Fu, Lu Zheng.
    Strategic Management Journal. January 30, 2017
    Research summary: Previous studies have mixed findings on the relation between corporate socially responsible policies and firm performance. This paper focuses on a specific type of corporate social responsibility—corporate sexual equality, measuring how a firm treats its lesbian, gay, bisexual, and transgender (LGBT) employees, consumers, and investors—and examines whether and how it relates to firm performance. Using a longitudinal dataset of public firms in the U.S. during the period of 2002–2006, we demonstrate that firms with a higher degree of corporate sexual equality have higher stock returns and higher market valuation. We also identify one of the mediating channels, the labor market channel, that brings higher productivity to firms that embrace sexual equality. Managerial summary: Corporate sexual equality measures how a company treats its lesbian, gay, bisexual, and transgender (LGBT) employees, consumers, and investors. It is an important dimension of corporate social responsibility policies and diversity management. Using a longitudinal dataset of public firms in the U.S. during the period of 2002–2006, we demonstrate that firms with a higher degree of corporate sexual equality have higher stock returns, higher market valuation, and higher labor productivity. Our findings suggest that discriminatory hiring behaviors based on sexual orientation hurt employers and shareholders financially and that implementing corporate sexual equality policies can enhance firms' financial performance, generating competitive advantages in labor markets and mutual benefits between employers and employees. Copyright © 2016 John Wiley & Sons, Ltd.
    January 30, 2017   doi: 10.1002/smj.2624   open full text
  • Windfalls of emperors' sojourns: Stock market reactions to Chinese firms hosting high‐ranking government officials.
    Douglas A. Schuler, Wei Shi, Robert E. Hoskisson, Tao Chen.
    Strategic Management Journal. January 30, 2017
    Research summary: We contribute to the corporate political activity (CPA) literature by showing that investors value companies that host visits of high‐ranking government officials (President and Premier). We argue that investors may value host official visits for two reasons: (1) the signal received about possibility of firm accessing government‐controlled resources via promotion or protection; and (2) the certification effect from such high‐powered visitors elevating the firm's reputation and legitimacy. Results from an event study analysis of 84 high‐ranking government official visits in China from 2003 to 2011 indicate that investors responded positively to host firms as reflected by stock market performance. Furthermore, the greatest positive reactions accrued to firms experiencing weaker prior period financial performance and to firms that are privately compared to state‐controlled. Managerial summary: Do visits by high‐ranking government officials influence firm stock market performance? Studying a sample of Chinese public firms that hosted 84 visits by the Chinese President and the Premier from 2003 to 2011, we find that investors reacted positively to such visits compared with a group of non‐host firms from the same industry and with similar financial performance and size. In addition, firms with weaker prior financial performance and private firms benefit the most from hosting such visits. Our findings imply that hosting visits of high‐ranking government officials can signal future government‐controlled resource inflows and boost host firms' reputation and legitimacy. Copyright © 2016 John Wiley & Sons, Ltd.
    January 30, 2017   doi: 10.1002/smj.2622   open full text
  • Top management team incentive heterogeneity, strategic investment behavior, and performance: A contingency theory of incentive alignment.
    Adam L. Steinbach, Tim R. Holcomb, R. Michael Holmes, Cynthia E. Devers, Albert A. Cannella.
    Strategic Management Journal. January 19, 2017
    Research summary: We develop and test a contingency theory of the influence of top management team (TMT) performance‐contingent incentives on manager–shareholder interest alignment. Our results support our theory by showing that although TMTs engage in significantly higher levels of acquisition investment when their average incentive levels increase, investors' responses to those large investments are generally negative. More importantly, however, we further find that within‐TMT incentive heterogeneity conditions that effect, such that investors evaluate TMTs' large acquisition investments more positively as the variance in those top managers' incentive values increases. Thus, within‐TMT incentive heterogeneity appears to increase manager–shareholder interest alignment, in the context of large acquisition investments. Managerial summary: We find that as the average value of TMTs' incentives increase, relative to their total pay, they invest more in acquisitions and investors' respond negatively to the announcement of those deals. However, we further show that investors respond more positively to acquisitions announced by TMTs whose members' incentive values vary (some TMT members hold higher incentives and others hold lower). Results imply that when TMT members hold differing incentives levels, they approach investments from divergent perspectives, scrutinize those investments more heavily, and make better decisions, relative to TMTs with similar incentives. They also suggest that boards seeking tighter manager–shareholder interest alignment may benefit from introducing variance into TMT members' incentive structures, as doing so appears to create divergent preferences that can improve team decision making. Copyright © 2016 John Wiley & Sons, Ltd.
    January 19, 2017   doi: 10.1002/smj.2628   open full text
  • Employee mobility, spin‐outs, and knowledge spill‐in: How incumbent firms can learn from new ventures.
    Ji Youn (Rose) Kim, H. Kevin Steensma.
    Strategic Management Journal. January 17, 2017
    Research summary: We consider conditions in which incumbent firms are particularly poised to benefit from knowledge spilling in from new ventures that employ individuals previously employed by the focal incumbent firm. We distinguish between inventors who leave their incumbent employers to found spin‐outs and those who become non‐founding employees of existing new ventures. Using a sample of new ventures and incumbent firms in the U.S. information technology (IT) sector, we find that incumbents are more likely to benefit from patented knowledge that spills in from their spin‐outs than from new ventures that employ non‐founding inventors formerly employed by the respective incumbent. Any advantage that parent firms have in reaping such knowledge quickly dissipates, however, when these parents have a history of misappropriating the intellectual property of others. Managerial summary: It has long been acknowledged that new ventures can acquire valuable knowledge from their larger and more established counterparts by hiring away their talented employees. We consider the possibility of a reverse flow of knowledge where established firms learn from those new ventures that have poached employees from them. We find that established information technology (IT) firms are more likely to learn and build on the technology of their spin‐outs (i.e., new ventures founded by their former inventors) than from new ventures that simply employ non‐founding inventors formerly employed by the respective IT firm. Any advantage that these IT firms had in reaping technical know‐how from their spin‐outs quickly dissipated, however, when they had a history of misappropriating the intellectual property of others. Copyright © 2016 John Wiley & Sons, Ltd.
    January 17, 2017   doi: 10.1002/smj.2625   open full text
  • Cross‐border mergers and acquisitions: The role of private equity firms.
    Mark Humphery‐Jenner, Zacharias Sautner, Jo‐Ann Suchard.
    Strategic Management Journal. January 13, 2017
    Research summary: We show that private equity ownership (“PE backing”) of the acquirer is a signal of deal quality in cross‐border takeovers. As such, PE‐backed acquirers experience higher announcement returns in cross‐border takeovers, but only if targets are in poor information environments. We show that PE backing is a positive market signal because of PE firms' experience and networks that result from prior deals in target countries. We document that the market correctly anticipates that operating performance of PE‐backed acquirers increases as a result of cross‐border mergers and acquisitions (M&A). Managerial summary: We study cross‐border acquisitions by acquirers that are partially owned by private equity firms (“PE backing”). Cross‐border acquisitions are challenging as acquirers often have little information about targets. We document that investors react positively to cross‐border deals of PE‐backed acquirers—their stock prices increase upon deal announcements. However, this is only the case if targets are in countries with poor information environments. This is because PE backing allows acquirers to access PE firms' deal experience and networks. This makes it easier to identify and evaluate good targets, making it more (less) likely that a deal eventually creates (destroys) value. Consistent with this, we find that earnings of PE‐backed acquirers increase after buying targets in poor information environments. Copyright © 2016 John Wiley & Sons, Ltd.
    January 13, 2017   doi: 10.1002/smj.2623   open full text
  • Do foreign entrepreneurs benefit their firms as managers?
    Elena Kulchina.
    Strategic Management Journal. January 04, 2017
    Research summary: The entrepreneurship literature has extensively studied an individual's decision to found a new venture, but it has little to say about the individual's choice to operate this venture personally or hire an agent. This decision is particularly challenging for foreign entrepreneurs, who, in addition to traditional factors, such as agency costs and personal preferences, need to take into consideration the benefits and liabilities of foreignness. Using novel data on foreign entrepreneurial firms and instrumenting for the owner‐manager choice with a visa policy change, we find that managing foreign entrepreneurs significantly improve firm performance. Our results further suggest that foreign owner‐managers reduce operating costs but have no effect on the firm's productivity and growth. Managerial summary: Immigrants represent a significant part of the population in the United States and Europe and are often more entrepreneurial than local nationals. However, a person starting a firm in a foreign country faces unique challenges. One important choice that a foreign entrepreneur has to make is whether to operate the firm personally or hire a local agent. Foreign entrepreneurs are often believed to be worse managers because they have limited local knowledge and skills. However, our results point to the contrary: We find that managing foreign entrepreneurs significantly improve firm performance by decreasing firms' operating costs. This happens because foreign owner‐managers often have access to unique resources, higher work incentives, and superior management skills acquired at home. Copyright © 2016 John Wiley & Sons, Ltd.
    January 04, 2017   doi: 10.1002/smj.2618   open full text
  • Product variety, sourcing complexity, and the bottleneck of coordination.
    Yue M. Zhou, Xiang Wan.
    Strategic Management Journal. January 03, 2017
    Research summary: This paper studies the coordination burden for firms that pursue variety as their main product strategy. We propose that product variety magnifies the tension between scale economies in production and scope economies in distribution, giving rise to complex sourcing relationships. Sourcing complexity worsens performance and poses a dilemma for organization design: A hierarchical structure with intermediate coordinating units such as sourcing hubs reduces sourcing complexity for downstream distribution but creates bottlenecks at the hubs, hurting performance for both the hubs and downstream distribution. We empirically examine operations data for about 300 distribution centers within a major soft drink bottling company in 2010–2011. Results support our hypotheses, illuminating the source of complexity in multi‐product firms and the challenge for organization design in managing complexity. Managerial summary: This paper uses data for about 300 distribution centers within a major soft drink bottling company to study how a large product variety creates complex sourcing networks. We find that, in addition to poor performance (e.g., increased stockouts), complex sourcing networks can cause challenges for organization design. In particular, the benefits of converting an existing distribution center into a sourcing hub (i.e., reduction in sourcing complexity for downstream distribution) and the costs of doing so (i.e., reduction in performance for both the hubs and downstream distribution) are both real and significant. The design of an efficient sourcing network despite its complexity involves important managerial decisions. Experiences in building and managing such networks can be the basis of a dynamic capability. © 2016 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.
    January 03, 2017   doi: 10.1002/smj.2619   open full text
  • Firm heterogeneity in complex problem solving: A knowledge‐based look at invention.
    Turanay Caner, Susan K. Cohen, Frits Pil.
    Strategic Management Journal. December 22, 2016
    Research summary: The knowledge‐based view suggests that complex problems are best solved under hierarchical (within‐firm) governance. We examined why firms assumed to be in general alignment with this theory might nonetheless produce solutions of varying usefulness. We theorize that a firm's internal knowledge variety (IKV) is associated with its capacity to support cross‐domain knowledge flows during search, and its ability to identify and explore promising areas on the solution landscape. We further theorize that partner knowledge in familiar (unfamiliar) domains can offset specific weaknesses in searching rugged landscapes, inherent with low or high (moderate) IKV. We find support for these ideas in the context of drug discovery, extending KBV's focus on governance alignment to explain variation in problem‐solving effectiveness within hierarchy. Managerial summary: Firms that concentrate their inventive efforts in a few technological domains, but also dabble in several others, have problem‐solving advantages: they can better support knowledge transfer and recombination across domains. Firms that focus too narrowly or spread their inventive efforts thinly across many domains lose these advantages, but might compensate through alliance partnerships. Our study of drug discovery shows that while firms with very low or high knowledge variety tend to produce weaker solutions than firms in the moderate range, their inventive performance improves when alliance partners afford them access to additional knowledge in familiar domains. We explain how the combination of firm and partner knowledge enables firms to better identify, evaluate, and implement alternative solutions to complex problems. Copyright © 2016 John Wiley & Sons, Ltd.
    December 22, 2016   doi: 10.1002/smj.2615   open full text
  • Strategic interaction in alliances.
    Claudio Panico.
    Strategic Management Journal. December 19, 2016
    Research summary: This article studies strategic interactions between firms that form alliances to exploit synergistic benefits. Firms cooperate to create value, but they can also compete to capture value. Fundamental questions rarely addressed by strategy scholars relate to how the configuration of control over resources influences firms' strategies, the potential for termination, and the emergence of cooperation and trust. The formal results reveal crucial aspects of the interorganizational rent‐generating process and yield testable implications. With greater synergistic benefits, firms invest more, but they also compete more intensively to capture more value. With symmetric control, more value gets created, which limits the potential for termination, but also exacerbates the competition for value; from a relational perspective, this form of control augments the calculative rationale of cooperation and trust. Managerial summary: When forming an alliance to exploit synergies, firms engage in a complicated strategic interaction that is part cooperation and part competition. What happens when partner firms cooperate and invest to create value while competing and using costly adversarial tactics to capture value? The analysis reveals that with greater synergistic benefits, firms invest more in value creation, but the fear of opportunism pushes them to waste more resources on value capture tactics. The balance between value creation and value capture, and the possibility that the alliance is terminated depend on the configuration of control over resources. The analysis further reveals under what conditions there can be trust between the partners, such that they focus on value creation and avoid wasting resources in the competition for value. Copyright © 2016 John Wiley & Sons, Ltd.
    December 19, 2016   doi: 10.1002/smj.2610   open full text
  • Value capture theory: A strategic management review.
    Joshua Gans, Michael D. Ryall.
    Strategic Management Journal. December 15, 2016
    Research summary: This article provides the first review of a growing line of scholarly work in strategy that we refer to as “value capture theory.” The common thread in this work is its use of cooperative game theory as a general, mathematical foundation upon which to build a deep understanding of firm performance in market settings. Our review: (1) describes the primary elements of the theory; (2) highlights important blindspots that it resolves with respect to existing theoretical approaches; (3) calls attention to several of its novel insights; and (4) summarizes a myriad of applications and empirical studies that have appeared in recent years using value capture theory. Managerial summary: Traditionally, theoretical claims in strategic management have been supported by informal, qualitative reasoning. Recently, however, a new line of theoretical work based upon mathematical methods, known as “value capture theory,” has been gaining in popularity. This article reviews the recent advances in this line with a particular emphasis upon a number of its important insights, several of which challenge longstanding propositions from the traditional line. For managers, the formal nature of value capture theory is well‐aligned with data‐driven analyses of strategic situations. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2592   open full text
  • Measuring value creation and appropriation in firms: The VCA model.
    Marvin B. Lieberman, Roberto Garcia‐Castro, Natarajan Balasubramanian.
    Strategic Management Journal. December 15, 2016
    Research summary: Using a productivity technique (VCA model), we estimate the economic value created by a firm and appropriated by its stakeholders in two specific empirical contexts. In the first application, we use publicly available data from the U.S. airline industry to illustrate how the VCA model can be used with multiple stakeholder groups. In the second application, we provide estimates for three global automobile companies (GM, Toyota and Nissan), showing how the model can be reformulated using value added. In both industries we find substantial heterogeneity among firms in the creation and distribution of value. We discuss strengths and limitations of the VCA model and implications for strategic management research. Managerial summary: Firms create value not only for shareholders, but also for other stakeholders, including employees, customers and suppliers. This article applies a method to quantify the “new” economic value created by a firm over an interval of time; the method also reveals the distribution of that value among the stakeholders. The proposed method gives managers some means to assess changes in the economic value created and distributed. We find that the creation and distribution of value has varied greatly among major U.S. airlines and global automakers in recent decades. Moreover, returns to shareholders typically accounted for only a small proportion of firms' total value creation and often had little relation to broader changes in the magnitude and distribution of value. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2565   open full text
  • The expanding domain of strategic management research and the quest for integration.
    Rodolphe Durand, Robert M. Grant, Tammy L. Madsen.
    Strategic Management Journal. December 15, 2016
    Research summary: This special issue of Strategic Management Journal was motivated by concern that the growing scope and diversity of the strategic management field creates the risk of incoherence and fragmentation and the belief that research reviews could contribute to synthesis and integration. In this introductory essay, we address the expanding domain of strategic management, consider where its boundaries lie, identify the forces engendering fragmentation, and discuss how this special issue—and research reviews in general—can assist convergence within the field of strategy. We conclude by addressing the potential for integration more broadly in relation to the theories we deploy, the phenomena we investigate, and cohesiveness of our scholarly community. Managerial summary: The expanding domain of strategic management reflects the widening range of strategic issues that practising managers face. However, the fragmentation that has accompanied this broadening scope impedes the usefulness of strategic management research in guiding strategic decision making. We argue that reviews of strategic management research, such as those included within this special issue, can support the accumulation of an integrated, empirically-validated knowledge base which is essential to informing management practice. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2607   open full text
  • Nonmarket strategy research through the lens of new institutional economics: An integrative review and future directions.
    Sinziana Dorobantu, Aseem Kaul, Bennet Zelner.
    Strategic Management Journal. December 15, 2016
    Research summary: We use a novel theoretical framework to synthesize ostensibly disparate streams of nonmarket strategy research. We argue that faced with weak institutions, firms can create and appropriate value by either adapting to, augmenting, or transforming the existing institutional environment, and can do so either independently or in collaboration with others. We use the resulting typology of six distinct nonmarket strategies to provide an integrative review of nonmarket strategy research. We then extend this framework to examine the choice between nonmarket strategies, arguing that this choice depends upon whether the existing institutional environment is incomplete or captured, and discussing other drivers of nonmarket strategy choice, the relationship between these strategies, and their social impact, so as to provide an agenda for future research. Managerial summary: The pursuit of competitive advantage often requires firms to operate in contexts where existing rules and regulations provide inadequate protection. Disruptive technologies open up new opportunities for value creation, but it takes years before appropriate regulations are introduced. Economic reforms open up new markets, but these are often regulated to favor incumbents and politically connected insiders. In such environments, managers must decide whether to adapt their strategies to the existing institutional environment, devote resources to improve it, or try to transform it altogether. In this article, we develop an integrative theoretical framework that connects and synthesizes research examining each of these options, and offers some preliminary thoughts on how managers may choose among these different approaches. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2590   open full text
  • Categories and competition.
    Gino Cattani, Joseph F. Porac, Howard Thomas.
    Strategic Management Journal. December 15, 2016
    Research summary: In this article, we review, integrate, and extend the literature on markets, competition, and categories as it applies to strategic management theory. Developments in the literatures of economics and organizational theory have shed new light on market categories and category dynamics. These developments highlight the fact that boundary questions are fundamental to the competitive process, and represent a fertile area for research and theory. The objective is to encourage a theoretically grounded rapprochement between current strategic management research and both older and newer research on categories and competition. Managerial summary: One of the key problems for business strategists is understanding the competitive environment and interpreting the effects of competition on a business. This article attempts to integrate various literatures in the study of competition by suggesting that strategists play a crucial role in linking abstract categories of firms and products that have become part of an industry's terminology with real‐time competitive processes taking place among firms and buyers. Strategists interpret cues such as cross‐elasticities of demand among their own and competing products and connect these cues to taken‐for‐granted categories demarcating the boundaries of markets. Simultaneously, strategists are introducing new categories by reformulating old nomenclatures and introducing new ones. We also trace the possible effects of this ‘competitive sensemaking’ on firm behaviors. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2591   open full text
  • Which boundaries? How mobility networks across countries and status groups affect the creative performance of organizations.
    Andrew Shipilov, Frédéric C. Godart, Julien Clement.
    Strategic Management Journal. December 15, 2016
    Research summary: Losing key employees to competitors allows an organization to engage in external boundary‐spanning activities. It may benefit the organization through access to external knowledge, but may also increase the risks of leaking knowledge to competitors. We propose that the destination of departed employees is a crucial contingency: benefits or risks only materialize when employees leave for competitors that differ from the focal organization along significant dimensions, such as country or status group. In the context of the global fashion industry, we find that key employees' moves to foreign competitors may increase (albeit at a diminishing rate) their former employers' creative performance. Furthermore, firms may suffer from losing key employees to higher‐ or same‐status competitors, but may benefit from losing them to lower‐status competitors. Managerial summary: Losing key employees to competitors can provide organizations with access to external knowledge, but increase risks of leaking knowledge to competitors. We find that an organization's access to external knowledge and its risks of knowledge leakage through employee mobility may be affected by whether its employees leave for competitors in a foreign country or in a different status group. In the context of the global fashion industry, we show that key employees' moves to foreign competitors increase (up to a point) their former employers' creative performance. Furthermore, firms may suffer from losing key employees to higher‐ or same‐status competitors, but benefit from losing them to lower‐status competitors. Hence, executives in creative industries and possibly beyond could welcome losing employees to competitors in foreign countries or to lower‐status competitors. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2602   open full text
  • The performance implications of resource and pay dispersion: The case of Major League Baseball.
    Aaron D. Hill, Federico Aime, Jason W. Ridge.
    Strategic Management Journal. December 15, 2016
    Research summary: Building on research in strategic management that has found that high levels of pay dispersion are detrimental to firm performance; we examine the potential dependence of those findings on similar dispersion in the latent potential of those resources to contribute to performance. We find that congruence between resource value dispersion and pay dispersion is positively related to organizational performance. Additionally, we find that this congruence moderates the effects of both organizational resources and organizational pay levels on organizational performance. These findings contribute to a growing line of research that explores the implications of key human resource value and pay combinations for organizational performance. Managerial summary: While differences in income between key employees (i.e., dispersed pay) can instill feelings of inequity and be detrimental to organizational performance, such differences may also increase the odds of attracting star talent and help performance. In the context of Major League Baseball (MLB), we find that performance improves when dispersions in pay are congruent with the dispersion in the contributions that team members make to their organizations. We also find that the positive effects on performance of higher total pay and of level of organizational talent are enhanced by congruent pay and contribution dispersions. These findings suggest organizations may benefit from consistent dispersions in pay and talent and that important contributions by key organizational members need to be visible when organizations have dispersed pay structures. Copyright © 2016 John Wiley & Sons, Ltd.
    December 15, 2016   doi: 10.1002/smj.2616   open full text
  • Cross‐border acquisitions by state‐owned firms: How do legitimacy concerns affect the completion and duration of their acquisitions?
    Jing Li, Jun Xia, Zhouyu Lin.
    Strategic Management Journal. December 14, 2016
    Research summary: Cross‐border acquisitions may raise legitimacy concerns by host‐country stakeholders, affecting the acquisition outcomes of foreign firms. We propose that theorization by local regulatory agencies is a key mechanism that links legitimacy concerns with acquisition outcomes. Given that theorization is time consuming and its outcome is uncertain, we argue that state‐owned foreign firms experience a lower likelihood of acquisition completion and a longer duration for completing a deal than other foreign firms. Moreover, we introduce a set of firm characteristics (target public status, target R&D alliances, and acquirer acquisition and alliance experiences) that may affect the threshold level of legitimacy, thereby altering the proposed relationships. Our framework and findings provide useful implications for institutional theory on its core concept of legitimacy. Managerial summary: Cross‐border acquisitions by state‐owned foreign firms may lead to national security concerns and thus debates and discussions among local regulatory agencies. We argue that such institutional processes may reduce the likelihood of acquisition completion and prolong the duration of acquisition completion. Using cross‐border acquisitions in the United States, we find that acquisitions by state‐owned foreign firms are not less likely to be completed than acquisitions by other foreign firms, but they take more time to be completed. Moreover, state‐owned foreign firms are less likely to complete an acquisition when the target firm has more R&D alliances. However, their acquisition experience and alliance experience in the host country increase the likelihood of acquisition completion, whereas their alliance experience alone shortens the acquisition duration. Copyright © 2016 John Wiley & Sons, Ltd.
    December 14, 2016   doi: 10.1002/smj.2609   open full text
  • Firm‐specific knowledge assets and employment arrangements: Evidence from CEO compensation design and CEO dismissal.
    Heli Wang, Shan Zhao, Guoli Chen.
    Strategic Management Journal. December 14, 2016
    Research summary: We argue that firms with greater specificity in knowledge structure need to both encourage their CEOs to stay so that they make investments with a long‐term perspective, and provide job securities to the CEOs so that they are less concerned about the risk of being dismissed. Accordingly, we found empirical evidence that specificity in firm knowledge assets is positively associated with the use of restricted stocks in CEO compensation design (indicating the effort of CEO retention) and negatively associated with CEO dismissal (indicating the job securities the firm committed to CEOs). Furthermore, firm diversification was found to mitigate the effect of firm‐specific knowledge on both CEO compensation design and CEO dismissal, as CEOs are more removed from the deployment of knowledge resources in diversified firms. Managerial summary: A firm's knowledge structure, that is, the extent to which its knowledge assets are firm‐specific versus general, has implications for both CEO compensation design and CEO dismissal. In particular, we find that a firm with a high level of firm‐specific knowledge has the incentive to retain its CEO through the use of restricted stocks in CEO compensation. Such a firm is also likely to provide job security for its CEO, leading to a lower likelihood of CEO dismissal. These arguments, however, are less likely to hold in diversified corporations as CEOs in such corporations are more removed from the deployment of knowledge assets. A key managerial implication is that CEO compensation and job security design should be made according to the nature of firm knowledge assets. Copyright © 2016 John Wiley & Sons, Ltd.
    December 14, 2016   doi: 10.1002/smj.2604   open full text
  • How family influence, socioemotional wealth, and competitive conditions shape new technology adoption.
    David Souder, Akbar Zaheer, Harry Sapienza, Rebecca Ranucci.
    Strategic Management Journal. December 14, 2016
    Research summary: In family businesses, investment decisions often involve both socioemotional wealth and economic considerations. Focusing on new technology adoption, we argue that multiple dimensions of socioemotional wealth contribute to complex effects within different types of family firms—depending on the level of family control—as well as in contrast to non‐family firms. Results based on cable TV operators from 1983 to 1987 confirm that family ownership correlates negatively with technology adoption, especially when family owners hold a minority rather than majority position. We also show contingencies based on performance improvements and competitive threats. Our arguments contribute new insights about the tensions between economic and socioemotional factors within minority family ownership that are absent from non‐family firms and more pronounced than in majority family firms. Managerial summary: We find evidence of greater reluctance toward new technology adoption among firms with minority family influence than majority family influence. This suggests that goals related to socioemotional wealth only partly explain the cautious decision‐making observed in family firms, with further caution arising from conflicting priorities between family and non‐family owners. Recent performance improvements help offset the reluctance to adopt new technology, albeit to a lesser degree among firms with minority family ownership. High levels of competitive threats also offset the reduction in new technology adoption, and contrary to expectations, to a greater extent among minority family firms. Copyright © 2016 John Wiley & Sons, Ltd.
    December 14, 2016   doi: 10.1002/smj.2614   open full text
  • CEO political ideologies and pay egalitarianism within top management teams.
    M. K. Chin, Matthew Semadeni.
    Strategic Management Journal. December 09, 2016
    Research summary: We examine the influence of CEO and compensation committee liberalism on top management teams (TMT) pay arrangements. Given that politically liberal individuals tend to value egalitarianism, we test whether firms with liberal CEOs tend to (1) reduce pay dispersion among non‐CEO executives; and (2) reduce pay gaps between CEO and non‐CEO executives, and whether compensation committee liberalism moderates these relationships. We find some evidence of a direct effect of CEO liberalism on TMT pay arrangements as well as some interaction between CEO and compensation committee liberalism on the pay arrangements. This study provides a better understanding of the antecedents of TMT pay arrangements and empirical evidence showing the influence of values at the top of organization. Managerial summary: Do the values of the CEO and compensation committee influence the pay of other top managers? Our study provides evidence that political ideology affects top manager pay. We examine whether CEO liberalism produces more egalitarian pay arrangements among top managers, and whether the liberalism of the compensation committee affects that relationship. We find that CEO liberalism reduces differences in the total pay among top managers, but does not influence the difference between CEO total pay and the total pay of top managers. We also find that compensation committee liberalism strengthens the negative influence of CEO liberalism on differences in total pay among top managers. Finally, we find that CEO liberalism reduces the difference between CEO bonus pay and the bonus pay of other top managers. Copyright © 2016 John Wiley & Sons, Ltd.
    December 09, 2016   doi: 10.1002/smj.2608   open full text
  • Will firms go green if it pays? The impact of disruption, cost, and external factors on the adoption of environmental initiatives.
    Glen W. S. Dowell, Suresh Muthulingam.
    Strategic Management Journal. December 05, 2016
    Research summary: Research on the link between financial and environmental performance implicitly assumes that firms will pursue profitable environmental actions. Yet, clearly, factors beyond profitability influence firms' environmental choices. We treat these choices as organizational change decisions and hypothesize that adoption of environmental initiatives is influenced by a combination of profit, level of disruption caused, and external influences. We test our hypotheses by examining firms' choices regarding implementation of energy‐savings initiatives. We find that degree of disruption, number of prior local adopters, and strength of environmental norms affect the adoption decisions. In addition, the effect of disruption is amplified by the implementation costs, but is mitigated by the number of prior local adopters. Managerial summary: Often, in trying to improve firms' environmental performance, academics and stakeholders have focused on actions that simultaneously improve environmental and financial performance. This assumes that firms will undertake projects that offer such dual benefits. We consider what might prevent firms from pursuing such ‘win‐win’ initiatives. We focus on how the degree of disruption of an energy‐saving initiative affects its probability of adoption. We find that firms are significantly more likely to adopt moderately profitable, but easy initiatives than more profitable but disruptive ones. We also examine internal and external factors that moderate the effect of disruption. Our findings suggest that in order to incentivize firms to improve environmental performance, it might be more beneficial make these activities less disruptive than to make them more profitable. Copyright © 2016 John Wiley & Sons, Ltd.
    December 05, 2016   doi: 10.1002/smj.2603   open full text
  • Heterogeneous social motives and interactions: The three predictable paths of capability development.
    Flore Bridoux, Régis Coeurderoy, Rodolphe Durand.
    Strategic Management Journal. December 05, 2016
    Research summary: Limited attention has been paid to the crucial role of individuals' motivation and social interactions in capability development. Building on literature in social psychology and behavioral economics that links heterogeneity in individual social motives to social interactions, we explain how the variation, selection, and retention processes underlying a group's deliberate capability development are affected by the composition of the group in terms of individuals' social motives in interplay with the organizational‐level motivational levers designed by managers. Our multilevel theoretical model suggests that individual‐level heterogeneity leads to the development of capabilities along different paths. For practice, this implies that, according to the composition of the group in terms of social motives, capabilities are more or less technically and evolutionary adequate and a source of business process performance. Managerial summary:We propose that when a group of employees engages in developing one of the firm's capabilities, capability development will follow a different path according to what motivates most of the employees composing the group. We identify and discuss three paths. Two of these paths (convergence and congruence) can help improve business process performance in a stable environment, the third one (open‐ended) in a dynamic environment. Our work invites managers to not only think in terms of more or less capability development, but also in terms of capability development path(s): the path(s) in which groups in the firm are currently engaged and the one(s) that are desirable given the firm's objectives and the nature of the environment(s) the firm faces in deploying its business processes. © 2016 The Authors. Strategic Management Journal published by John Wiley & Sons, Ltd.
    December 05, 2016   doi: 10.1002/smj.2605   open full text
  • Caught in the crossfire: Dimensions of vulnerability and foreign multinationals' exit from war‐afflicted countries.
    Li Dai, Lorraine Eden, Paul W. Beamish.
    Strategic Management Journal. November 30, 2016
    Research summary: When war occurs in a country, some foreign multinational enterprises (MNEs) stay on, while others flee. We argue that MNE responses to external threats depend on the firm's vulnerability, which we decompose into exposure (proximity to threat), at‐risk resources (potential for loss), and resilience (capacity for coping). We test the independent and interactive effects of these dimensions using a geo‐referenced sample of 1,162 MNE subsidiaries in 20 war‐afflicted countries between 1987 and 2006. We find that highly valuable resources can become liabilities when exposed to harm, and the best way to cope with external threats may be to exit. Our findings extend the resource‐based view and real options theory by demonstrating the bounded value of resources and options in the face of environmental contingencies. Managerial summary: A recent survey of multinational enterprise (MNE) executives revealed that 30 percent of the respondents believed that their firms were exposed to collateral damage from war, with more than 90 percent expecting risks to rise. Yet, 25 percent of the executives indicated that their firms had no continuity plan. Our study of MNEs in war‐afflicted countries highlights the costs of not having a response strategy in place. We find that, in war zones, otherwise highly valuable locations and resources can become sources of vulnerability that prompt early withdrawal from a host country. Our work further highlights the value of real options thinking—where structural solutions such as building redundancy into a portfolio of options may exist in advance of problems—for navigating hostile environments. Copyright © 2016 John Wiley & Sons, Ltd.
    November 30, 2016   doi: 10.1002/smj.2599   open full text
  • Networks, platforms, and strategy: Emerging views and next steps.
    David P. McIntyre, Arati Srinivasan.
    Strategic Management Journal. November 17, 2016
    Research summary: A substantial and burgeoning body of research has described the influence of platform‐mediated networks in a wide variety of settings, whereby users and complementors desire compatibility on a common platform. In this review, we outline extant views of these dynamics from the industrial organization (IO) economics, technology management, and strategic management perspectives. Using this review as a foundation, we propose a future research agenda in this domain that focuses the on the relative influence of network effects and platform quality in competitive outcomes, drivers of indirect network effects, the nature and attributes of complementors, and leveraging complementor dynamics for competitive advantage. Managerial summary: In many industries, such as social networks and video games, consumers place greater value on products with a large network of other users and a large variety of complementary products. Such “network effects” offer lucrative opportunities for firms that can leverage these dynamics to create dominant technology platforms. This article reviews current perspectives on network effects and the emergence of platforms, and offers several areas of future consideration for optimal strategies in these settings. Copyright © 2016 John Wiley & Sons, Ltd.
    November 17, 2016   doi: 10.1002/smj.2596   open full text
  • Optimal distinctiveness: Broadening the interface between institutional theory and strategic management.
    Eric Yanfei Zhao, Greg Fisher, Michael Lounsbury, Danny Miller.
    Strategic Management Journal. November 15, 2016
    Research summary: Attaining optimal distinctiveness—positive stakeholder perceptions about a firm's strategic position that reconciles competing demands for differentiation and conformity—has been an important focal point for scholarship at the interface of strategic management and institutional theory. We provide a comprehensive review of this literature and situate studies on optimal distinctiveness in the broader scholarly effort to integrate institutional theory into strategic management. Our review finds that much extant research on firm‐level optimal distinctiveness is grounded in the strategic balance perspective that conceptualizes conformity and competitive differentiation as a trade‐off along a single organizational attribute. We argue for a renewed research agenda that draws on recent developments in institutional theory to conceptualize organizational environments as more multiplex, fragmented, and dynamic, and discuss its implications for core strategic management topics. Managerial summary: This article aims to provide managers with a more comprehensive and contemporary view of how firms can become optimally distinct—being different enough from peer firms to be competitive, but similar enough to peers to be recognizable. We aim to equip managers with an understanding of firms as complex, multidimensional entities, and encourage them to identify and orchestrate various types of strategic resources to reconcile conformity versus differentiation tensions, address the multiplicity of stakeholder expectations, and aptly modify their positioning strategies in order to succeed in dynamic environments. Copyright © 2016 John Wiley & Sons, Ltd.
    November 15, 2016   doi: 10.1002/smj.2589   open full text
  • Real options theory in strategic management.
    Lenos Trigeorgis, Jeffrey J. Reuer.
    Strategic Management Journal. November 15, 2016
    Research summary: This article provides a review of real options theory (ROT) in strategic management research. We review the fundamentals of ROT and provide a taxonomy of this research. By synthesizing and critiquing research on real options, we identify a number of important challenges as well as opportunities for ROT if it is to enhance its impact on strategic management and potentially develop into a theoretical pillar in the field. We examine how ROT can inform the key tensions that managers face between commitment versus flexibility as well as between competition versus cooperation, and we show how it can uniquely address the fundamental issues in strategy. We conclude with suggestions on future research directions that could enhance and unify the thus‐far distinct main approaches to real options research. Managerial summary: Real options theory (ROT) applies the heuristics and valuation models originally designed for financial securities to the domain of corporate investment decisions (e.g., joint ventures [JVs], foreign direct investment, research and development [R&D], etc.) and strategic decision making under uncertainty. This article provides a synthesis of this body of research in strategic management and related disciplines. We suggest how ROT can address fundamental issues of strategy, including the dilemmas managers face between commitment versus flexibility as well as between competition versus cooperation. We discuss how three distinct approaches to real options analysis can complement each other, and we identify some of the main challenges and opportunities for ROT to become a theoretical pillar in strategy. Copyright © 2016 John Wiley & Sons, Ltd.
    November 15, 2016   doi: 10.1002/smj.2593   open full text
  • An empirical examination of vacillation theory.
    Jingoo Kang, Ribuga Kang, Sang‐Joon Kim.
    Strategic Management Journal. November 09, 2016
    Research summary: Since Nickerson and Zenger (2002) proposed how vacillation may lead to organizational ambidexterity, large‐sample empirical tests of their theory have been missing. In this paper, we empirically examine the performance implications of vacillation. Building upon vacillation theory, we predict that the frequency and scale of vacillation will have inverted U‐shaped relationships with firm performance. We test our hypotheses using patent‐based measures of exploration and exploitation in the context of technological innovation and knowledge search. Managerial summary: Firms often shift their focus on technological innovation and knowledge search from seeking new and novel knowledge (i.e., exploration) to extending and refining existing knowledge (i.e., exploitation) or vice versa. We examine how the frequency and scale of firms vacillating between exploration and exploitation may affect their performance. We find that both too infrequent or too frequent changes and a too small or too large scale of changes are not desirable. Copyright © 2016 John Wiley & Sons, Ltd.
    November 09, 2016   doi: 10.1002/smj.2588   open full text
  • Do board chairs matter? The influence of board chairs on firm performance.
    Michael C. Withers, Markus A. Fitza.
    Strategic Management Journal. November 02, 2016
    Research summary: We use a variance decomposition methodology to assess the degree to which board chairs may influence their companies' performance. To isolate the board chair effect, we focus on firms in which the CEO and board chair positions are separated. Using a U.S. sample of 6,290 firm‐year observations representing 1,828 board chairs in 308 different industries, our results indicate that the board chair effect is substantial at about nine percent. Drawing on resource dependency theory, we also theorize and show how this board chair effect is contingent on the task environment in which firms operate. Our results add to the literature examining the role and influence of board chairs and the context in which chairs may have a greater impact on performance. Managerial summary: Following institutional and regulatory changes, more firms are separating the CEO and board chair positions. With an increasing number of individuals separate from the CEO serving as board chairs, a critical question becomes: What influence do these separate board chairs have on firm performance? Prior research suggests that separate board chairs can provide important resources—including advice and counsel, legitimacy, information linkages, and preferential access to external commitments and support—to their CEOs, other top managers, and overall firms. In turn, who the board chair is and the individual's ability (or lack thereof) to provide these resources may have a significant impact on firm performance. Offering support for this perspective, we find that separate board chairs explain nine percent of the variance in firm performance. Copyright © 2016 John Wiley & Sons, Ltd.
    November 02, 2016   doi: 10.1002/smj.2587   open full text
  • Demystifying variance in performance: A longitudinal multilevel perspective.
    Guangrui Guo.
    Strategic Management Journal. November 01, 2016
    Research summary: This study employs longitudinal multilevel modeling to re‐examine the relative importance of business unit, corporation, industry, and year effects on business unit performance. Total variance in performance is partitioned into stable variance and dynamic variance. Sources of these two parts of variance are explored. Empirical results indicate that (1) stable effects of corporation‐industry interaction are substantially important, but were unequally confounded with stable effects of business unit, corporation, and industry in results of previous studies; (2) stable effects of corporation, industry, and corporation‐industry interaction, taken together, are of similar relative magnitude to stable effects of business unit; and (3) random and nonlinear year effects are very important in explaining dynamic variance. These findings extend our theoretical and empirical understanding of performance variability. Managerial summary: Whether stable or changing, business units themselves, corporate‐parents, and industries influence business unit operations. This article investigates the relative effects of these factors on business unit performance. Although the traditional wisdom is that business unit is critical, this research finds that corporate‐parent, industry, and interactions between these, taken together, are as influential as business unit. Specifically, interactions between corporate‐parent and industry are important for over‐time average business unit performance, indicating that a given corporate‐parent unevenly influences its business units in different industries and that a particular industry unevenly influences business units within itself from different corporate‐parents. This study also demonstrates that changes in business unit, corporate‐parent, and industry are important drivers of over‐time volatility of business unit performance and that effects of these changes differ. Copyright © 2016 John Wiley & Sons, Ltd.
    November 01, 2016   doi: 10.1002/smj.2555   open full text
  • Conflict inside and outside: Social comparisons and attention shifts in multidivisional firms.
    Songcui Hu, Zi‐Lin He, Daniela P. Blettner, Richard A. Bettis.
    Strategic Management Journal. November 01, 2016
    Research summary: Behavioral Theory highlights the crucial role of social comparisons in attention allocation in adaptive aspirations. Yet, both the specification of social reference points and the dynamics of attention allocation have received little scholarly examination. We address performance feedback from two social reference points relative to divisions in multidivisional firms: economic reference point and political reference point. Comparing divisional performance with the two reference points can give consistent or inconsistent feedback, which has important consequences for the dynamics of attention allocation in adaptive aspirations. We find consistent feedback leads to more attention to own experience, while inconsistent feedback results in more attention to the social reference point the focal division underperforms. Results reveal that political reference point plays an important role in determining managerial attention allocation. Managerial summary: This article is based on how goal‐based performance of divisions relative to both their relevant external market rivals and sister divisions in multidivisional firms influences corporate resource allocation. As a result, various combinations of performance against the two groups of peers drive the reallocation of divisional management attention. We show that specific attention shifts occur on average as a function of the focal division's performance relative to the marketplace performance and that of sister divisions. Copyright © 2016 John Wiley & Sons, Ltd.
    November 01, 2016   doi: 10.1002/smj.2556   open full text
  • Adaptive capacity to technological change: A microfoundational approach.
    Vikas A. Aggarwal, Hart E. Posen, Maciej Workiewicz.
    Strategic Management Journal. November 01, 2016
    Research summary>: We take a microfoundational approach to understanding the origin of heterogeneity in firms' capacity to adapt to technological change. We develop a computational model of individual‐level learning in an organizational setting characterized by interdependence and ambiguity. The model leads to organizational outcomes with the canonical properties of routines: constancy, efficacy, and organizational memory. At the same time, the process generating these outcomes also produces heterogeneity in firms' adaptive capacity to different types of technological change. An implication is that exploration policy in the formative period of routine development can influence a firm's capacity to adapt to change in maturity. This points to a host of strategic trade‐offs, not only between performance and adaptive capacity, but also between adaptive capacities to different forms of change. Managerial summary: Why are firms differentially effective at adapting to technological change? We argue that firms differ in the adaptive capacity of the routines that underlie their capabilities. These differences arise well before change occurs, and result because firms build routines that are differentially responsive to signals of performance decline associated with technological change. Thus, early managerial efforts to build superior productive efficiency must be complemented by efforts to build superior adaptive capacity. Our theory suggests that managers can prepare for technological change by implementing policies, in the formative period of organizational development, that promote individuals' exploration of novel actions. However, there are trade‐offs because preparation aimed at building adaptive capacity to one type of technological change may limit adaptive capacity to other types of change. Copyright © 2016 John Wiley & Sons, Ltd.
    November 01, 2016   doi: 10.1002/smj.2584   open full text
  • Rookies and seasoned recruits: How experience in different levels, firms, and industries shapes strategic renewal in top management.
    Charles Williams, Pao‐Lien Chen, Rajshree Agarwal.
    Strategic Management Journal. October 28, 2016
    Research summary: This study explores the effect of knowledge integration on strategic renewal. In particular, it examines how executives from different levels and sources influence renewal when added to top management teams (TMT). In contrast to prior work, the study hypothesizes and finds that new outside rookies—those new to top management and the firm—are associated with higher firm growth than other types of executives. We also find that seasoned outsiders—those with prior TMT experience outside the focal industry—contribute to growth only when the existing TMT has a long tenure. The results suggest that the ability of the TMT to integrate new members varies by executive type and has an important effect on incremental strategic renewal. Managerial summary: Conventional wisdom holds that firms are better off hiring those who can demonstrate prior experience and skill in tasks as close as possible to the job. In the realm of the top management team (TMT), however, we find that many firms benefit from hiring rookies from other firms who are new to the top management team level. These candidates bring useful knowledge of the operations of competitors and other firms, and they are easier to socialize and integrate with the existing team. While more experienced senior leaders may bring valuable strategic knowledge, this study suggests that only top management teams with long shared experience can weather the disruption that they cause to realize the potential benefits. Copyright © 2016 John Wiley & Sons, Ltd.
    October 28, 2016   doi: 10.1002/smj.2562   open full text
  • Context matters: Diversity's short‐ and long‐term effects in fortune's “best companies to work for”.
    Scott D. Julian, Joseph C. Ofori‐Dankwa.
    Strategic Management Journal. October 28, 2016
    Research summary: Previous research has examined the racial diversity‐productivity relationship in corporations with an evident high commitment to minority programs, Fortune's “Best Companies for Minorities.” To assess generalizability, we replicate this research using a different context of high organizational‐employee value congruence, Fortune's “Best Companies to Work For.” We are not able to find evidence for the curvilinear relationships previously found, but do uncover a linear negative relationship between racial diversity and short‐run performance. Managerial summary: Using Fortune's “Best Companies for Minorities,” previous research found that racial diversity affected both firm productivity and Tobin's q. To see if we could find these results in a different group of firms, we replicate this research using a sample drawn from Fortune's “Best Companies to Work For.” The former sample is distinguished by high commitment to minority programs, while the one used here stresses high congruence of values between the organization and all its employees. We are unable to replicate the relationships previously found, however, but do find that increasing racial diversity had a negative effect on firm productivity. Copyright © 2016 John Wiley & Sons, Ltd.
    October 28, 2016   doi: 10.1002/smj.2576   open full text
  • External corporate governance and financial fraud: cognitive evaluation theory insights on agency theory prescriptions.
    Wei Shi, Brian L. Connelly, Robert E. Hoskisson.
    Strategic Management Journal. October 27, 2016
    Research summary: Agency theory suggests that external governance mechanisms (e.g., activist owners, the market for corporate control, securities analysts) can deter managers from acting opportunistically. Using cognitive evaluation theory, we argue that powerful expectations imposed by external governance can impinge on top managers' feelings of autonomy and crowd out their intrinsic motivation, potentially leading to financial fraud. Our findings indicate that external pressure from activist owners, the market for corporate control, and securities analysts increases managers' likelihood of financial fraud. Our study considers external governance from a top manager's perspective and questions one of agency theory's foundational tenets: that external pressure imposed on managers reduces the potential for moral hazard. Managerial summary: Many of us are familiar with stories about top managers “cooking the books” in one way or another. As a result, companies and regulatory bodies often implement strict controls to try to prevent financial fraud. However, cognitive evaluation theory describes how those external controls could actually have the opposite of their intended effect because they rob managers of their intrinsic motivation for behaving appropriately. We find this to be the case. When top managers face more stringent external control mechanisms, in the form of activist shareholders, the threat of a takeover, or zealous securities analysts, they are actually more likely to engage in financial misbehavior. Copyright © 2016 John Wiley & Sons, Ltd.
    October 27, 2016   doi: 10.1002/smj.2560   open full text
  • Managerial response to constitutional constraints on shareholder power.
    Brian L. Connelly, Wei Shi, Jinyong Zyung.
    Strategic Management Journal. October 26, 2016
    Research summary: We examine whether top managers engage in misconduct, such as illegal insider trading, illegal stock option backdating, bribery, and financial manipulation, in response to the presence, or absence, of governance provisions that impose constitutional constraints on shareholder power. Within the agency framework, shareholders typically oppose governance provisions that limit their power because those provisions could undermine shareholder influence and increase agency costs. However, when shareholders support provisions that constrain their power, managers could respond positively by refraining from self‐interested behavior in the form of managerial misconduct. We find this to be especially true in industries where these governance provisions are particularly relevant to managers and in scenarios where CEOs do not also serve as board chair. Managerial summary: In recent years, shareholders have become central to organizations and the managers who run them. Shareholders and managers establish a rapport with one another, such that the behavior of one affects the behavior of the other. One of the most consequential decisions shareholders can make pertains to the reach of their influence: They can choose to impose strict governance over firms they own or they can allow for constitutional constraints that limit shareholder power. When they act in the mutual interest of managers by allowing such constraints, we find that managers respond in kind by refraining from bad behavior, such as illegal stock options backdating, insider trading, and financial manipulation. This is especially true in industries and scenarios in which shareholder pressure is most relevant to managers. Copyright © 2016 John Wiley & Sons, Ltd.
    October 26, 2016   doi: 10.1002/smj.2582   open full text
  • R&D team diversity and performance in hypercompetitive environments.
    Karin Hoisl, Marc Gruber, Annamaria Conti.
    Strategic Management Journal. October 26, 2016
    Research summary: This article examines the effects of an R&D team's composition on its performance outcomes in hypercompetition. The fundamental feature of firms in hypercompetitive settings is that they are constantly challenged to improve their competitiveness in a relentless race to outperform one another. Analyzing a unique data set from the Formula 1 motorsport racing industry, we find an inverse U‐shaped relationship between team diversity in task‐related experience and performance an important result that diverges from well‐established theories developed in more stable environments. Fundamentally, we show that the role of R&D team experience diversity varies depending on the size of the organizations in which R&D teams operate. While we find a moderating effect for firm age, this effect is not as robust as that of firm size. Managerial summary: This article examines the relationship between R&D team composition and performance in fast‐moving environments. Firms in these environments are constantly challenged to improve their competitiveness by outperforming one another. Analyzing a unique data set from the Formula 1 motorsport racing industry, we find that a team's diversity in job‐related experience increases its performance up to a certain extent. Once R&D teams become too diverse, performance decreases because communication and coordination become more difficult. We also show that the role of R&D team diversity varies depending on the size of the organizations in which R&D teams operate. Overall, our findings provide several novel implications for the strategy, innovation, and team literatures. Copyright © 2016 John Wiley & Sons, Ltd.
    October 26, 2016   doi: 10.1002/smj.2577   open full text
  • The influence of competition from informal firms on new product development.
    Brian T. McCann, Mona Bahl.
    Strategic Management Journal. October 26, 2016
    Research summary: Existing research describes a broad range of determinants of new product development (NPD), a fundamental competitive activity of firms. A considerable share of this work has occurred in the context of developed economies, raising a concern that some important determinants may remain unexamined. We suggest that one such determinant is competition from informal (unregistered) firms. Drawing from the attention‐based view, we investigate the effects of informal competition on NPD in a large sample of firms located across Eastern Europe and Central Asia. We examine not only the direct effect but also how this effect is moderated by characteristics of the competitive and institutional context. Managerial summary: The purpose of this research is to examine the relationship between competition from informal (unregistered) firms and new product development (NPD) by formal firms. We argue that NPD is an effective response to differentiate from informal firms, and our analyses of over 9,000 firms located in emerging economies across Eastern Europe and Central Asia indicate that NPD activities are more likely in formal firms who rate informal competition as a greater obstacle. The strength of this direct relationship depends on aspects of the competitive and institutional environment: it is weakened when levels of competition from other formal firms are higher, when alternative responses such as corruption are more available, and when managers are more optimistic about the regulatory environment. Copyright © 2016 John Wiley & Sons, Ltd.
    October 26, 2016   doi: 10.1002/smj.2585   open full text
  • Slack resources, firm performance, and the institutional context: Evidence from privately held European firms.
    Tom Vanacker, Veroniek Collewaert, Shaker A. Zahra.
    Strategic Management Journal. October 26, 2016
    Research summary: Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary: A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop “lean” firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate. Copyright © 2016 John Wiley & Sons, Ltd.
    October 26, 2016   doi: 10.1002/smj.2583   open full text
  • A tale of two effects: Using longitudinal data to compare within‐ and between‐firm effects.
    S. Trevis Certo, Michael C. Withers, Matthew Semadeni.
    Strategic Management Journal. October 25, 2016
    Research summary: We investigate the theoretical and empirical implications of longitudinal data in strategy research. Theoretically, longitudinal data allow strategy researchers to distinguish between relationships among constructs within versus between firms. Empirically, longitudinal data contain information about two types of relationships: within‐ and between‐firm. We describe how the hybrid approach, a technique used in other disciplines, disentangles within‐ and between‐firm relationships. We reexamine a study of research and development expenditures to illustrate the advantages of the hybrid approach. Based on our theory and reexamination, we offer a series of recommendations for researchers using longitudinal data to test theoretical perspectives. Managerial summary: Strategy research examines two sources of variation over time: what is occurring within the firm (e.g., Do firms perform better over time when investing more in R&D?) and what is occurring between firms (e.g., Do firms investing more in R&D outperform firms investing less in R&D?). These two sources may be similar or different in both direction and magnitude, and when significant differences exist in either direction or magnitude, researchers must carefully consider the implication of these differences to their theoretical rationale and statistical testing. Our article highlights the benefits of theorizing and testing these two sources of variance, providing scholars the ability to broaden both the theoretical and empirical contribution of their research. This distinction is important to how research informs managerial decision making. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2586   open full text
  • Entering new markets: The effect of performance feedback near aspiration and well below and above it.
    Ohad Ref, Zur Shapira.
    Strategic Management Journal. October 25, 2016
    Research summary: This study draws on the resource‐based view and the behavioral theory of the firm to gain new insights about the effect of performance relative to aspiration level (i.e., performance feedback) on the decision to enter new markets. Results show an inverted U‐shaped relationship between performance both below and above aspiration level, and the probability of firms to enter new markets. That is, when firms are well below or well above their aspiration level, they significantly change their behavior. This article develops a theoretical framework to clarify and organize these findings. Managerial summary: This study examines the effect of performance feedback, and particularly, large discrepancies between firm performance and aspiration level on the decision to enter new markets. It provides support to the role of performance feedback in affecting the decision to enter new markets, a factor that has received relatively little attention in the extensive literature that has examined the inducements of such moves. Results show that, as performance falls below or rises above aspiration, a firm's probability of entering new markets increases up to a certain point after which this relationship decreases. This shows that the tendency to enter new markets is different for firms that are in the neighborhood of aspiration level compared to those that are well below or above it. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2561   open full text
  • Replicating the multinationality‐performance relationship: Is there an S‐curve?
    Heather Berry, Aseem Kaul.
    Strategic Management Journal. October 25, 2016
    Research summary: We revisit the empirical relationship between multinationality and performance by attempting to replicate the widely cited S‐shape relationship reported in Lu and Beamish (2004). Using a longitudinal and comprehensive database on the population of U.S. MNCs from 1989 to 2007, we find no evidence of an S‐shaped relationship; nor do we see a moderating effect of intangible assets. Although our results do show a marginally significant U‐shaped association between multinationality and performance for a subsample of manufacturing firms, this relationship disappears once we account for the endogeneity of multinationality. Our study contributes to empirical research on the multinationality‐performance relationship, highlighting the need for caution in generalizing results across countries and the importance of controlling for the endogeneity of multinationality when assessing its effect on performance. Managerial summary: Our study examines the relationship between a firm's multinationality and its performance. In a much‐cited study, Lu and Beamish (2004) found evidence of an S‐shaped relationship—with firm performance first decreasing, then increasing, then decreasing again as firms internationalized—in a sample of Japanese firms from 1986 to 1997. We test for the same relationship across all U.S. MNCs from 1989 to 2007, and find no evidence of an S‐shaped pattern, or indeed, of any effect of multinationality at an aggregate level. Our study thus suggests that the effect of multinationality may vary with firm capabilities and home country environments, and that managers and academics alike should focus on understanding these specifics, rather than searching for a universal effect of multinationality on performance. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2567   open full text
  • The dynamics of diversification: Market entry and exit by public and private firms.
    Douglas J. Miller, Hsiao‐Shan Yang.
    Strategic Management Journal. October 25, 2016
    Research summary: We replicate one of the first studies on the dynamics of diversification, Chang (1996). Our sample of public and private firms from 1992 to 2001 yields findings similar to the earlier research. Firms tend to enter new markets that have human resource profiles that are similar to the firms' existing businesses, and exit markets that have dissimilar human resource profiles. This general finding is robust to alternative specifications and controls, including the timing of market entry and technological diversification. However, we also find that entry and exit by private firms is much more prevalent than that by public firms. Differences in how public and private firms diversify based on knowledge similarity invite further research in evolutionary economics. Managerial summary: Chang (1996) revealed that large, public manufacturing firms in the 1980s tended to enter new businesses that leveraged the firm's knowledge, some of which is embedded in routines among employees sharing similar occupations. The new businesses provide the basis for further expansion, while a firm divests businesses that do not stay profitable, or which no longer match the firm's new portfolio of businesses. Our data show that these patterns continued in the 1990s. Our sample also includes private firms, which conduct the majority of market entry and exit. Private firms enter new businesses with different proportions of scientific and marketing personnel than their existing operations. Thus, diversification still reflects knowledge resources for smaller, private firms, but differently than for the largest firms in the economy. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2568   open full text
  • International expansion through start‐up or acquisition: A replication.
    Eric W. K. Tsang, Junichi Yamanoi.
    Strategic Management Journal. October 25, 2016
    Research summary: We use a sample of Singapore firms to replicate Barkema and Vermeulen's (1998) study of international expansion through start‐ups or acquisitions by Dutch firms. We discover that the authors misinterpreted the regression coefficients for hypothesis testing and only two of their four hypotheses were actually tested. For these two hypotheses, one is not supported in either their study or ours, while the other is supported in their study but not ours. For the remaining two hypotheses we find support for one of them, which is concerned with the curvilinear effect of product diversity on the mode of expansion. In sum, the original study claims that all four hypotheses are supported, whereas only one is supported in the replication. More specifically, the former results, including the effects of the independent and control variables, are largely not generalizable to the latter. Managerial summary: Barkema and Vermeulen's (1998) study investigates the international expansion by Dutch firms during the period from 1966 to 1994. Their results indicate that whether a firm expands through setting up a greenfield operation or acquiring an existing operation is affected by the diversity of the firm's product lines, the diversity of the countries to which it has expanded, and how far the expansion is related to its existing business. We replicate their study using a sample of Singapore firms for the period from 1980 to 2000. Our results show only an effect of a firm's product diversity on its mode of international expansion. Our study clearly indicates the risk of drawing managerial implications from the results of a single study. More replication studies are needed for establishing a solid theoretical foundation to inform management decisions. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2569   open full text
  • The impact of context and model choice on the determinants of strategic alliance formation: Evidence from a staged replication study.
    Anindya Ghosh, Ram Ranganathan, Lori Rosenkopf.
    Strategic Management Journal. October 25, 2016
    Research summary: Endogenous characteristics of alliance network structure have repeatedly been shown to predict future alliance ties in the strategic management literature. Specifically, the concepts and measures of relational, structural, and positional embeddedness (per Gulati and Gargiulo, 1999), as well as interdependence, are foundational for many studies. We explore these determinants of alliance formation by replicating the baseline analyses of Ahuja, Polidoro, and Mitchell's, 2009 SMJ article. We examine the impact of empirical choices with respect to time period, underlying data generating model, and industry by isolating each effect in turn. We demonstrate that while geographic similarity and product‐market similarity each robustly predict the interdependence effect, the effects of both technological similarity as well as the embeddedness predictors are sensitive to context and/or method. Managerial summary: Our examination of alliance formation in the chemical and semiconductor industries during the 1990s demonstrates how new alliances may be predicted by both the technical, geographic, and product‐market fit of potential partners as well as characteristics of each partner's previous network participation. Comparing our results to an earlier study, we find that geographic and product‐market similarity predict alliance formation across both industries and time frames while prior ties between partners predict alliance formation only when these industries are less mature. Other network participation indicators generate nuanced effects, which underscore the importance of quasi‐replications of alliance formation across industries and time periods in building evidence‐based management theories. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2570   open full text
  • Swimming with sharks in Europe: When are they dangerous and what can new ventures do to defend themselves?
    Massimo G. Colombo, Kourosh Shafi.
    Strategic Management Journal. October 25, 2016
    Research summary: This study replicates Dushnitsky and Shaver (2009) in an institutional setting different from the United States, that is, the European venture capital market. We highlight the role played by this switch of boundary condition in influencing how legal defenses protect new ventures' knowledge from misappropriation and encourage the formation of ties between these ventures and same‐industry corporate venture capitalists. Furthermore, we consider timing and social defenses and their interactions with legal defenses in Europe. Our results indicate that the use of legal and other defenses by new ventures does vary, depending on the characteristics of the institutional context. Managerial summary: In this study, we focus attention on the formation of corporate venture capital (CVC) ties in Europe. We highlight that the institutional context of the European venture capital market differs from the one in the United States, and this difference influences how legal defenses protect new ventures' knowledge from misappropriation and encourage the formation of ties between these ventures and same‐industry CVCs. We also consider the protection offered to new ventures by postponing CVC ties to later stages and by affiliation with prominent independent VCs. We show that, in Europe, these protections are less effective than in the United States. However, the protection provided by legal defenses is reinforced when new ventures are affiliated with prominent independent VCs. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2572   open full text
  • The HR executive effect on firm performance and survival.
    Clint Chadwick, James P. Guthrie, Xuejing Xing.
    Strategic Management Journal. October 25, 2016
    Research summary: This article replicates and extends Welbourne and Cyr's (1999) pioneering study of the relationship between the presence of human resource executives (HREs) and firm performance in initial public offering (IPO) firms. We employ a larger, more generalizable sample, a model better fitted to the IPO context, and alternative performance measures to execute a more robust examination of this relationship. Using Welbourne and Cyr's model specifications, our results parallel theirs: there is no significant relationship between HREs and firms' post‐IPO financial performance. Moreover, extending Welbourne and Cyr's study, we find that the presence of HREs at the time of firms' IPOs is positively related to the ultimate success measure: post‐IPO firm survival. Additionally, for firms that had executives at the time of IPO, the negative effect of firm size on firm mortality is greater and the positive effect of leverage on firm mortality is smaller. Managerial summary: Does paying attention to HRM help firms to succeed? This study examines that question in a sample of generally small, young firms that went public from 1996 to 2008. Only about 10 percent of these firms had human resource executives (HREs) at the time of their IPOs, allowing us to examine the effects of the presence of HREs on firm performance. While we find that the presence of an HRE at IPO is not related to firms' post‐IPO financial performance, firms that had HREs at IPO are significantly more likely to survive in the long run. Since approximately 20 percent of the sample firms do not survive, this is a very meaningful outcome. Indeed, survival may be the ultimate measure of firm performance. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2566   open full text
  • Global diversification discount and its discontents: A bit of self‐selection makes a world of difference.
    Sungyong Chang, Bruce Kogut, Jae‐Suk Yang.
    Strategic Management Journal. October 25, 2016
    Research summary: The documented discount on globally diversified firms is often cited, but a correlation is not per se evidence that global diversification destroys firm value. Firms choose to globally diversify based on their firm attributes, some of which may be unobservable. Given these exogenous firm attributes, the decision to diversify globally is endogenous and self‐selected. Our study offers a replication of an earlier study. Using the same specifications save for the Heckman selection instrument, our results contradict past research that did not address endogeneity. We posit that the global premium should reflect the value of multinational operating flexibility. We use the 2008–2009 financial crisis as creating exogenous variation to permit a test for the positive change in firm valuation due to global diversification. During the 2008–2009 financial crisis, the premium associated with global diversification became larger and more significant than before the 2008–2009 financial crisis. The churn of subsidiaries entering and exiting countries increased during the crisis, pointing to the value of an operating flexibility to restructure the geography of the multinational network. In all, the results contradict past findings and provide evidence that operating flexibility is more valued during times of high volatility, thus generating the diversification premium. Managerial summary: There are thousands of multinational corporations that have been international for decades and some even longer. They undoubtedly learned that there is money to be made in international markets. Yet, the recent academic literature has found that foreign diversification destroys firm economic value. Our article uses a statistical technique that corrects for an obvious problem. Some firms invest overseas because they are facing troubles, for example, they are experiencing slowing growth and are exiting bad home markets. Once we correct for this “selection bias,” we find that global diversification, at worst, has no negative effect on value. However, during the financial crisis, the value of multinational companies increased. This finding is consistent with the option theory of multinational investment whereby operating in multiple countries permits firms to shift their activities among countries. Overall, our results indicate that there is a reason for why firms globalize: It is profitable. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2574   open full text
  • Beyond Manhattan: Localized competition and organizational failure in urban hotel markets throughout the United States, 2000–2014.
    Arturs Kalnins.
    Strategic Management Journal. October 25, 2016
    Research summary: I conducted a nationwide replication of Baum and Mezias' (1992) pioneering single-market study of localized competition by pooling the populations of 90 urban U.S. hotel markets. Consistent with Baum and Mezias' three hypotheses, I demonstrate a negative market-level effect on survival duration of size-based, geographic-based, and price-based localized competition. When analyzing submarket “windows,” I found support for size-based and geographic-based localized competition. In contrast, Baum and Mezias find support for only size-based localized competition at the market level, but for all three forms of localized competition when analyzing submarket windows. I extend their analysis by (1) using standardized measures of localized competition, and (2) showing separate results for key subpopulations. I conclude that there are indeed firm-level benefits of avoiding localized competition. Managerial summary: This paper demonstrates that—at a broad level of analysis such as a city—hotels are more likely to survive if there are fewer other properties (1) in their geographical vicinity, (2) of similar size, and (3) at their price point. Thus, prospective owners should be leery of location in the more crowded niches even if these may be plausibly more lucrative for some. Sparsely populated niches appear to be less risky on average. When we study this phenomenon within a narrower geographic scope such as a part of the city, the least crowded niches in terms of geography, price or size no longer appear to provide benefits in terms of survival. Thus, it is possible that only the most sparsely populated niches citywide improve a hotel's likelihood of survival. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2578   open full text
  • The necessity, logic, and forms of replication.
    Richard A. Bettis, Constance E. Helfat, J. Myles Shaver.
    Strategic Management Journal. October 25, 2016
    Research summary: A replication study assesses whether the results of a particular prior study can be reproduced, including in new contexts with different data. Replication studies are critical for building a cumulative body of research knowledge. This article discusses and provides a typology of different types of replications, compares replications with other approaches to cumulating knowledge, and provides guidelines toward producing high‐quality replication studies. The articles in this Special Issue provide examples of replication studies in strategic management. Managerial summary: Research studies sometimes draw implications for managerial practice. A single empirical study, however, is specific to a particular context, relies on a particular set of data, and uses a particular research design. As a consequence, a single study cannot establish whether the findings generalize to a different context and whether the research design is robust to alternative approaches. Replication studies can help to establish the range of applicability of prior studies and better support what implications can be drawn for managerial practice. Copyright © 2016 John Wiley & Sons, Ltd.
    October 25, 2016   doi: 10.1002/smj.2580   open full text
  • Stock of downstream complementary assets as a catalyst for product innovation during technological change in the U.S. machine tool industry.
    Raja Roy, Susan K. Cohen.
    Strategic Management Journal. October 24, 2016
    Research summary: We investigate the effect of incumbents' stock of downstream complementary assets on their product innovation during a disruptive technological change. We theorize that a firm's stock of downstream complementary assets, by providing critical information about shifting demand conditions, will play a catalytic role in firm adaptation during such a change. Using the advent of disruptive computer numerical control machine tools in the U.S. machine tool industry during the 1970s and 1980s as the context, we find that firms with greater stocks of downstream complementary assets are likely to be product innovation leaders during such a change. Managerial summary: Disruptive changes are challenging firms across industries. We concentrate on the U.S. machine tool industry during the 1970s and 1980s when Japanese manufacturers with disruptive computer numerical control systems challenged the U.S. manufacturers. We find that, under the threat of disruption, the greater the stock of downstream complementary assets a U.S. machine tool manufacturer has, the more likely it is to be the product innovation leader with the disruptive technology. Our findings provide novel insights for managers in companies that face disruptive changes and can help them avoid the consequences of such changes as predicted by prior research. Copyright © 2016 John Wiley & Sons, Ltd.
    October 24, 2016   doi: 10.1002/smj.2557   open full text
  • Signaling revisited: The use of signals in the market for IPOs.
    U. David Park, Abhishek Borah, Suresh Kotha.
    Strategic Management Journal. October 14, 2016
    Research summary: Scholars have actively researched the initial public offering (IPO) underpricing phenomenon as it relates to the issuing firm's resource acquisition and entrepreneur's wealth retention. In this study, we attempt to replicate three studies that examine how top management and board‐level characteristics impact IPO underpricing using signaling theory. Focusing on a different time period and using a new sample of 234 U.S. IPO firms, we do not find evidence for the signaling effects of top management, governance structure, and social ties on resource acquisition and wealth retention during the IPO process. We propose possible theoretical and empirical reasons for our results and discuss two major external changes that researchers should account in future research. Managerial summary: Past studies on initial public offering (IPO) underpricing have systematically documented the effectiveness of signals (i.e., having seasoned CEO and top management team, director independence, and director network) that influence the amount of money entrepreneurs “leave on the table” during the IPO process. Since these studies were conducted before the ongoing information revolution, we re‐examined the effectiveness of these signals in the current IPO market. Despite using similar methodological approaches that past studies used, we do not find evidence supporting the prior findings. To explain our findings, we discuss two notable recent changes—unprecedented access to information and a regulatory change—that future researchers should examine in the context of IPO underpricing research. Copyright © 2016 John Wiley & Sons, Ltd
    October 14, 2016   doi: 10.1002/smj.2571   open full text
  • How much do CEOs really matter? Reaffirming that the CEO effect is mostly due to chance.
    Markus A. Fitza.
    Strategic Management Journal. October 14, 2016
    Research summary How much of the variance in firm performance can be attributed to CEOs? This question has been the focus of a long debate in management research. In a recent study I showed that a large portion of the performance differences that are often attributed to CEOs might in fact be due to chance. In a recent paper Quigley and Graffin argue that my conclusions can be avoided if more advanced methodological approaches are applied. Here I show that this is not the case, in fact if more realistic assumptions of how chance can affect firm performance are made the effect of CEO leadership is almost indistinguishable from the effect of chance, independent of the estimation methodology. Managerial summary Does it matter who the CEO of a company is? To what degree do CEOs influence firm performance? The answer to such questions has important consequences for firms, effecting for example how CEOs are chosen or how they are paid. Most studies that tried to quantify the degree to which CEOs influence firm performance have found relatively large CEO effects. I argue here that firm performance is influenced by a complex set of factors including the effect of chance (or luck) and that empirically past studies wrongly attribute the performance effect of such chance to the CEO. I show that if chance is properly taken into account the true influence of CEOs is in fact relatively small.
    October 14, 2016   doi: 10.1002/smj.2597   open full text
  • Friends or strangers? It all depends on context: A replication and extension of Beckman, Haunschild, and Phillips (2004).
    Michael D. Howard, Michael C. Withers, Christina Matz Carnes, Amy J. Hillman.
    Strategic Management Journal. October 13, 2016
    Research summary: The formation of interorganizational ties is a consequential phenomenon examined in strategic management research. Beckman, Haunschild, and Phillips (2004) is one of the first studies to comprehensively consider interorganizational network change by exploring factors that affect both alliance and board interlock formation. They find that firm‐specific uncertainty relates to broadening actions, whereas market‐level uncertainty causes firms to reinforce current structures. Our replication considers whether these relationships operate similarly in a differing temporal context. Building from the framework of the original study, we suggest our findings offer intriguing new empirical evidence highlighting the importance of time as a boundary condition in understanding embedded firm actions. Managerial summary: The development of interorganizational relationships, such as alliances and ties between boards of directors, has an important impact on innovation, strategic actions, and firm performance. This study examines whether the dynamics of interorganizational relationship formation remain consistent over time. We replicate earlier work by Beckman and colleagues (2004), but with an expanded data set covering more than 20 years. Over this broader time horizon, we find a shift in behavior, with companies facing firm‐specific uncertainty seeking to reinforce their current relationships and companies facing industry‐wide uncertainty seeking to diversify their risk by expanding their network. Our results demonstrate the importance of replication studies in research and contribute to a more nuanced understanding of the complexity surrounding interorganizational relationships. Copyright © 2016 John Wiley & Sons, Ltd.
    October 13, 2016   doi: 10.1002/smj.2573   open full text
  • How entrepreneurs leverage institutional intermediaries in emerging economies to acquire public resources.
    Daniel Erian Armanios, Charles E. Eesley, Jizhen Li, Kathleen M. Eisenhardt.
    Strategic Management Journal. October 12, 2016
    Research summary: Governments in emerging economies often use institutional intermediaries to promote entrepreneurship, and bridge the void between ventures and public funding. While prior literature describes what institutional intermediaries do, it leaves open how intermediaries support different types of entrepreneurs. By comparing science park and non‐science park firms in Beijing and across China, we distinguish which entrepreneurs benefit from certification versus capability‐building through the introduction of two new constructs: skill adequacy and context relevance. Broadly, our study adds insights at the nexus of emerging economies and entrepreneurship research, and to the tie formation and institutional intermediaries literatures. Managerial summary: A key dilemma facing entrepreneurs is how to finance their ventures. While entrepreneurs in developed economies can seek VC or angel investment, entrepreneurs in emerging economies often need to pursue potential government funding opportunities. Our study highlights three strategies for acquiring government funding. Well‐connected entrepreneurs can leverage their political ties to acquire such funding. Less‐connected entrepreneurs can leverage science parks that in emerging markets are designed to help governments to identify promising ventures. For returnees whose ample experience abroad may not fit with local ways of doing business, gaining science park admission can certify quality and so ease the path to government funding. For technically skilled local entrepreneurs who lack business skills, science parks can help build such skills, which then ease the path to government funding. Copyright © 2016 John Wiley & Sons, Ltd.
    October 12, 2016   doi: 10.1002/smj.2575   open full text
  • Revisiting the corporate social performance‐financial performance link: A replication of Waddock and Graves.
    Xiaoping Zhao, Audrey J. Murrell.
    Strategic Management Journal. October 12, 2016
    Research summary: In this study, we revisit the relationship between corporate social performance (CSP) and corporate financial performance (CFP) by conducting a replication of Waddock and Graves (1997). Using 1990 KLD ratings as the CSP measure, the original study reports a positive bidirectional relationship between CSP and CFP. However, our replication analyses with a larger sample over a longer time period indicate that the findings of the original study may not be generalizable to different samples. We argue that our replication casts doubt on the original study and can serve as a starting point to reconsider the CSP‐CFP relationship. Based on the findings of our replication, we discuss the differences between the replication results and the original findings, and then suggest several approaches to revise and extend the original study. Managerial summary: Advocates of corporate social performance (CSP) have long argued that “doing good leads to doing well.” However, the evidence to support this argument is not strongly convincing, and managers hence doubt whether better CSP leads to improved corporate financial performance (CFP). In this article, we directly examine the relationship between CSP and CFP. Our article reports that CSP may not have a positive influence on CFP. Instead, our article shows the complexity of the relationship between CSP and CFP. Therefore, we cannot simply argue that doing good will necessarily lead to doing well. Copyright © 2016 John Wiley & Sons, Ltd.
    October 12, 2016   doi: 10.1002/smj.2579   open full text
  • Alliance portfolio reconfiguration following a technological discontinuity.
    Navid Asgari, Kulwant Singh, Will Mitchell.
    Strategic Management Journal. October 06, 2016
    Research summary: We study how technological discontinuities generate first‐ and second‐order effects on alliance formation and termination, leading to reconfiguration of firms' alliance portfolios. Following technological shocks, we argue that firms often seek alliances that provide new resources while also having incentives to form alliances for reinforced and challenged resources that complement the new resources. In parallel, alliance terminations, even involving resources otherwise unaffected by the discontinuity, increase due to limits in firms' alliance carrying capacity. We study biopharmaceutical firms between 1990 and 2000, which faced a technological discontinuity in 1995 in the form of combinatorial chemistry and high‐throughput screening. We improve understanding of how technological discontinuities affect the value of resources and how firms reconfigure alliance portfolios in response. Managerial summary: When firms form alliances to gain new resources during technological discontinuities that disrupt their industry, they cannot consider only the focal new partnerships. Instead, new alliances create complementarity and substitution pressures that lead to broader reconfiguration of the firms' alliance portfolios: (1) complementarity creates incentives to also form alliances for resources that the technological discontinuity reinforces or challenges in order to improve the collective value of co‐specialized assets; (2) substitution creates incentives to terminate existing alliances, even if their value is otherwise unaffected by the discontinuity, in order to create carrying capacity for new alliances. Thus, one new alliance can generate a cascade of reconfiguration that challenges the balance between the benefits of stability and the need for change in an alliance portfolio. Copyright © 2016 John Wiley & Sons, Ltd.
    October 06, 2016   doi: 10.1002/smj.2554   open full text
  • The reference wars: Encyclopædia Britannica's decline and Encarta's emergence.
    Shane Greenstein.
    Strategic Management Journal. August 03, 2016
    Research summary: The experience of Encyclopædia Britannica provides the canonical example of the decline of an established firm at the outset of the digital age. Competition from Microsoft's Encarta in 1993 led to sharp declines in the sales of books, which led to the distressed sale of the firm in 1996. This article offers new source material about the actions at both Encarta and Britannica, and it offers a novel interpretation of events. Britannica's management did not misperceive the opportunities and threats, and Britannica did not lack technical prowess. This narrative stresses that Britannica's management faced organizational diseconomies of scope between supporting lines of business in the old and new markets, which generated internal conflicts. These conflicts hindered the commercialization of new technology and hastened its decline. Managerial summary: An established and leading firm, such as Encyclopædia Britannica, would seem to have enormous advantages over its competitors in a new market. Why would a successful firm come to have severe difficulties organizing for a new market? Of particular importance for explaining Britannica's decline are theories that stress its inherited capabilities, especially inherited technological (in)abilities and inherited (mis)perceptions about the potential for new market opportunities. This article argues that Britannica's management did not misperceive the opportunities and threats, and Britannica did not lack technical prowess. This narrative stresses that Britannica's management faced organizational diseconomies of scope between supporting lines of business in the old and new markets, which generated internal conflicts. The narrative directs attention at managing commercialization activity around new products using new technologies. Copyright © 2016 John Wiley & Sons, Ltd.
    August 03, 2016   doi: 10.1002/smj.2552   open full text
  • Organizational adaptation to interdependence shifts: The role of integrator structures.
    Mihaela Stan, Phanish Puranam.
    Strategic Management Journal. July 25, 2016
    Research summary: We investigate how organizational adaptation to interdependence shifts is influenced by “integrators.” These are formally mandated managerial roles meant to promote coordination across specialized but interdependent organizational subunits, yet they do so without relying on formal authority. While much has been learned about how integrators promote steady‐state coordination within a known pattern of interdependence, less is known about their impact on organizational adaptation when the pattern of interdependence itself is unknown. We discuss mechanisms by which integrators may nonetheless aid organizational adaptation and learning processes in such situations, and test our hypotheses in the context of a regulatory change that affected the in vitro fertilization (IVF) clinics sector in the United Kingdom using a differences‐in‐differences design. Managerial summary: Organizational structure can influence how an organization adapts to change. We investigate how a regulatory change in the provision of fertility treatments in the United Kingdom forced clinics to change their workflows, and whether the presence of integrator roles enabled clinics to adapt to these changes. It is well known that integrator roles in general are valuable in coordinating across specialized organizational units, but this research points to the surprising implication that their value may persist even when the workflow being coordinated changes suddenly, in ways that nobody necessarily comprehends. Our research highlights the fact that even in an intensively science‐based work context, the “technology of organizing” can have a significant role in shaping organizational performance. Copyright © 2016 John Wiley & Sons, Ltd.
    July 25, 2016   doi: 10.1002/smj.2546   open full text
  • Board reform versus profits: The impact of ratings on the adoption of governance practices.
    Timothy J. Rowley, Andrew V. Shipilov, Henrich R. Greve.
    Strategic Management Journal. July 22, 2016
    Research summary: External stakeholders frequently attempt to influence organizations' adoption of new practices through the creation of public ratings. Based on the insights of performance feedback theory, we develop the theory of organizational reactions to external ratings to explain how firms' behaviors depend on their rating scores and their profitability. A central issue in our theory is the conflict between established internal goals and goals introduced by public ratings, with public ratings receiving lower priority than established profitability goals. Our theory suggests that, contrary to the expectations of the external stakeholders, firms targeted for criticism by ratings become less likely to adopt corresponding practices when their profitability is below aspirations. These arguments are supported in data on the diffusion of corporate governance practices in Canada. Managerial summary: Firms and their products are rated and ranked by external agencies ranging from Consumer Reports to magazine rankings of admired, environmental, or well‐governed companies. We investigate whether such ratings affect firm behaviors, and especially whether they can incentivize poorly rated firms to improve their ranking when these firms' profitability is also low. Using the leading corporate governance ranking in Canada, we find that rankings could have adverse effects: when firms have both poor governance ranking and poor profitability they are less likely to adopt governance practices, contrary to the ranking creators' intentions. The findings show that there is a hierarchy of firms' goals, where the goal of profitability comes ahead of other goals imposed by external agencies through ratings and rankings. Copyright © 2016 John Wiley & Sons, Ltd.
    July 22, 2016   doi: 10.1002/smj.2545   open full text
  • Red, blue, and purple firms: Organizational political ideology and corporate social responsibility.
    Abhinav Gupta, Forrest Briscoe, Donald C. Hambrick.
    Strategic Management Journal. July 21, 2016
    Research summary: Why do firms vary so much in their stances toward corporate social responsibility (CSR)? Prior research has emphasized the role of external pressures, as well as CEO preferences, while little attention has been paid to the possibility that CSR may also stem from prevailing beliefs among the body politic of the firm. We introduce the concept of organizational political ideology to explain how political beliefs of organizational members shape corporate advances in CSR. Using a novel measure based on the political contributions by employees of Fortune 500 firms, we find that ideology predicts advances in CSR. This effect appears stronger when CSR is rare in the firm's industry, when firms are high in human capital intensity, and when the CEO has had long organizational tenure. Managerial summary: Why do firms vary in their stances toward corporate social responsibility (CSR)? Prior research suggests that companies engage in CSR when under pressure to do so, or when their CEOs have liberal values. We introduce the concept of organizational political ideology, and argue that CSR may also result from the values of the larger employee population. Introducing a novel measure of organizational political ideology, based on employees' donations to the two major political parties in the United States, we find that liberal‐leaning companies engage in more CSR than conservative‐leaning companies, and even more so when other firms in the industry have weaker CSR records, when the company relies heavily on human resources and when the company's CEO has a long organizational tenure. Copyright © 2016 John Wiley & Sons, Ltd.
    July 21, 2016   doi: 10.1002/smj.2550   open full text
  • Money secrets: How does trade secret legal protection affect firm market value? Evidence from the uniform trade secret act.
    Francesco Castellaneta, Raffaele Conti, Aleksandra Kacperczyk.
    Strategic Management Journal. July 19, 2016
    Research summary: We investigate the impact of trade secret legal protection on firm market value in the context of acquisitions. On one hand, market value may increase because trade secret assets become better protected from rivals. On the other hand, market value may decrease because trade secret protection reduces information about the target and its competitors available to potential buyers, increasing uncertainty about its value. Buyers will discount their offers in expectation of being compensated for riskier deals. Using a sample of private equity investments in the United States, we find that trade secret protection has a positive effect in industries with high mobility of knowledge workers, but a negative effect in industries with (1) high resource–value uncertainty and (2) high poor‐investment risk. Managerial summary: We argue that an increase in trade secret legal protection might not unequivocally benefit firm owners when selling their business. A stronger trade secret protection increases the market value of firms in industries with high workers' mobility, but it decreases the market value of firms in industries with uncertain resource value and/or high risk of poor‐acquisition investments. Based on the contingent effect of trade secret protection, companies may want to adjust their strategic decisions, including where to locate or relocate, based in part on whether they will derive benefits or suffer losses when trade secrets are better protected. Finally, our study should help policymakers understand more fully the economic impact of government policies associated with trade secrets. Copyright © 2016 John Wiley & Sons, Ltd.
    July 19, 2016   doi: 10.1002/smj.2533   open full text
  • Product variety and vertical integration.
    Yue Maggie Zhou, Xiang Wan.
    Strategic Management Journal. July 15, 2016
    Research summary: In vertical relationships, the potential for scale economy in manufacturing often calls for specialization and outsourcing. Specialization, however, depends critically on the stability of the task and contractual environment. In a highly uncertain environment, the need for frequent mutual adjustments favors integration instead of outsourcing. To evaluate vertical relationships in value chains where one stage competes on product variety under great uncertainty and the other stage competes on scale, we compare operations data at about 300 distribution centers within a major soft‐drink bottler before and after it was integrated into an upstream concentrate producer. We find that vertical integration improved coordination for the integrated firm by aligning incentives and reducing strategic information asymmetry, but it worsened coordination for upstream rivals that shared the same downstream facilities. Managerial summary: Managers make frequent decisions about outsourcing versus integration. This article helps to crystalize the costs and benefits of integration by pointing to two important factors: the potential for economies of scale and the need for coordination under uncertainty. It studies an industry where one stage of the value chain competes on product variety under great uncertainty and the other stage competes on scale. Based on operations data at about 300 distribution centers within a major soft‐drink bottler before and after it was integrated into an upstream concentrate producer, we find that vertical integration improved coordination for the integrated firm (by reducing both stockouts and inventory, and improving sales forecasts), but it worsened coordination for upstream rivals that shared the same downstream facilities. Copyright © 2016 John Wiley & Sons, Ltd.
    July 15, 2016   doi: 10.1002/smj.2540   open full text
  • Centralization of intragroup equity ties and performance of business group affiliates.
    Ishtiaq P. Mahmood, Hongjin Zhu, Akbar Zaheer.
    Strategic Management Journal. July 15, 2016
    Research summary: Although prior research has suggested that equity ties are important for business groups, less attention has been paid to the specific mechanisms through which equity ties create value. We develop a framework that specifies how centralization of intragroup equity ties affects the performance of group affiliates. We use the exogenous shock of the 2008 financial crisis and a difference‐in‐differences analysis of 51,730 observations of business group affiliates in Taiwan to show that centralization of equity ties enhances affiliate performance, but such effects weaken when the environment becomes turbulent. Moreover, we find that listed affiliates obtain fewer benefits from centralization than unlisted affiliates. Overall, our study deepens scholarly understanding of not only how groups create value, but also how value is differentially appropriated among affiliates. Managerial summary: Our research speaks directly to owner‐managers of business groups with respect to creating an optimal equity network structure that binds the affiliated firms of the group. Our findings suggest to managers that the overall structure of equity ties in a business group has major implications for the performance of the affiliate firms of the group, and the network structure within the group should be designed deliberately and thoughtfully on an on‐going basis. In particular, control through centralized equity ties is performance‐enhancing in normal periods, but such control may be counterproductive as turbulence increases in business environments, or as the number of listed group firms increases. Hence, owner‐managers may consider optimizing the network structure by lowering the degree of centralized equity ties under such circumstances, or at a minimum, lowering centralized control. Copyright © 2016 John Wiley & Sons, Ltd.
    July 15, 2016   doi: 10.1002/smj.2542   open full text
  • Cross‐border acquisitions and the asymmetric effect of power distance value difference on long‐term post‐acquisition performance.
    Zhi Huang, Hong (Susan) Zhu, Daniel J. Brass.
    Strategic Management Journal. July 13, 2016
    Research summary: Inconclusive findings about the effect of national cultural differences on post‐acquisition performance may be created by the failure to distinguish among the different cultural dimensions and the asymmetry of cultural differences. To demonstrate a different approach, this study focuses on one dimension of national cultural values—power distance value (PDV) and develops a framework for the asymmetric effect of PDV differences in creating two types of conflicts. The analysis of 2,115 cross‐border acquisitions in the global information technology industry shows that PDV differences undermine the long‐term post‐acquisition performance of acquirers. This effect is stronger when acquirers are higher than targets in PDV than when the opposite is the case. This asymmetric effect of PDV difference depends on national status difference, business relatedness, and acquisition experience. Managerial summary: National cultural differences can create “cultural clashes” to undermine the value creation by cross‐border acquisitions. During integration, individuals react to the acquirer–target hierarchy according to their respective power distance value (PDV): the extent to which they value equality (low PDV) or hierarchy (high PDV). PDV divergence results in two types of conflicts, depending on whether acquirers are higher or lower than targets in PDV. The two types of conflicts vary in the magnitude of their harmful effect on post‐acquisition performance. Both types of conflicts are more detrimental when acquirers are higher than targets in country status and when individuals need to interact more intensely. Acquisition experience can both help and harm post‐acquisition performance. These findings offer important implications for managing cross‐border acquisitions. Copyright © 2016 John Wiley & Sons, Ltd.
    July 13, 2016   doi: 10.1002/smj.2530   open full text
  • Firm growth, adaptive capability, and entrepreneurial orientation.
    Yoshihiro Eshima, Brian S. Anderson.
    Strategic Management Journal. July 11, 2016
    Research summary: This paper posits adaptive capability as a mechanism through which a firm's prior growth influences the exhibition of future entrepreneurial action. Defined as the firm's proficiency in altering its understanding of market expectations, increased adaptive capability is a consequence of the new resource combinations that result from expanding organizational boundaries. Increased adaptive capability in turn corresponds to expansion of entrepreneurial activity, as firms increase their entrepreneurial orientation as the strategic mechanism to capitalize on their improved understanding of market conditions. We find support for our research model in a two‐study series conducted in South Korea and the United Kingdom. Managerial summary: Most would agree that entrepreneurially oriented firms—being innovative, entering new markets, and taking risk—grow faster. But how a firm becomes entrepreneurial is a complicated question. In this study, we flipped the growth relationship around and found support for growth contributing to a firm's entrepreneurial orientation. But between growth and being more entrepreneurial is the firm's ability to recognize changes in market expectations. We argue that as a firm grows, it acquires new resources and new knowledge of how to use those resources. These new resource combinations increase its ability to recognize changes in market expectations—its adaptive capability. This capability uncovers new entrepreneurial opportunities for value creation. To capture this potential value, firms expand their entrepreneurial orientation. Copyright © 2016 John Wiley & Sons, Ltd.
    July 11, 2016   doi: 10.1002/smj.2532   open full text
  • The impact of technical consultants on the quality of their clients' products: Evidence from the Bordeaux wine industry.
    Jérôme Barthélemy.
    Strategic Management Journal. July 11, 2016
    Research summary: Recent research rooted in the resource‐based view of the firm suggests that resources are more likely to create value if they are effectively managed. An underlying assumption of the literature is that firms manage their resources on their own. However, many firms hire consultants to help them do so. In this study, I develop and test hypotheses regarding the impact of technical consultants on the quality of their clients' products. Using data from the Bordeaux wine industry, I find evidence that the use of technical consultants has a positive impact on relative product quality and a negative impact on the extremeness of relative product quality. Moreover, the positive impact of technical consultants on relative product quality is stronger at lower levels of relative resource quality. Managerial summary: Findings from a study in the Bordeaux wine industry indicate that the decision to hire consultants should depend on a firm's strategy. If a firm wants to improve its performance, it should hire consultants. Indeed, the “best practices” of technical consultants are generally more valuable than internally generated knowledge. If a firm wants to achieve outstanding performance, hiring consultants may not be the right decision. Because the “best practices” of technical consultants have more certain performance implications than internally generated knowledge, they decrease the likelihood of extremely low performance. However, their lack of uniqueness also decreases the likelihood of extremely high performance. Finally, the decision to hire consultants should depend on the quality of a firm's resources. Firms with low‐quality resources tend to benefit more from the “best practices” of technical consultants. Copyright © 2016 John Wiley & Sons, Ltd.
    July 11, 2016   doi: 10.1002/smj.2531   open full text
  • Competitive repertoire complexity: Governance antecedents and performance outcomes.
    Brian L. Connelly, Laszlo Tihanyi, David J. Ketchen, Christina Matz Carnes, Walter J. Ferrier.
    Strategic Management Journal. July 11, 2016
    Research summary: Past inquiry has found that implementing complex competitive repertoires (i.e., diverse and dynamic arrays of actions) is challenging, but firms benefit from doing so. Our examination of the antecedents and outcomes of complex competitive repertoires develops a more nuanced perspective. Data from 1,168 firms in 204 industries reveal that complexity initially harms performance, but then becomes a positive factor, except at high levels. We use agency and tournament theories, respectively, to examine how key governance mechanisms—ownership structure and executive compensation—help shape firms' competitive repertoires. We find that the principals of agency theory and the pay gap of tournament theory are both important antecedents of competitive complexity, and an interaction exists wherein firms build especially complex repertoires when both influences are strong. Managerial summary: In boxing, the fight does not always go to the bigger or stronger person, or even to whomever throws the most punches—the fight is sometimes won by the boxer who is unpredictable, such as throwing an uppercut when the opponent expected a right hook. Similarly, when companies compete in the marketplace, advantage is afforded not only to those with more resources or who engage in more competitive activity, but also to those whose actions are unpredictable. In this study, we develop the notion of “competitive complexity,” which describes the diversity and changing nature of a company's competitive moves. Implementing complex competitive repertoires can be painful in the short term but, if done correctly, can help company performance in the long run. Copyright © 2016 John Wiley & Sons, Ltd.
    July 11, 2016   doi: 10.1002/smj.2541   open full text
  • Reconfiguration, restructuring and firm performance: Dynamic capabilities and environmental dynamism.
    Stéphane J. G. Girod, Richard Whittington.
    Strategic Management Journal. July 11, 2016
    Research summary: Reorganization has been proposed as a key dynamic capability. This study compares the performance outcomes of two forms of reorganization, differing in their pervasiveness: organizational restructuring and organizational reconfiguration. Our dynamic panel data analysis of large U.S. corporations between 1985 and 2004 finds contrasting performance outcomes for these two forms of reorganization: in general, the more pervasive restructuring is associated with positive performance outcomes, while the more limited reconfiguration is associated with negative performance outcomes. However, outcomes vary by environment. Consistent with dynamic capabilities theory, we find evidence that in dynamic environments reconfiguration outcomes turn positive, while restructuring outcomes turn negative. We discuss implications for dynamic capabilities theory and managerial policy. Managerial summary: Firms need to reorganize in order to adapt to change. This study compares the financial performance consequences of two forms of reorganization: organizational restructurings and organizational reconfigurations. Restructurings involve fundamental change in organizational principles and are typically irregular; reconfigurations involve incremental change and are frequent. Examining a set of large U.S. corporations, we find these two forms of reorganization have contrasting financial consequences, depending on context. In the general case, fundamental restructurings have positive consequences, while incremental reconfigurations have negative consequences. However, this general result reverses in specifically dynamic environments, where reconfigurations are positive financially, while restructurings are negative. We conclude that the relative frequency of reconfigurations helps adaptation in dynamic environments. Managers should choose forms of reorganization according to the rate of environmental change. Copyright © 2016 John Wiley & Sons, Ltd.
    July 11, 2016   doi: 10.1002/smj.2543   open full text
  • Asset ownership and incentives in early shareholder capitalism: Liverpool shipping in the eighteenth century.
    Brian S. Silverman, Paul Ingram.
    Strategic Management Journal. July 07, 2016
    Research summary: We explore captain‐ownership and vessel performance in eighteenth‐century transatlantic shipping. Although contingent compensation often aligned incentives between captains and shipowners, one difficult‐to‐contract hazard was threat of capture during wartime. We exploit variation across time and routes to study the relationship between capture threat and captain‐ownership. Vessels were more likely to have captain‐owners when undertaking wartime voyages on routes susceptible to privateers. Captain‐owned vessels were less readily captured than those with nonowner captains, but more likely to forgo voyage profits to preserve the vessel's safety. These results are consistent with multitask agency, where residual claims to asset value rather than control rights influence captain behavior. This article is among the first to empirically isolate mechanisms distinguishing among major strands of organizational economics regarding asset ownership and performance. Managerial summary: Organizations face an enduring challenge: Owners hire an executive to act on their behalf, but it is difficult to ensure that the executive indeed acts in their interests. In this study, we exploit a useful historical context—eighteenth‐century transatlantic shipping from Liverpool—to explore the cause and effect of a captain's becoming part‐owner of his vessel. Captains became part‐owners for voyages likely to encounter enemy privateers. Captain‐owners were less likely to be captured, but were more willing to forgo cargo profits to preserve the vessel's safety. Our results provide a useful analogy to modern firm owners who must determine whether to award equity to executives, and to managers who must determine whether to provide assets to employees or rely on employee self‐provision of assets (e.g., tools for tradespeople). Copyright © 2016 John Wiley & Sons, Ltd.
    July 07, 2016   doi: 10.1002/smj.2525   open full text
  • Driven by aspirations, but in what direction? Performance shortfalls, slack resources, and resource‐consuming vs. resource‐freeing organizational change.
    Pasi Kuusela, Thomas Keil, Markku Maula.
    Strategic Management Journal. July 05, 2016
    Research summary: Prior literature drawing on the behavioral theory of the firm has not considered how resource constraints impact the direction of organizational change in response to performance shortfalls relative to aspirations. We argue that decreasing financial resources resulting from substantial performance shortfalls and the absence or availability of slack resources together affect the emphasis on different types of organizational change in response to performance shortfalls. Using data on the acquisition and divestment behavior of 530 companies in the information and communications technology sector from 1992 to 2014, we find that the frequency of resource‐consuming acquisitions and of resource‐freeing divestments are affected differently by performance below aspirations and that these relationships are moderated by the level of financial slack. Managerial summary: This paper examines whether firms respond to performance shortfalls with acquisitions or divestments. We argue and show that the closer the firm is to the aspired level of performance, the more likely it is to respond with resource‐consuming acquisitions to close the performance gap, whereas the further it is from aspired performance, the more likely the firm is to respond with divestments to free resources. Financial slack weakens these relationships between performance relative to aspirations and acquisitions or divestments such that it increases the likelihood of a response through acquisitions while it reduces the likelihood of a response through divestments. Copyright © 2016 John Wiley & Sons, Ltd.
    July 05, 2016   doi: 10.1002/smj.2544   open full text
  • Embracing the foreign: Cultural attractiveness and international strategy.
    Chengguang Li, Felix C. Brodbeck, Oded Shenkar, Leonard J. Ponzi, Jan Hendrik Fisch.
    Strategic Management Journal. June 23, 2016
    Research summary: Prior research focused on cultural differences and their impact on foreign direct investment (FDI), neglecting other potentially relevant variables attesting to the cultural interaction between a multinational enterprise and its host environment. In this article, we draw on interpersonal attraction research to develop a positive approach to cross‐cultural interaction with the cultural attractiveness (CA) construct, whereby members of a focal culture view another culture as desirable. We create a CA measure and establish its predictive validity with country reputation data. Using FDI data for 41 nations from 1985 to 2012 and performance data for 8,519 cross‐border acquisitions (CBA) for 40 nations from 1990 to 2009, we find that CA is a predictor of FDI inflows and CBA outcomes, whose explanatory power is superior to cultural difference measures. Managerial summary: Practitioners have traditionally emphasized potential difficulties of cross‐cultural interaction when dealing with culturally distant countries. In contrast, our study addresses the positive aspects of cultural differences and suggests that a lot can be gained from dealing with attractive cultures, even when they are different. This insight can be helpful, for example, in contemplating/managing international M&As. Managers of acquiring/merging firms can use our approach to identify whether their employees find the partner's culture desirable, and if they do, proceed with the takeover and then adopt the partner's organizational routines during post‐merger integration. This approach can help avoid conflicts, improve performance of home country expatriates, and ultimately, create value for acquiring firms. Copyright © 2016 John Wiley & Sons, Ltd.
    June 23, 2016   doi: 10.1002/smj.2528   open full text
  • Board representation in international joint ventures.
    Ilya R. P. Cuypers, Gokhan Ertug, Jeffrey J. Reuer, Ben Bensaou.
    Strategic Management Journal. June 21, 2016
    Research summary: Relatively little attention has been paid to boards in international joint ventures (IJVs), and the composition of these boards in particular. We examine the determinants of foreign partners' representation on IJV boards in order to advance our knowledge of this facet of IJV governance. We argue that a foreign partner's representation on the IJV board is related to its equity contribution. However, we hypothesize that this relationship is moderated by IJV and host country characteristics that affect the importance of the internal and external roles IJV boards serve. These results provide insights into the conditions under which a partner might wish to secure greater board representation for its level of equity, or utilize less board representation than might be suggested by its equity level alone. Managerial summary: The functioning and composition of corporate boards have long been seen as critical to managers and shareholders alike. In contrast, the boards of IJVs have been relatively neglected. We advance our knowledge of this important facet of IJV governance. Specifically, we highlight the importance of two roles (i.e., an internal and external role) that IJV boards and directors fulfill. We find that the importance of these internal and external roles of boards determines whether a foreign partner might wish to secure greater board representation for its level of equity, or utilize less board representation than might be suggested by its equity level alone. Our results provide novel insights that can help managers structure their IJV boards. Copyright © 2016 John Wiley & Sons, Ltd.
    June 21, 2016   doi: 10.1002/smj.2529   open full text
  • Guidelines for effective strategy in African markets: Lessons and extensions from SMS publications.
    Adetunji Adegbesan, Will Mitchell, Benedikt Wahler.
    Strategic Management Journal. May 19, 2016
    There is no abstract available for this paper.
    May 19, 2016   doi: 10.1002/smj.2538   open full text
  • Reconfiguration: Adding, redeploying, recombining and divesting resources and business units.
    Samina Karim, Laurence Capron.
    Strategic Management Journal. May 19, 2016
    There is no abstract available for this paper.
    May 19, 2016   doi: 10.1002/smj.2537   open full text
  • Applications virtual special issue: Practical advice on how to unlock value from your alliances.
    Andrew Shipilov, Ithai Stern.
    Strategic Management Journal. May 19, 2016
    There is no abstract available for this paper.
    May 19, 2016   doi: 10.1002/smj.2536   open full text
  • Alliance governance.
    Jeffrey J. Reuer, Africa Ariño, Laura Poppo, Todd Zenger.
    Strategic Management Journal. May 19, 2016
    There is no abstract available for this paper.
    May 19, 2016   doi: 10.1002/smj.2535   open full text
  • Introduction: Dan and mary lou schendel best paper award winners, 1993‐2014.
    Aija Leiponen, Will Mitchell.
    Strategic Management Journal. May 19, 2016
    There is no abstract available for this paper.
    May 19, 2016   doi: 10.1002/smj.2539   open full text
  • Introduction: Collection of articles at SMJ concerning promotion of women to senior management positions.

    Strategic Management Journal. May 19, 2016
    There is no abstract available for this paper.
    May 19, 2016   doi: 10.1002/smj.2534   open full text
  • Rent appropriation of knowledge‐based assets and firm performance when institutions are weak: A study of Chinese publicly listed firms.
    Cuili Qian, Heli Wang, Xuesong Geng, Yangxin Yu.
    Strategic Management Journal. May 13, 2016
    Research summary: A firm's strategic investments in knowledge‐based assets through research and development (R&D) can generate economic rents for the firm, and thus are expected to affect positively a firm's financial performance. However, weak protection of minority shareholders, weak property rights, and ineffective law enforcement can allow those rents to be appropriated disproportionately by a firm's powerful insiders such as large owners and top managers. Recent data on Chinese publicly listed firms during 2007–2012 were used to demonstrate that the expected positive relationship between knowledge assets and performance is weaker in transition economies when a firm's ownership is highly concentrated and its managers have wide discretion. Moreover, rent appropriation by insiders was shown to vary with the levels of institutional development in which a firm operates. Managerial summary: Investing in knowledge‐based intangible assets (e.g., R&D) is an important value‐creation activity for the firm. Such value creation process can be facilitated by large shareholders and powerful managers, who can then take an advantageous position with critical insider information on these valuable intangible assets and therefore enjoy more opportunities to appropriate more value from them, leaving less value for other minority shareholders. The value distribution becomes increasingly skewed against minority shareholders when the institutional protection for them is weak. Indeed, in a large sample of Chinese publicly listed firms, we found that R&D investment becomes less positively associated with firm financial performance with the presence of large shareholders, high managerial equity, or CEO/Chairman duality, especially in Chinese provinces with weak institutional development. Copyright © 2016 John Wiley & Sons, Ltd.
    May 13, 2016   doi: 10.1002/smj.2522   open full text
  • Incubation of an industry: Heterogeneous knowledge bases and modes of value capture.
    Mahka Moeen, Rajshree Agarwal.
    Strategic Management Journal. May 04, 2016
    Research summary: We examine firms' technological investments during an industry's incubation stage—the period between a technological breakthrough and the first instance of its commercialization. Using the agricultural biotechnology context, we develop stylized findings regarding the understudied knowledge evolution preceding product evolution in an industry's life cycle, the trend and diversity of firms undertaking technological investments in anticipation of industry emergence, their leverage of markets for technology and corporate control, and their use of alternative modes of value capture. We juxtapose these stylized findings with existing literature to identify new theoretical insights, and set the stage for future scholarly work to develop and test new theories for the incubation period, examine its existence in other industries, and study its impact on subsequent firm and industry evolution. Managerial summary: New technological breakthroughs present managers of existing firms and aspiring entrepreneurs with opportunities to create altogether new industries. During the vibrant incubation period, we find that multiple firms capitalize on diverse knowledge bases to shape the industry's knowledge evolution and also capture economic value in diverse ways. Existing firms in the obsolescing industry are more likely to become targets in acquisitions given their complementary knowledge. Science‐based start‐ups are more likely to engage in acquisitions and collaborations with established firms. Diversifying firms are more likely to commercialize products after leveraging of internal development, acquisitions, and alliances. Our study highlights the importance for managers to think about “success” and “failure” across multiple yardsticks of performance, rather than only as product commercialization as the sole goal. Copyright © 2016 John Wiley & Sons, Ltd.
    May 04, 2016   doi: 10.1002/smj.2511   open full text
  • Is R&D risky?
    Philip Bromiley, Devaki Rau, Yu Zhang.
    Strategic Management Journal. May 02, 2016
    Research summary: Many studies use research and development (R&D) intensity or R&D spending as a proxy for risk taking, but we have little evidence that either associates positively with firm risk. We analyze the relations between R&D intensity (R&D spending to sales) and R&D spending on the one hand and 11 different indicators of firm risk on the other, using data from 1,907 to 3,908 firms in various industries over 13 years. The analysis finds a general lack of consistent positive association between R&D and firm risk, making the use of R&D as an indicator of risk taking questionable. Furthermore, R&D intensity and spending do not correlate positively, suggesting they measure different constructs. We discuss potential reasons for these nonsignificant results. Our study demonstrates that researchers should avoid casual use of R&D as a proxy for risk taking without explicitly providing a clear definition and measurement model for risk. Managerial summary: Risk is a key construct in strategic management research. Many studies in this area measure risk taking by research and development (R&D) intensity (the ratio of R&D spending to sales) or R&D spending. However, since R&D intensity and spending have also been used to measure various other things such as information processing demands, this raises the question of whether R&D intensity and spending are valid indicators of firm risk. We examine this issue by considering the associations of R&D intensity and R&D spending with conventional measures of firm risk. We find a general lack of consistent positive association between R&D and firm risk, making the use of R&D as an indicator of risk taking questionable. Furthermore, R&D intensity and spending do not correlate positively, suggesting they measure different things. Copyright © 2016 John Wiley & Sons, Ltd.
    May 02, 2016   doi: 10.1002/smj.2520   open full text
  • Firm‐specific human capital investments as a signal of general value: Revisiting assumptions about human capital and how it is managed.
    Shad S. Morris, Sharon A. Alvarez, Jay B. Barney, Janice C. Molloy.
    Strategic Management Journal. May 02, 2016
    Research summary: Prior scholarship has assumed that firm‐specific and general human capital can be analyzed separately. This article argues that, in some settings, this is not the case because prior firm‐specific human capital investments can be a market signal of an individual's willingness and ability to make such investments in the future. As such, the willingness and ability to make firm‐specific investments is a type of general human capital that links firm‐specific and general human capital in important ways. The article develops theory about these investments, market signals, and value appropriation. Then, the article examines implications for human resource management and several important questions in the field of strategic management, including theories of the firm and microfoundations of competitive advantage. Managerial summary: While managers don't often use the terms firm‐specific and general skills, they certainly recognize that investments employees make in their skill sets are more or less relevant to a specific firm. For instance, investing in specific relationships within a firm or learning a firm's proprietary software would be considered firm‐specific investments. While such skills may seem relevant only to the particular firm in which they were invested, these investments may also send valuable signals to competing firms that such employees are willing and able to make similar investments elsewhere. Hence, managers should be interested in determining if a potential hire has made prior firm‐specific investments to help them know whether that person might be likely to make such investments in his or her future place of employment. Copyright © 2016 John Wiley & Sons, Ltd.
    May 02, 2016   doi: 10.1002/smj.2521   open full text
  • Who needs experts most? Board industry expertise and strategic change—a contingency perspective.
    Jana Oehmichen, Sebastian Schrapp, Michael Wolff.
    Strategic Management Journal. April 22, 2016
    Research summary: We analyze the effects of board industry expertise on corporate strategic change and the moderating role of institutional quality. We suggest that country‐level contingency factors mitigate the effect of experienced boards on strategy formation by providing alternative sources of information and control in strategic matters. We develop institutional quality as institutional information provision and institutional control provision to test our hypotheses on a sample of firms from MSCI Europe and the S&P 500. Our findings confirm that industry expertise is a salient driver of strategic change across countries. The strength of the effect, however, depends on the institutional quality. We submit that weak institutions require greater board industry expertise as an alternative channel of information and control. Management summary: This study provides new empirical evidence that experience in the firms' industries enables directors to increase strategic change. Our findings show that this effect is even stronger in countries with weak regulatory environments. We hereby provide guidance for multiple stakeholders. First, shareholders seeking a more active adjustment of their firms' strategies may want to compose boards that leverage such experienced directors. Second, directors can use their industry experience to control and to challenge managers better to move beyond the status quo. Third, managers lacking access to information on potential strategic change can use such experienced directors for strategic advice and as a source of information. Overall, we add to the understanding of the corporate board's role in shaping strategy and the influence of weak regulations. Copyright © 2016 John Wiley & Sons, Ltd.
    April 22, 2016   doi: 10.1002/smj.2513   open full text
  • Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies.
    Joon Mahn Lee, Byoung‐Hyoun Hwang, Hailiang Chen.
    Strategic Management Journal. April 22, 2016
    Research summary: We provide evidence that founder chief executive officers (CEOs) of large S&P 1500 companies are more overconfident than their nonfounder counterparts (“professional CEOs”). We measure overconfidence via tone of CEO tweets, tone of CEO statements during earnings conference calls, management earnings forecasts, and CEO option‐exercise behavior. Compared with professional CEOs, founder CEOs use more optimistic language on Twitter and during earnings conference calls. In addition, founder CEOs are more likely to issue earnings forecasts that are too high; they are also more likely to perceive their firms to be undervalued, as implied by their option‐exercise behavior. We provide evidence that, to date, investors appear unaware of this “overconfidence bias” among founders. Managerial summary: This article helps to explain why firms managed by founder chief executive officers (CEOs) behave differently from those managed by professional CEOs. We study a sample of S&P 1500 firms and find strong evidence that founder CEOs are more overconfident than professional CEOs. To date, investors appear unaware of this overconfidence bias among founders. Our study should help firm stakeholders, including investors, employees, suppliers, and customers, put the statements and actions of founder CEOs in perspective. Our study should also help members of corporate boards make more informed decisions about whether to retain (or bring back) founder CEOs or hire professional CEOs. Copyright © 2016 John Wiley & Sons, Ltd.
    April 22, 2016   doi: 10.1002/smj.2519   open full text
  • The more, the merrier? Women in top‐management teams and entrepreneurship in established firms.
    Jacob Lyngsie, Nicolai J. Foss.
    Strategic Management Journal. April 21, 2016
    Research summary: We study the association between firms' entrepreneurial outcomes and their gender composition. Though highly topical, there is little solid empirical knowledge of this issue, which calls for an inductive approach. We match a paired‐respondent questionnaire survey with population‐wide employer‐employee data, and find evidence that the presence of female top managers is positively related to entrepreneurial outcomes in established firms. Yet, this relation is conditional on the proportion between male and female top managers. Another finding is that the overall proportion of women in the firm's workforce negatively moderates the relation between female top managers and entrepreneurial outcomes. We discuss various mechanisms that can explain these findings, and argue that they are best understood in terms of the dynamics of social categorization. Managerial summary: We investigate how companies benefit from having more women on the top‐management team. We show that beyond a threshold level of female top managers, more women are associated with more entrepreneurial outcomes (more products and services profitably launched). However, this positive effect is weakened in firms that have many women in the workforce. These effects may be explained in terms of the ways employees mentally categorize managers and how this influences their work motivation. We find evidence for such an explanation. Copyright © 2016 John Wiley & Sons, Ltd.
    April 21, 2016   doi: 10.1002/smj.2510   open full text
  • Time delays, competitive interdependence, and firm performance.
    Jukka Luoma, Sampsa Ruutu, Adelaide Wilcox King, Henrikki Tikkanen.
    Strategic Management Journal. April 20, 2016
    Research summary: Competitors' experiences of prior interactions shape patterns of rivalry over time. However, mechanisms that influence learning from competitive experience remain largely unexamined. We develop a computational model of dyadic rivalry to examine how time delays in competitors' feedback influence their learning. Time delays are inevitable because the process of executing competitive moves takes time, and the market's responses unfold gradually. We analyze how these lags impact learning and, subsequently, firms' competitive behavior, industry profits, and performance heterogeneity. In line with the extant learning literature, our findings reveal that time delays hinder learning from experience. However, this counterintuitively increases rivals' profits by reducing their investments in costly head‐to‐head competition. Time delays also engender performance heterogeneity by causing rivals' paths of competitive behavior to diverge. Managerial summary: While competitive actions such as new product launches, geographical expansion, and marketing campaigns require up‐front resource commitments, the potential lift in profits takes time to materialize. This time delay, combined with uncertainty surrounding the outcomes of competitive actions, makes it difficult for managers to learn reliably from previous investment decisions. This results in systematic underinvestment in competitive actions. The severity of the underinvestment grows as the time delay between an investment and its positive results increases. Counterintuitively, however, competitors' collective underinvestment increases profit‐making opportunities. In industries with large time delays, companies that do invest in competitive actions are likely to enjoy high returns on investment. It is also likely that rivals' paths of competitive behavior bifurcate. Together, these mechanisms generate large differences in competitors' profits. Copyright © 2016 John Wiley & Sons, Ltd.
    April 20, 2016   doi: 10.1002/smj.2512   open full text
  • How middle managers manage the political environment to achieve market goals: Insights from China's state‐owned enterprises.
    Yidi Guo, Quy Nguyen Huy, Zhixing Xiao.
    Strategic Management Journal. April 20, 2016
    Research summary: Although the middle management literature has identified various bridging roles performed by middle managers in the market environment, it is relatively vague about whether and how they manage the political environment to achieve market‐related goals. In an inductive field study of four large state‐owned enterprises based in mainland Communist China, operational middle managers were found to take an active role in dealing with political actors to achieve market efficiency in their local environments, performing two distinct bridging strategies. Our field study suggests that middle managers are better equipped than their bosses (top executives) as well as their subordinates (frontline employees) to perform the bridging function between competing market and political imperatives in various local settings. Managerial summary: For firms that operate in diverse geographies, it is challenging for a handful of top executives to deal with numerous political actors. This burden could be shared with operational middle managers, who play a bridging role by drawing on their operational knowledge and local networks. Our research on middle managers who work under the scrutiny of political actors in China found that they bridge market and political ideology by conveying common features that seem legitimate to both. They also bridge market goals and political actors with personal affect. Compared to top executives and frontline employees, middle managers have unique advantages in performing these bridging functions. Firms can enhance their strategy execution ability by training middle managers in dealing with political actors in diverse contexts. Copyright © 2016 John Wiley & Sons, Ltd.
    April 20, 2016   doi: 10.1002/smj.2515   open full text
  • Independent director death and CEO acquisitiveness: Build an empire or pursue a quiet life?
    Wei Shi, Robert E. Hoskisson, Yan Anthea Zhang.
    Strategic Management Journal. April 20, 2016
    Research summary: This study examines the relationship between an independent director's death and CEO acquisitiveness. Using a sample of large U.S. public firms, we find that CEOs who have experienced an independent director's death undertake fewer acquisitions in the post‐director death period, in particular fewer large acquisitions. Our findings are consistent with the prediction of posttraumatic growth theory that mortality awareness can induce CEOs to reevaluate their life priorities and reduce the importance of extrinsic goals in their decision making. This study contributes to the strategic leadership literature by highlighting the influence of the death of CEOs' social peers on CEOs' strategic decisions. Managerial summary: Does the death of CEOs' social peers influence CEOs' strategic decisions? We find that CEOs who have experienced an independent director's death engage in fewer acquisitions in the post‐director death period, in particular fewer large acquisitions. One likely explanation for our findings is that the death of an independent director may heighten CEOs' mortality awareness, lead the CEOs to pursue a quieter life, and weaken their propensities for undertaking decisions (i.e., acquisitions) that increase their compensation and social status. Copyright © 2016 John Wiley & Sons, Ltd.
    April 20, 2016   doi: 10.1002/smj.2514   open full text
  • Strategy, human capital investments, business‐domain capabilities, and performance: a study in the global software services industry.
    Joydeep Chatterjee.
    Strategic Management Journal. April 12, 2016
    Research summary: In knowledge‐based industries, continuous human capital investments are essential for firms to enhance capabilities and sustain competitive advantage. However, such investments present a dilemma for firms, because human resources are mobile. Using detailed project‐level operational, financial, and human capital data from a leading multinational firm in the global IT services industry, this study finds that deliberate investments in improving general human capital can help firms develop superior capabilities and maintain high profits. This paper identifies two types of capabilities essential for success in this industry—technological and business‐domain capabilities—and provides empirical evidence justifying such investments. Theoretical and practical implications of capability‐seeking general human capital investments are discussed. Managerial summary: The primary managerial implication of this research is that capability‐seeking investments in developing general human capital through strategic learning (training and internal certifications) can enhance firm performance. Although investing in general human capital is risky, the firm considered this a strategic necessity in order to thrive in the fast paced IT services industry. By leveraging general technological skills in combination with business‐domain knowledge to address customer's business problems firms can earn and sustain higher profits. Our study also demonstrates how a developing‐country firm responded to strong competitive challenge from global rivals possessing superior capabilities by upgrading the capabilities of its employees through internal development. In doing so the firm was able to narrow the capability gap vis‐à‐vis its foreign peers and expand its business globally. Copyright © 2016 John Wiley & Sons, Ltd.
    April 12, 2016   doi: 10.1002/smj.2505   open full text
  • Organizational knowledge networks and local search: The role of intra‐organizational inventor networks.
    Srikanth Paruchuri, Snehal Awate.
    Strategic Management Journal. April 12, 2016
    Research summary: While firms tend to build on their own knowledge, we distinguish between depth and breadth of local search to investigate the drivers of these behaviors. Given that inventors in a firm carry out the knowledge creation activities, we strive to identify inventors responsible for these behaviors by employing the notion of an intra‐firm inventor network. A longitudinal examination of 14,575 inventors from four large semiconductor firms using patent data supports our hypotheses that the reach of inventors in the intra‐firm network and their span of structural holes have independent and interactive effects on these two types of local search behaviors. These findings have implications for research on exploitation and exploration, organizational knowledge, knowledge networks, and micro‐foundations. Managerial summary: Large amounts of knowledge may reside within firm boundaries, and managers are interested in understanding who may leverage this knowledge to generate novel ideas. We focus on collaborations among knowledge workers to address this question. Using the collaborations among all knowledge workers in a firm, we show that those who have higher reach to all others and those who form bridges to connect unconnected groups of workers tend to leverage not only more organizational knowledge, but also knowledge that is more dispersed in the organization. Managers could use these insights to shape the use of organizational knowledge by firm inventors, and also to make decisions about granting or withholding access to internal knowledge platforms for knowledge workers. Copyright © 2016 John Wiley & Sons, Ltd.
    April 12, 2016   doi: 10.1002/smj.2516   open full text
  • Policy risk, strategic decisions and contagion effects: Firm‐specific considerations.
    Daniel J. Blake, Caterina Moschieri.
    Strategic Management Journal. April 12, 2016
    Research summary: In this article, we investigate the firm‐specific environment and its impact on firm strategy focusing on adverse changes in the policy environment and their effect on divestitures. We argue that experiencing a negative change in the firm‐specific policy environment causes firms to reassess their exposure to policy risk and their ability to manage their policy environment, making them more likely to divest. Operationalizing negative shifts in the firm‐specific policy environment through formal policy disputes between firms and governments, we find that following a dispute, firms are more likely to divest both in the country where the dispute occurs and in other countries in the same region. However, the impact of disputes on divestitures is firm specific, applying only to firms directly involved in a dispute. Managerial summary: What is the impact of change in the firm‐specific environment on firm strategy? We argue that when firms directly experience a negative change in their policy environment that is specific to them, they negatively reassess their exposure to policy risk and their ability to manage their policy environment, which makes them more likely to undertake a divestiture. We analyze formal disputes between firms and governments that arise from adverse changes in policy and find that, following a dispute, firms are more likely to divest in the country where the dispute occurs and in other countries in the same region. However, the impact of disputes on divestitures is firm specific as it applies only to firms directly involved in a dispute. Copyright © 2016 John Wiley & Sons, Ltd.
    April 12, 2016   doi: 10.1002/smj.2509   open full text
  • Entrepreneurial beacons: The Yale endowment, run‐ups, and the growth of venture capital.
    Y. Sekou Bermiss, Benjamin L. Hallen, Rory McDonald, Emily C. Pahnke.
    Strategic Management Journal. March 31, 2016
    Research summary: This article investigates the social context of entrepreneurship in organizational sectors. Prior research suggests that firm foundings are driven by collective patterns of activity—such as patterns of prior foundings in a given sector. Building on research on social salience and signals, we consider the influence of singular sector‐level triggers, which we call entrepreneurial beacons. We argue that the actions or outcomes of single, salient organizations attract and motivate entrepreneurs, thus increasing the rate of foundings. We test this logic by examining the impact of the Yale University endowment's investment choices and of venture‐capital‐backed IPO run‐ups on venture‐capital foundings between 1984 and 2011. We find support for the existence and influence of beacons and outline boundary conditions for their effects. Managerial summary: What leads entrepreneurs to found new companies in nascent sectors? In contrast to prior research, which emphasizes patterns of activity, we argue that entrepreneurial activity can sometimes be driven by the actions of a singular trigger—what we call an entrepreneurial beacon. We examine the influence of two such beacons, Yale University's endowment investments and exceptional venture‐capital‐backed IPO run‐ups, on the founding of new venture‐capital firms over a 28‐year period. We find that Yale's increased allocations to the venture‐capital asset‐class has a significant influence on the founding of new venture‐capital firms, while exceptional venture‐capital‐backed IPO run‐ups only influence venture‐capital foundings under certain conditions. Overall, we offer an explanation for heretofore anecdotal accounts of certain organizations or events that appear to have an outsized influence on entrepreneurial activity. Copyright © 2016 John Wiley & Sons, Ltd.
    March 31, 2016   doi: 10.1002/smj.2508   open full text
  • Reaffirming the CEO effect is significant and much larger than chance: A comment on Fitza (2014).
    Timothy J. Quigley, Scott D. Graffin.
    Strategic Management Journal. March 29, 2016
    Research summary: A recent study by Fitza argued that the prior estimates of the Chief Executive Officer (CEO) effect are conflated with events outside the CEO's control, are largely the result of random chance, and that the true CEO effect is smaller than has been previously estimated. We suggest that the empirical methodology employed by Fitza to support these claims substantially overstates the “random chance” element of the CEO effect. We replicate Fitza's findings, highlight methodological issues, offer alternative conclusions, and using multilevel modeling (MLM), suggest that his analyses mischaracterize the CEO effect. Managerial summary: Scholars and practitioners have debated for decades about the relative importance of Chief Executive Officers (CEOs) and the magnitude of the impact they have on firm outcomes. Clearly, decisions related to compensation, retention or termination, and leadership development all hinge on the assumptions made about the relative impact corporate leaders have on firm performance. Responding to earlier work that claimed the “CEO effect” was greatly exaggerated in past work and likely quite small, this study seeks to reaffirm the significant impact CEOs have on firm outcomes. Copyright © 2016 John Wiley & Sons, Ltd.
    March 29, 2016   doi: 10.1002/smj.2503   open full text
  • Shareholder perceptions of the changing impact of CEOs: Market reactions to unexpected CEO deaths, 1950–2009.
    Timothy J. Quigley, Craig Crossland, Robert J. Campbell.
    Strategic Management Journal. March 29, 2016
    Research summary: Despite a number of studies highlighting the important impact Chief Executive Officers (CEOs) have on firms, several theoretical and methodological questions cloud existing findings. This study takes an alternative approach by examining how shareholders' perceptions of CEO significance have changed over time. Using an event study methodology and a sample of 240 sudden and unexpected CEO deaths, we show that absolute (unsigned) market reactions to these events in U.S. public firms have increased markedly between 1950 and 2009. Our results indicate that shareholders act in ways consistent with the belief that CEOs have become increasingly more influential in recent decades. Managerial summary: With Chief Executive Officers (CEOs) facing increased scrutiny and receiving ever‐increasing pay packages, substantial debate exists about their overall contribution to firm outcomes. While prior research has sought to calculate the proportion of firm outcomes attributable to the CEO, this study takes an alternative approach by using the “wisdom of the crowds” to assess how shareholders think about the importance of CEOs. Our study finds that shareholders, perhaps the most financially motivated stakeholder, view CEOs as increasingly important drivers of firm outcomes, good and bad, versus their peers from decades earlier. Notably, market reaction to the unexpected death of a CEO has increased steadily over the last six decades, highlighting the importance of succession planning and supporting, at least partially, the increased compensation given today's top executives. Copyright © 2016 John Wiley & Sons, Ltd.
    March 29, 2016   doi: 10.1002/smj.2504   open full text
  • Entry, exit, and the potential for resource redeployment.
    Marvin B. Lieberman, Gwendolyn K. Lee, Timothy B. Folta.
    Strategic Management Journal. March 23, 2016
    Research summary: Combining the concept of resource relatedness with the economic notion of sunk costs, we assess how the potential for resource redeployment affects market entry and exit by multi‐business firms. If the performance of a new business falls below expectations, a diversified firm may be able to redeploy its resources back into related businesses. In effect, relatedness reduces the sunk costs associated with a new business, which facilitates exit. This, in turn, has implications for entry: By decreasing the cost of failure, the potential for redeployment justifies the undertaking of riskier entries and greater experimentation. These dynamic benefits of relatedness are distinct from standard notions of “synergy.” To show support for this idea, we provide a mathematical model, descriptive data, and company examples. Managerial summary: The ability to redeploy resources inside the firm reduces the cost of entry “mistakes.” If a new business turns out to have poor profitability, the ability to redeploy more of its resources back into the firm's other businesses allows recycling of investment and can speed up the retreat. This reduces not only the cost of exit, but also the cost of entry. Managers should therefore be more willing to experiment and take risks in developing businesses that are more related to the firm's existing businesses, whereas if redeployment is likely to be difficult, managers should be cautious about entering. New businesses should be chosen in ways that facilitate redeployment, and managers should consider the implications of redeployment when setting the performance thresholds that justify entry and exit. Copyright © 2016 John Wiley & Sons, Ltd.
    March 23, 2016   doi: 10.1002/smj.2501   open full text
  • Corporate social responsibility as an employee governance tool: Evidence from a quasi‐experiment.
    Caroline Flammer, Jiao Luo.
    Strategic Management Journal. March 17, 2016
    Research summary: This study examines whether companies employ corporate social responsibility (CSR) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We exploit plausibly exogenous changes in state unemployment insurance (UI) benefits from 1991 to 2013. Higher UI benefits reduce the cost of being unemployed and hence increase employees' incentives to engage in adverse behavior. We find that higher UI benefits are associated with higher engagement in employee‐related CSR. This finding suggests that companies use CSR as a strategic management tool—specifically, an employee governance tool—to increase employee engagement and counter the possibility of adverse behavior. We further examine plausible mechanisms underlying this relationship. Managerial summary: This study examines whether companies employ corporate social responsibility (CSR) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We find that companies react to increased risk of adverse behavior by strategically increasing their investment in employee‐related CSR (e.g., work‐life balance benefits, health and safety policies). Our findings have important managerial implications. In particular, they suggest that CSR may help companies motivate and engage their employees. Hence, companies dealing with employees that are unmotivated, regularly absent, or engage in other forms of adverse behavior, may find it worthwhile to design and implement effective CSR practices. Further, our findings suggest that CSR can be used as employee governance tool. Accordingly, managers could benefit from integrating CSR considerations into their strategic planning. Copyright © 2015 John Wiley & Sons, Ltd.
    March 17, 2016   doi: 10.1002/smj.2492   open full text
  • Response pattern analysis: Assuring data integrity in extreme research settings.
    Lisa Jones Christensen, Enno Siemsen, Oana Branzei, Madhu Viswanathan.
    Strategic Management Journal. March 17, 2016
    Research summary: Strategy scholars increasingly conduct research in nontraditional contexts. Such efforts often require the assistance of third‐party intermediaries who understand local culture, norms, and language. This reliance on intermediation in primary or secondary data collection can elicit agency breakdowns that call into question the reliability, analyzability, and interpretability of responses. Herein, we investigate the causes and consequences of intermediary bias in the form of faked data and we offer Response Pattern Analysis as a statistical solution for identifying and removing such problematic data. By explicating the effect, illustrating how we detected it, and performing a controlled field experiment in a developing country to test the effectiveness of our methodological solution, we encourage researchers to continue to seek data and build theory from unique and understudied settings. Managerial summary: Any form of survey research contains the risk of interviewers faking data. This risk is particularly difficult to mitigate in Base‐of‐Pyramid or developing country contexts where researchers have to rely on intermediaries and forms of control are limited. We provide a statistical technique to identify a faking interviewer's ex post data collection, and remove the associated data prior to analysis. Using a field experiment where we instruct interviewers to fake the data, we demonstrate that the algorithm we employ achieves a 90 percent accuracy in terms of differentiating faking from nonfaking interviewers. Copyright © 2016 John Wiley & Sons, Ltd.
    March 17, 2016   doi: 10.1002/smj.2497   open full text
  • When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions.
    Ilya R. P. Cuypers, Youtha Cuypers, Xavier Martin.
    Strategic Management Journal. March 17, 2016
    Research summary: Extending research on the effect of experience on acquisition outcomes, we examine how the differential in previous M&A experience between the target and the acquirer affects the value they, respectively, obtain when the acquirer takes over the target. Drawing on literature about organizational learning, negotiation, and information economics, we theorize that the party with greater experience will be able to obtain more value. Furthermore, we theorize that the effect of differential M&A experience on value obtained is contingent on the level of information asymmetry the acquirer faces with respect to the target, specifically as a function of the target's product‐market scope and whether the deal is friendly. We test and find support for these predictions in a sample of 1,241 M&As over a 30‐year period. Managerial summary: Corporate strategy is about a firm's scope and development decisions and outcomes, but corporate strategizing is incomplete unless managers anticipate the moves of other economic actors. We demonstrate the importance of these points when it comes to learning to make acquisitions. Using an innovative research design and theory that enables comparison between acquirer and target gains, we show that whatever their firm's acquisition history and capabilities, acquisitive managers should mind the negotiation and other pitfalls that arise when target firms possess ample acquisition experience of their own. We also demonstrate that the effect of experience advantage, whereby the more experienced party benefits, depends on the target firm's scope and whether the deal is friendly—two dimensions that acquirers can and should take into account. Copyright © 2016 John Wiley & Sons, Ltd.
    March 17, 2016   doi: 10.1002/smj.2502   open full text
  • Cheap talk? Strategy presentations as a form of chief executive officer impression management.
    Richard Whittington, Basak Yakis‐Douglas, Kwangwon Ahn.
    Strategic Management Journal. March 08, 2016
    Research summary: We develop and test a set of hypotheses on investors' reactions to a specific form of impression management, public presentations of overall strategy by Chief Executive Officers (CEOs). Contrary to expectations from a “cheap talk” perspective, we suggest that such strategy presentations convey valuable information to investors, especially in conditions of heightened information asymmetry associated with varying types of new CEOs. Broad empirical support for our theoretical arguments is shown in a sample of strategy presentations carried out by NYSE and NASDAQ listed organizations over 10 years. Our research contributes to literature on new CEOs and impression management. We draw out implications both for management and for further research. Managerial summary: We examine the impact of public presentations on company strategy by Chief Executive Officers (CEOs) on company stock prices. Adjusting for market movements in general, on average stock prices rose by 1.6 percent following these strategy presentations. Strategy presentations received larger reactions the more the CEO was unfamiliar to investors. Thus, stock price gains for new CEOs in general were 5.3 percent; for external, within‐industry new CEOs, they were 9.3 percent; and for external, outside‐of‐industry new CEOs, they were 12.4 percent. Given that only 40 percent of new CEOs present on strategy in their first 200 days post‐appointment, we suggest that new CEOs pay more attention to this potential means of communicating, especially if they are unfamiliar to investors. Copyright © 2015 John Wiley & Sons, Ltd.
    March 08, 2016   doi: 10.1002/smj.2482   open full text
  • Being the CEO's boss: An examination of board chair orientations.
    Ryan Krause.
    Strategic Management Journal. March 08, 2016
    Research summary: Scholars have traditionally conceptualized board leadership as a dichotomous construct. A combined CEO and board chair position is interpreted as reflecting a more collaborative approach to corporate governance, whereas separate positions are interpreted as ensuring greater board control. I challenge this conceptualization and posit that a separate board chair can be oriented toward collaboration as well as—or in place of—control. I analyze newly available data from corporate proxy statements to identify these two board chair orientations and test competing perspectives on how they impact profitability growth in a sample of S&P 500 firms. The results indicate that board leadership is a more nuanced phenomenon than the extant literature would suggest. Managerial summary: What is the role of the board chair when not the CEO? Corporate governance experts assert the board chair's role is to monitor and control the CEO. Yet, board chairs often play another, more collaborative role. Board chairs frequently provide advice and guidance to CEOs and relieve CEOs of board leadership burdens, enabling the CEOs to focus on their primary responsibilities. In this study, I examine the effect of board chair orientations on financial performance and find that, as with separating or joining the CEO and board chair positions, the profitability implications of the selected orientation are far from universal. Board chairs must consider their firm's performance context in order to get the most out of a particular approach to being the CEO's boss. Copyright © 2016 John Wiley & Sons, Ltd.
    March 08, 2016   doi: 10.1002/smj.2500   open full text
  • Does engagement in corporate social responsibility provide strategic insurance‐like effects?
    Yung‐Ming Shiu, Shou‐Lin Yang.
    Strategic Management Journal. March 08, 2016
    Research summary: This study examines whether the stock and bond prices of firms engaging in corporate social responsibility (CSR) can benefit from insurance‐like effects during occurrences of negative events. Our results suggest that in the face of negative events, engagement in CSR on a continuous, long‐term basis provides insurance‐like effects on both the stock and bond prices of firms. Nevertheless, the effects are found to quickly disappear following the occurrence of a second, or subsequent, negative event. Although our results clearly indicate that firms need to allocate some of their available resources to long‐term strategic CSR activities, managers must also realize that in a crisis communication, they will probably be able to use their CSR claims on one occasion only. Managerial summary: The purpose of this article is to examine whether firms engaging in corporate social responsibility (CSR) can benefit from insurance‐like effects during occurrences of negative events. We find that on the occurrence of a negative event, long‐term CSR engagement does have insurance‐like effects. We also find that these insurance‐like effects may quickly disappear following the occurrence of a second negative event. Managers of firms with a long history of CSR activities need to realize that in a crisis communication, they can probably use their claims of adherence to CSR only once. Copyright © 2015 John Wiley & Sons, Ltd.
    March 08, 2016   doi: 10.1002/smj.2494   open full text
  • Once bitten twice shy? Experience managing violent conflict risk and MNC subsidiary‐level investment and expansion.
    Chang Hoon Oh, Jennifer Oetzel.
    Strategic Management Journal. March 01, 2016
    Research summary: Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate‐level experience can be leveraged across borders and when experience needs to be country‐specific to be valuable. We test our hypotheses using a unique multi‐source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10‐year period, 1999–2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country‐specific experience appears to yield measureable benefits for conflicts involving the host country government. Managerial summary: Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or who wish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly “unmanageable” problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country‐specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict. Copyright © 2016 John Wiley & Sons, Ltd.
    March 01, 2016   doi: 10.1002/smj.2498   open full text
  • Equity stakes and exit: An experimental approach to decomposing exit delay.
    Daniel W. Elfenbein, Anne Marie Knott, Rachel Croson.
    Strategic Management Journal. February 29, 2016
    Research summary: Exit delay is an important problem for entrepreneurs and managers alike, yet relatively little is known about its causes. We conduct a laboratory experiment in which optimal exit is well defined, and in which a treatment group with equity stakes—the actual cash flows of a firm and decision rights over its continuation—is compared to a control group whose compensation is based solely on its assessment of the firm's profitability. While treatment group participants make exit decisions that are nearly optimal given their beliefs, their beliefs are significantly distorted relative to the control group. The pattern of distortion is consistent with confirmatory bias and motivated reasoning. A fundamental finding of our study is that incentives may not only affect behavior, but belief formation as well. Managerial summary: Managers and entrepreneurs frequently destroy significant value by failing to shut down underperforming businesses in a timely manner. To address this problem, we must understand the mechanisms causing exit delay. We examine behavioral mechanisms causing delay through a laboratory experiment in which subjects make decisions about when to exit a failing venture. We find that “equity stakes”—receiving the firm's cash flows and having decision rights over exit—cause participants to discount negative performance information, retain overly optimistic beliefs, and delay exit. By contrast, participants without these high‐powered incentives exit nearly optimally. Our findings suggest ways to reduce exit delay in managerial settings, including implementing automated decision rules, removing equity‐based compensation, and recruiting managers less susceptible to knowledge overconfidence, a trait associated with exit delay. Copyright © 2015 John Wiley & Sons, Ltd.
    February 29, 2016   doi: 10.1002/smj.2493   open full text
  • Is that an opportunity? An attention model of top managers' opportunity beliefs for strategic action.
    Dean A. Shepherd, Jeffery S. Mcmullen, William Ocasio.
    Strategic Management Journal. February 22, 2016
    Research summary: Exploiting opportunities is critical to a firm's competitive advantage. Not surprisingly, there has been considerable interest in the processes by which top managers allocate attention to potential opportunities. Although such investigations have largely focused on top‐down processes for allocating attention to the environment, some studies have explored bottom‐up processes. In this article, we consider both top‐down and bottom‐up processing to develop a model by which top managers form opportunity beliefs for strategic action depending on the allocation of transient and sustained attention. Specifically, this attentional model provides insights into how a top manager's attention is allocated to identify potential opportunities from environmental change and explores how different modes of attentional engagement impact the likelihood of forming beliefs about radical and incremental opportunities requiring strategic action. Managerial summary: Managers are interested in noticing and exploiting opportunities because the exploitation of an opportunity represents an important strategic action. Noticing and exploiting opportunities depends on how and where top managers allocate their attention. Managers can focus attention based on their knowledge and experience or as a result of something in the environment capturing their attention. In this paper, we consider both knowledge‐driven and environment‐driven processes for allocating attention to form opportunity beliefs. This opportunity belief arises from a two stage process. The first stage explains how a top manager identifies environmental changes as potential opportunities. The second stage explains how the top manager forms a belief that these identified environmental changes represent a radical or incremental opportunity worthy of exploitation. Copyright © 2016 John Wiley & Sons, Ltd.
    February 22, 2016   doi: 10.1002/smj.2499   open full text
  • Organizing for knowledge generation: internal knowledge networks and the contingent effect of external knowledge sourcing.
    Konstantinos Grigoriou, Frank T. Rothaermel.
    Strategic Management Journal. February 22, 2016
    Research summary: When faced with a new technological paradigm, incumbent firms can opt for internal development and/or external sourcing to obtain the necessary new knowledge. We explain how the effectiveness of external knowledge sourcing depends on the properties of internal knowledge production. We apply a social network lens to delineate interpersonal, intra‐firm knowledge networks and capture the emergence of two important firm‐level properties: the incumbent's internal potential for knowledge recombination and the level of knowledge coordination costs. We rely on firm‐level internal knowledge networks to dynamically track the emergence of these properties across 106 global pharmaceutical companies over a 25‐year time period. We find that a firm's success in developing knowledge in a new technological paradigm using external knowledge sourcing is contingent on these internal knowledge properties. Managerial summary: Incumbent firms in high‐tech industries often face competence‐destroying technological change. In their effort to adapt and develop new knowledge in a novel paradigm, incumbent firms have several corporate strategy options available to them: internal knowledge development and a wide array of external knowledge sourcing strategies, including alliances and acquisitions. In this study, we make an effort to address a critical question: How effective is external knowledge sourcing under different internal knowledge generation regimes? We find that external sourcing strategies are less effective when firms can already internally generate new knowledge or if they have high internal coordination costs. Therefore, when considering external sourcing, managers must carefully weigh the benefits of it vis‐à‐vis its commensurate costs as the benefits of external sourcing may be overstated. Copyright © 2015 John Wiley & Sons, Ltd.
    February 22, 2016   doi: 10.1002/smj.2489   open full text
  • Resource ambidexterity through alliance portfolios and firm performance.
    Ulrich Wassmer, Sali Li, Anoop Madhok.
    Strategic Management Journal. February 22, 2016
    Research summary: Partner resources can be an important alternative to internal firm resources for attaining dual and seemingly incompatible strategic objectives. We extend arguments about managing conflicting objectives typically made at the firm level to the level of a firm's alliance portfolio. Specifically, will a balance between revenue enhancement and cost reduction attained collectively through partner resources accessed via a firm's various alliances be similarly beneficial for firm performance? Additionally, how do strategic attributes of alliance portfolio configuration, specifically alliance portfolio size and partner resource scope, condition the balance‐performance relationship? Based on data from the global airline industry, we find support for the balance‐performance relationship, though such balance is less beneficial for firms in the case of access to a broader resource scope per partner. Managerial summary: Increasing revenue and reducing costs simultaneously can potentially enhance firm competitiveness. We highlight that an alliance strategy can be an important alternative to internal resources for attaining such dual strategic objectives, particularly when partner resources accessed through alliances are treated collectively as portfolios. We examine the importance of balancing product‐market extending and efficiency‐improving partner resources in the global airline industry as well as the impact of two alternate strategies for accessing resources through alliances: fewer partners with more resources per partner or more partners with fewer resources per partner. We find that resource balance at the portfolio level helps airlines improve performance. Our results also suggest that managers should be cautious of accessing too many resources through just a few partners. Copyright © 2015 John Wiley & Sons, Ltd.
    February 22, 2016   doi: 10.1002/smj.2488   open full text
  • Free‐riding in multi‐party alliances: The role of perceived alliance effectiveness and peers' collaboration in a research consortium.
    Fabio Fonti, Massimo Maoret, Robert Whitbred.
    Strategic Management Journal. February 15, 2016
    Research summary: Multi‐party alliances rely on partners' willingness to commit and pool their efforts in joint endeavors. However, partners face the dilemma of how much to commit to the alliance. We shed light on this issue by analyzing the relationship between partners' free‐riding—defined as their effort‐withholding—and their perceptions of alliance effectiveness and peers' collaboration. Specifically, we posit a U‐shaped relationship between partners' subjective evaluations of alliance effectiveness and their free‐riding. We also hypothesize a negative relation between partners' perceptions of the collaboration of peer organizations and their free‐riding. Results from a mixed‐method study—combining regression analysis of primary data on a major inter‐organizational research consortium and evidence from two experimental designs—support our hypotheses, bearing implications for the multi‐party alliances literature. Managerial summary: Free‐riding is a major concern in multi‐party alliances such as large research consortia, since the performance of these governance forms hinges on the joint contribution of multiple partners that often operate according to different logics (e.g., universities, firms, and government agencies). We show that, in such alliances, partners' perceptions have relevant implications for their willingness to contribute to the consortium's shared goals. Specifically, we find that partners free‐ride more—that is, contribute less—when they perceive the effectiveness of the overall alliance to be either very low or very high. Partners also gauge their commitment to the alliance on the perception of the effort of their peers—that is, other organizations similar to them. These findings provide managers of multi‐party alliances with additional levers to motivate partners to contribute fairly to such joint endeavor. Copyright © 2015 John Wiley & Sons, Ltd.
    February 15, 2016   doi: 10.1002/smj.2470   open full text
  • Consequences of misspecified mental models: Contrasting effects and the role of cognitive fit.
    Dirk Martignoni, Anoop Menon, Nicolaj Siggelkow.
    Strategic Management Journal. February 15, 2016
    Research summary: Mental models, reflecting interdependencies among managerial choice variables, are not always correctly specified. Mental models can be underspecified, missing interdependencies, or overspecified, containing nonexistent interdependencies. Using a simulation model, we find that under‐ and overspecification have opposite effects on exploration, and thereby, performance. The effects are also opposite, depending on whether a manager controls all choice variables. The mechanism underlying our results is a feedback loop: misspecified mental models influence managerial learning about the effectiveness of choices; this learning guides how the environment is explored, which in turn, affects which information will be generated for future learning. We explore implications of these results for strategic management and introduce the notion of “cognitive fit” between the mental model of the decision‐maker and the strategic environment. Managerial summary: Managers often rely on mental models to guide their decision‐making. These mental models, however, are often misspecified, that is, more or less complex than the situation managers are facing. Using a simulation model, we study the consequences of such misspecified mental models. We find that the performance implications of misspecified mental models crucially depend on whether the manager controls all choice variables. We identify situations in which simpler mental models are better than overly complex ones, and vice versa. Copyright © 2015 John Wiley & Sons, Ltd.
    February 15, 2016   doi: 10.1002/smj.2479   open full text
  • Subprime governance: Agency costs in vertically integrated banks and the 2008 mortgage crisis.
    Claudine Gartenberg, Lamar Pierce.
    Strategic Management Journal. February 12, 2016
    Research summary: This study uses the 2008 mortgage crisis to demonstrate how the relationship between vertical integration and performance crucially depends on corporate governance. Prior research has argued that the vertical integration of mortgage origination and securitization aligned divisional incentives and improved lending quality. We show that vertical integration improved loan performance only in those firms with strong corporate governance and that this performance‐integration relationship strongly decreases and actually reverses as governance quality decreases. We interpret these findings as suggesting that the additional control afforded by vertical integration can, in the hands of poorly monitored managers, offset gains from aligned divisional incentives. These findings support the view that corporate governance influences the strategic outcomes of a firm, in our case, by influencing the effectiveness of boundary decisions. Managerial summary: One of the unanswered questions of the 2008 mortgage crisis is why some firms produced toxic mortgages and others did not. Many have argued that vertically integrated banks—banks that both originated and securitized mortgages—had incentives to monitor themselves and thereby avoid overaggressive lending and outright fraud. Yet many of the worst lenders, such as Washington Mutual and New Century Financial, were in fact integrated. This study shows that the behavior of these firms critically depended on their corporate governance. We find that poorly monitored executives used their additional control over the integrated businesses to issue low quality loans that supported short‐term growth. Our results suggest that governance is a crucial prerequisite for financial services, particularly for firms whose managers control multiple, interrelated businesses. Copyright © 2015 John Wiley & Sons, Ltd.
    February 12, 2016   doi: 10.1002/smj.2481   open full text
  • Playing dirty or building capability? Corruption and HR training as competitive actions to threats from informal and foreign firm rivals.
    Akie Iriyama, Rajiv Kishore, Debabrata Talukdar.
    Strategic Management Journal. February 09, 2016
    Research summary: We examine why a firm takes specific competitive action in nonmarket and resource‐market spaces, particularly when it perceives threats from informal and foreign competitor groups, respectively. We address this question by combining insights from competitive rivalry, strategic groups, and nonmarket strategy literatures in an emerging economy context. Specifically, we theorize how threats from informal and foreign rival firms in an emerging market influence a firm's engagement in corruption activities and its investments in HR training, respectively. We also argue that the likelihoods of such focal firm actions against competitor group threats differ, contingent on the focal firm's market and resource profiles. Results from the empirical analyses, with survey data from the Indian IT industry, provide broad support to our hypotheses. Managerial summary: Based on a World Bank dataset on the Indian IT industry, this study finds that corruption and HR training are pursued by firms in emerging economies as mindful strategies against specific types of rivals—informal and foreign firm rivals, respectively, and are not pursued simply as culturally‐based practices. Multinational companies may need to understand that domestic firms in emerging countries will engage in corruption strategically to reduce their costs and time to market of their products/services. Therefore, multinational firms may need to devise suitable strategies other than corruption to reduce their costs and time to market if they wish to compete with firms in emerging economies for customers who don't care about ethical issues and will buy a cheaper product/service that is delivered quickly. Copyright © 2015 John Wiley & Sons, Ltd.
    February 09, 2016   doi: 10.1002/smj.2447   open full text
  • Performance deviations and acquisition premiums: The impact of CEO celebrity on managerial risk‐taking.
    Sam Y. Cho, Jonathan D. Arthurs, David M. Townsend, Douglas R. Miller, Jeffrey Q. Barden.
    Strategic Management Journal. February 09, 2016
    Research summary: This article draws on identity control theory and a study of acquisition premiums to explore how CEO celebrity status and financial performance relative to aspirations affect firm risk behavior. The study finds that celebrity CEOs tend to pay smaller premiums for target firms, but these tendencies change when prior firm performance deviates from the industry average returns, thereby leading these CEOs to pay higher premiums. The study also finds that the premiums tend to be even larger when celebrity CEOs have more recently attained celebrity status. Taken together, these findings contribute to identity control theory and CEO celebrity literatures by suggesting that celebrity status is a double‐edged sword and that the internalization of celebrity status by CEOs strongly influences the decision‐making of CEOs. Managerial summary: The purpose of this article is to examine how CEO celebrity status and financial performance relative to aspirations affect the size of acquisition premiums. The study finds that celebrity CEOs tend to pay smaller premiums for target firms. However, when celebrity CEOs' prior firm performance is either better or worse than the industry average, these CEOs pay higher premiums. This situation is exacerbated when the CEO has only recently been crowned a celebrity. In effect, these CEOs feel great pressure to match the inflated performance expectations that come with celebrity status. These findings suggest that being a celebrity is a double‐edged sword. The implication here is that CEOs who have recently been crowned a celebrity should be aware of these pressures and cope accordingly. Copyright © 2015 John Wiley & Sons, Ltd.
    February 09, 2016   doi: 10.1002/smj.2468   open full text
  • Corporate governance antecedents to shareholder activism: A zero‐inflated process.
    Maria Goranova, Rahi Abouk, Paul C. Nystrom, Ehsan S. Soofi.
    Strategic Management Journal. February 09, 2016
    Research summary: Shareholder activism has become more widespread, yet the role of corporate governance as antecedent to shareholder activism remains equivocal. We propose a new conceptual model that characterizes the stochastic of observable shareholder activism as a compound product of two latent components representing (1) shareholder activists' propensity to target a company and (2) executives' propensity to settle activists' demands privately. Our model explicitly decouples corporate governance expectations for the two latent components embedded in activism process, and thus allows us to relax assumptions of homogenous shareholder interests and constrained managerial discretion where corporate managers are expected to negotiate privately and settle only value‐creating activist demands. Bayesian analysis of zero‐inflated Poisson regression reveals that corporate governance relationships with activism vary across shareholder demands and private settlements. Managerial summary: Increasing shareholder activism has generated debates as to whether activism promotes managerial accountability and responsibility or instead encourages managerial short‐termism. Our research model allows for heterogeneous interests among a company's shareholders. We theorize and empirically investigate a broader role of corporate governance: governance mechanisms need to ensure that executives are not (1) ignoring activists' value‐increasing demands or (2) accommodating activists' value‐decreasing demands in a private, opaque manner that disenfranchises other shareholders. Our results indicate that corporate governance implications differ for visible shareholder demands in contrast with private activism. A plausible application of our model is that it provides estimates of the probability of the numbers of shareholder demands to be received by a firm and the probability of privately settling a demand. Copyright © 2015 John Wiley & Sons, Ltd.
    February 09, 2016   doi: 10.1002/smj.2472   open full text
  • Corporate diversification and the value of individual firms: A Bayesian approach.
    Tyson B. Mackey, Jay B. Barney, Jeffrey P. Dotson.
    Strategic Management Journal. February 09, 2016
    Research summary: Prior theory suggests that the performance effects of a firm's diversification strategy depend on a firm's individual resources and capabilities and the setting within which it is operating. However, prior tests of this theory have examined the average diversification‐performance relationship across all firms, instead of estimating the diversification‐performance relationship at the individual firm level. Efforts to estimate this average relationship are inconsistent with a central assumption of much of strategic management theory—that firms maximize value by choosing strategies that exploit their heterogeneous resources and individual situation. By adopting an approach that allows an evaluation of the diversification‐performance relationship for individual firms, this article shows that firms, both focused and diversified, tend to choose that diversification strategy—focus, related diversification, or unrelated diversification—that maximizes value. Managerial summary: Instead of a universal diversification discount or premium, this article shows that the effect of diversification on performance is heterogeneously distributed across firms and that firms tend to be rational in their diversification decisions. Copyright © 2015 John Wiley & Sons, Ltd.
    February 09, 2016   doi: 10.1002/smj.2480   open full text
  • Sample selection bias and Heckman models in strategic management research.
    S. Trevis Certo, John R. Busenbark, Hyun‐soo Woo, Matthew Semadeni.
    Strategic Management Journal. February 09, 2016
    Research summary: The use of Heckman models by strategy scholars to resolve sample selection bias has increased by more than 700 percent over the last decade, yet significant inconsistencies exist in how they have applied and interpreted these models. In view of these differences, we explore the drivers of sample selection bias and review how Heckman models alleviate it. We demonstrate three important findings for scholars seeking to use Heckman models: First, the independent variable of interest must be a significant predictor in the first stage of a model for sample selection bias to exist. Second, the significance of lambda alone does not indicate sample selection bias. Finally, Heckman models account for sample‐induced endogeneity, but are not effective when other sources of endogeneity are present. Managerial summary: When nonrandom samples are used to test statistical relationships, sample selection bias can lead researchers to flawed conclusions that can, in turn, negatively impact managerial decision‐making. We examine the use of Heckman models, which were designed to resolve sample selection bias, in strategic management research and highlight conditions when sample selection bias is present as well as when it is not. We also distinguish sample selection bias, a form of omitted variable (OV) bias, from more traditional OV bias, emphasizing that it is possible for models to have sample selection bias, traditional OV bias, or both. Accurately identifying the type(s) of OV bias present is essential to effectively correcting it. We close with several recommendations to improve practice surrounding the use of Heckman models. Copyright © 2015 John Wiley & Sons, Ltd.
    February 09, 2016   doi: 10.1002/smj.2475   open full text
  • The external knowledge sourcing process in multinational corporations.
    Felipe Monteiro, Julian Birkinshaw.
    Strategic Management Journal. February 09, 2016
    Research summary: We study the processes through which multinational corporations (MNCs) identify and make use of external sources of knowledge. Based on a seven‐year longitudinal study of one MNC's overseas scouting unit, we show how a simple one‐directional “channelling” process gradually gave way to three higher value‐added processes, labelled “translating,” “matchmaking,” and “transforming.” Building on these insights, we develop an integrative framework, defining the conditions under which each of the four processes is likely to transpire, and showing how the stock of social capital held by the scouting unit allows it to perform increasingly high value‐added activities over time. Implications for the MNC, external knowledge sourcing, and boundary‐spanning literatures are discussed. Managerial summary: Over the years, many multinational corporations (MNCs) have created overseas “scouting” units to tap into new ideas and opportunities in leading‐edge markets, but with mixed outcomes. In this study, we describe the development of a European telecom firm's scouting unit in Silicon Valley during the 2000s, focusing on the specific approaches used by the scouting managers to build effective connections between Silicon Valley start‐ups and the firm's business units back in Europe. We identify four distinct approaches for different types of opportunities, and we observe a clear sequencing of effort over time as the scouting managers built the necessary capabilities and credibility. Copyright © 2015 John Wiley & Sons, Ltd.
    February 09, 2016   doi: 10.1002/smj.2487   open full text
  • Mind the gap: The interplay between external and internal actions in the case of corporate social responsibility.
    Olga Hawn, Ioannis Ioannou.
    Strategic Management Journal. February 04, 2016
    Research summary: We explore the effect of the interplay between a firm's external and internal actions on market value in the context of corporate social responsibility (CSR). Specifically, drawing from the neo‐institutional theory, we distinguish between external and internal CSR actions and argue that they jointly contribute to the accumulation of intangible firm resources and are therefore associated with better market value. Importantly, though, we find that, on average, firms undertake more internal than external CSR actions, and we theorize that a wider gap between external and internal actions is negatively associated with market value. We confirm our hypotheses empirically, using the market‐value equation and a sample comprising 1,492 firms in 33 countries from 2002 to 2008. Finally, we discuss implications for future research and practice. Managerial summary: Companies often accumulate intangible assets by taking internally and externally oriented CSR actions. Contrary to popular beliefs, the data show that they undertake more internal than external ones: firms do more and communicate less. How does a potential gap (i.e., a misalignment) between internal and external CSR actions affect a firm's market value? We find that although together (the sum of) internal and external actions are positively associated with market value, a wider gap has negative implications. In other words, firms do not realize the full benefits of their internal actions when such actions are not externally communicated to key stakeholders, and to the investment community in particular. This negative association with market value is particularly salient in CSR‐intensive and the natural resources and extractives industries. Copyright © 2015 John Wiley & Sons, Ltd.
    February 04, 2016   doi: 10.1002/smj.2464   open full text
  • When is cash good or bad for firm performance?
    Palash Deb, Parthiban David, Jonathan O'Brien.
    Strategic Management Journal. February 04, 2016
    Research summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. We synthesize arguments from the behavioral theory of the firm, economic perspectives like agency theory, and the value‐creation versus value‐appropriation literatures to argue that the implications of cash for firm performance are context‐specific. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Managerial summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. While cash‐rich firms have higher performance on average, with those in the 75th percentile having a market‐to‐book value 15 percent higher than those in the 25th percentile, we find that the performance benefits of cash depend on the context. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Copyright © 2015 John Wiley & Sons, Ltd.
    February 04, 2016   doi: 10.1002/smj.2486   open full text
  • Does imitation reduce the liability of foreignness? Linking distance, isomorphism, and performance.
    Zheying Wu, Robert Salomon.
    Strategic Management Journal. February 04, 2016
    Research summary: Research demonstrates that foreign firms from institutionally distant countries imitate the practices of domestic firms (i.e., adopt an isomorphism strategy). The conjecture has been that pursuing such a strategy can help foreign firms counteract the deleterious performance consequences associated with institutional distance; yet there is scant evidence of such. This study treats isomorphism as an endogenously selected strategy influenced by institutional distance to examine its performance consequences. Using a dataset of 80 foreign banks from 25 countries operating in the United States, we find that foreign firms from institutionally distant home countries benefit initially from selecting an isomorphism strategy. However, the benefits diminish with experience. Managerial summary: Multinational companies experience great difficulty in managing institutional distance, and research suggests that one way to overcome distance‐related constraints is to imitate the strategies of local companies. Unfortunately, we do not know enough about the performance‐related consequences of engaging in such imitative behavior. This study examines whether imitating local firms improves performance for multinational companies from institutionally distant markets. We find that imitation improves a firm's performance at first; however, with experience those same strategies result in performance decrements. Managers of multinationals should therefore be careful not to get locked into imitative strategies that provide performance benefits upon entry, but that fail to provide benefits over time. Copyright © 2015 John Wiley & Sons, Ltd.
    February 04, 2016   doi: 10.1002/smj.2462   open full text
  • Competitive heterogeneity, cohorts, and persistent advantage.
    Tammy L. Madsen, Gordon Walker.
    Strategic Management Journal. January 28, 2016
    Research summary: Juxtaposing competing theories of whether superior profits endure, this article investigates differences in the rates at which firms' profit advantages persist following a significant regulatory change in the rules governing industry competition. Such a change creates two cohorts of firms, Entrants that lack experience in the industry and Incumbents that competed in the industry before the regulatory shift. The findings show that both cohorts' profit advantages persist, but at different rates: Superior performing Incumbents sustain an advantage longer than superior performing Entrants. This result is counterintuitive since Entrants are not constrained by a legacy of competing under the prior regime. Overall, the findings indicate that stages of a firm's development and of an industry's evolution are critical to understanding how long superior profits persist. Managerial summary: State and federal institutions employ regulations in an attempt to address market failures and to create a stable set of market and nonmarket relationships among relevant actors. A byproduct of this stability is decreased competition, and in turn, reduced incentives for firms to develop efficient operations. One might expect then that deregulation would fundamentally disrupt incumbent firms' abilities to develop and sustain a profit advantage. We find the reverse: Over time, some firms in the Incumbent cohort develop persistent, albeit temporary, profit advantages despite an onslaught of Entrants. Thus, while deregulation shakes out inefficient firms, it may strengthen, rather than threaten the profit trajectories of incumbent firms over time. Advantages developed by superior performing Entrants also endure, but for a shorter duration relative to Incumbents. Copyright © 2015 John Wiley & Sons, Ltd.
    January 28, 2016   doi: 10.1002/smj.2483   open full text
  • Why do some outside successions fare better than others? The role of outside CEOs' prior experience with board diversity.
    David H. Zhu, Wei Shen.
    Strategic Management Journal. January 18, 2016
    Research summary: We develop a theory to explain why new outside CEOs can better manage their relationship with the board if they previously served on boards that were more diverse than the focal board. We predict that a new outside CEO's prior experience with more diverse boards not only reduces the likelihood of post‐succession CEO turnover and director turnover, but also improves firm performance. Results from an analysis of 188 outside CEOs in a sample of Fortune 500 companies provide support for our theory. This study contributes to upper echelon theory and research by identifying outside CEOs' prior experience with board diversity as an important aspect of their background that influences a range of major organizational outcomes, including CEO turnover, director turnover, and firm performance. Managerial summary: It is challenging to be a new CEO who comes from outside of the organization. Our study examines why some new outside CEOs fare better than others. We suggest that a positive relationship with the board of directors is a key factor in a new outside CEO's success. A new outside CEO can better manage the relationship with the board if he or she has prior experience working with other demographically diverse boards. In contrast, when the focal board is more diverse than the other boards on which the new CEO previously served, the new CEO tends to struggle in managing his or her relationship with the board, experiencing a higher likelihood of turnover and delivering worse financial performance. Copyright © 2015 John Wiley & Sons, Ltd.
    January 18, 2016   doi: 10.1002/smj.2471   open full text
  • Who cooks the books in China, and does it pay? Evidence from private, high‐technology firms.
    Toby Stuart, Yanbo Wang.
    Strategic Management Journal. January 12, 2016
    Research summary: We document the extent of fraudulent reporting among 467 private Chinese technology companies. Comparing the financial statements concurrently submitted to two different state agencies, we demonstrate a systematic gap in reported profit figures in the two sets of books. We find: (1) more than half the sampled companies report incentive‐compatible, materially discrepant profit numbers to the two agencies; (2) politically connected companies are approximately 18 percent more likely to commit fraud and those with venture capital backing are 19 percent more likely to do so; and (3) it pays to cheat. We estimate that companies who “cook” their books have considerably higher odds of receiving an innovation grant. Especially given its prevalence, we conclude that fraud can be a source of performance differential for emerging market companies. Managerial summary: We document that more than half of a sample of 467 private, Chinese technology companies engage in fraudulent financial reporting. By comparing the financial statements companies concurrently submitted to two different state agencies, we demonstrate a systematic gap in reported profit figures in the two sets of books. Relative to the companies without these attributes, we find that politically connected companies are approximately 18 percent more likely to commit fraud and those with venture capital backing are 19 percent more likely to do so. Furthermore, we show that it pays to cheat. We estimate that companies who “cook” their books have considerably higher odds of receiving a government‐sponsored innovation grant. Therefore, fraud can be a source of performance differential for emerging market companies. Copyright © 2015 John Wiley & Sons, Ltd.
    January 12, 2016   doi: 10.1002/smj.2466   open full text
  • Alleviating managerial dilemmas in human‐capital‐intensive firms through incentives: Evidence from M&A legal advisors.
    Olivier Chatain, Philipp Meyer‐Doyle.
    Strategic Management Journal. January 08, 2016
    Research summary: We examine how human‐capital‐intensive firms deploy their human assets and how firm‐specific human capital interacts with incentives to influence this deployment. Our empirical context is the UK M&A legal market, where micro‐data enable us to observe the allocation of lawyers to M&A mandates under different incentive regimes. We find that law firms actively equalize the workload among their lawyers to seek efficiency gains, while “stretching” lawyers with high firm‐specific capital to a greater extent. However, lawyers with high firm‐specific capital also appear to influence the staffing process in their favor, leading to unbalanced allocations and less sharing of projects and clients. Paradoxically, law firms may adopt a seniority‐based rent‐sharing system that weakens individual incentives to mitigate the impact of incentive conflicts on resource deployment. Managerial summary: The study highlights the dilemmas when professional service firms allocate their key individuals to incoming projects, and the role that monetary incentives play in aggravating or alleviating these dilemmas. In the context of UK M&A law firms, we find that partners have a tendency to be attached to too many projects and not to share enough work, which is exacerbated when individual monetary incentives are stronger. Firms adopting a seniority based incentive system (lockstep system) are able to alleviate this effect. This implies that there is a trade‐off between rewarding personal performance versus balancing workloads and fostering collaboration among professionals. Copyright © 2015 John Wiley & Sons, Ltd.
    January 08, 2016   doi: 10.1002/smj.2473   open full text
  • The throne vs. the kingdom: Founder control and value creation in startups.
    Noam Wasserman.
    Strategic Management Journal. January 08, 2016
    Research summary: Does the degree to which founders keep control of their startups affect company value? I argue that founders face a “control dilemma” in which a startup's resource dependence drives a wedge between the startup's value and the founder's ability to retain control of decision making. I develop hypotheses about this tradeoff and test the hypotheses on a unique dataset of 6,130 American startups. I find that startups in which the founder is still in control of the board of directors and/or the CEO position are significantly less valuable than those in which the founder has given up control. On average, each additional level of founder control (i.e., controlling the board and/or the CEO position) reduces the pre‐money valuation of the startup by 17.1–22.0 percent. Managerial summary: A founder's vision and capabilities are key ingredients in the early success of a startup. During those early days, it is natural for the founder to have a powerful, central role. However, as the startup grows, founders who keep too much control of the startup and its most important decisions can harm the value of the startup. Both qualitative case studies and quantitative analyses of more than 6,000 private companies highlight that startups in which the founder has maintained control (by retaining a majority of the board of directors and/or by remaining as CEO) have significantly lower valuations than those where the founder has relinquished control. This is especially true when the startup is three years old or more. Copyright © 2015 John Wiley & Sons, Ltd.
    January 08, 2016   doi: 10.1002/smj.2478   open full text
  • Through the mud or in the boardroom: Examining activist types and their strategies in targeting firms for social change.
    Charles Eesley, Katherine A. Decelles, Michael Lenox.
    Strategic Management Journal. January 05, 2016
    Research summary: We examine the variety of activist groups and their tactics in demanding firms' social change. While extant work does not usually distinguish among activist types or their variety of tactics, we show that different activists (e.g., social movement organizations vs. religious groups and activist investors) rely on dissimilar tactics (e.g., boycotts and protests versus lawsuits and proxy votes). Further, we show how protests and boycotts drag companies “through the mud” with media attention, whereas lawsuits and proxy votes receive relatively little media attention yet may foster investor risk perceptions. This research presents a multifaceted view of activists and their tactics and suggests that this approach in examining activists and their tactics can extend what we know about how and why firms are targeted. Managerial summary: The purpose of this study was to examine how different types of activist groups behave differently when targeting firms for social change. We find that traditional activist groups rely on boycotts and protests, whereas religious groups and activist investors rely more on lawsuits and proxy votes. Additionally, we find that protests and boycotts are associated with greater media attention, whereas lawsuits and proxy votes are associated with investor perceptions of risk. Copyright © 2015 John Wiley & Sons, Ltd.
    January 05, 2016   doi: 10.1002/smj.2458   open full text
  • Shared and shared alike? Founders' prior shared experience and performance of newly founded banks.
    Yanfeng Zheng, Michael L. Devaughn, Mary Zellmer‐Bruhn.
    Strategic Management Journal. January 05, 2016
    Research summary: Pre‐entry industry experience is a central construct in the founding team literature. Research on prior shared experience (PSE) emphasizes that founding teams face challenges integrating and acting on independent experiences, so PSE should be beneficial for new venture performance. Existing studies, however, typically study PSE in blunt terms, expecting that more is better. Instrumental variable analyses of a unique sample of 344 commercial banks founded in four U.S. states between 1996 and 2006 showed that industry‐specific PSE may be more or less beneficial, depending on several founding team characteristics. Our findings provide nuance and caution to the narrative that PSE is always beneficial. Under some circumstances, firms with founding team PSE may be no better off than those without founding team PSE, suggesting more research is necessary to understand when and why founding team experience matters to new firms. Managerial summary: Pre‐entry experience of founding teams affects new firm performance, but is hard for founders to leverage separately gained experience. Knowledge moves more readily if sets of managers leave together to start a new firm. But, it may be simplistic to conclude that prior shared experience (PSE) is always good, or better than the sum of independent experiences. In a set of banks founded in four U.S. states between 1996 and 2006, we find that PSE is not necessarily a direct pathway to better bank performance. Characteristics of the PSE, such as the part of industry the former and new banks operate in, can lower its benefit. We also found that the benefits of PSE erode as the entire founding team develops shared history after startup. Our findings have implications for entrepreneurs, investors, and policy‐makers. Copyright © 2015 John Wiley & Sons, Ltd.
    January 05, 2016   doi: 10.1002/smj.2467   open full text
  • The effectiveness of contractual and trust‐based governance in strategic alliances under behavioral and environmental uncertainty.
    Rekha Krishnan, Inge Geyskens, Jan‐Benedict E. M. Steenkamp.
    Strategic Management Journal. January 05, 2016
    Research summary: We examine the interplay of behavioral and environmental uncertainty in shaping the effectiveness of two key governance mechanisms used by strategic alliances: contractual and trust‐based governance. We develop and test hypotheses, using a meta‐analytic dataset encompassing over 15,000 strategic alliances across 82 independent samples. We find that contractual governance works best under low to moderate levels of behavioral uncertainty and moderate to high levels of environmental uncertainty, while it is detrimental to alliance performance when both types of uncertainty are low or high. Trust‐based governance is most effective at high levels of behavioral uncertainty and low levels of environmental uncertainty. It suffers a large loss of usefulness at high behavioral uncertainty as environmental uncertainty increases. Managerial summary: Strategic alliances allow firms to gain greater efficiency and create value. Yet, many such alliances fail because they are not able to deal with the twin challenges posed by behavioral and environmental uncertainty. Findings from our meta‐analysis imply that under conditions of high behavioral uncertainty and low‐to‐moderate levels of environmental uncertainty, the use of trust‐based governance alongside contractual governance might enhance the latter's effectiveness. The combined effectiveness of contractual and trust‐based governance under high levels of both behavioral and environmental uncertainty is not obvious. When both behavioral and environmental uncertainty are high, contractual governance hurts alliance performance while trust‐based governance does not function at its best either. Under these conditions, it might be better for firms to turn to hierarchy or vertical integration. Copyright © 2015 John Wiley & Sons, Ltd.
    January 05, 2016   doi: 10.1002/smj.2469   open full text
  • Political hazards and firms' geographic concentration.
    Nan Jia, Kyle J. Mayer.
    Strategic Management Journal. January 05, 2016
    Research summary: We examine the relationship between the geographic concentration of a firm's sales and the firm's vulnerability to expropriation hazards. Although expanding outside the home location can initially increase a firm's exposure to government expropriation, we find that this effect reverses when a firm's sales outside its home location have reached a point at which it has sufficient resources to better influence government actions and to pose a credible threat to exit the market in which it is being targeted. We supplement this main result by identifying two moderating factors: the firm's level of political capital and the effectiveness of institutional constraints on government behavior. We find support for these hypotheses from survey data on privately owned enterprises in China. Managerial summary: This research advises firm managers that certain market activities might knock their firms' economic interests out of alignment with the government's political interests, and thus, influence the political hazards they face, particularly in emerging markets such as China, which has attracted strong interest of many firms with respect to entering the market. Here, all else being equal, the firms' geographic concentration exposes them to different levels of state expropriation—but not in a simple linear fashion as suggested by the conventional wisdom of local protectionism or that of the bargaining advantage generated by the threat of relocation: Those who are “stuck in the middle” ended up paying twice or even three times as much unauthorized levies as the purely local or the most expansive firms. Copyright © 2015 John Wiley & Sons, Ltd.
    January 05, 2016   doi: 10.1002/smj.2474   open full text
  • The disruptor's dilemma: TiVo and the U.S. television ecosystem.
    Shahzad (Shaz) Ansari, Raghu Garud, Arun Kumaraswamy.
    Strategic Management Journal. December 29, 2015
    Research summary: Firms introducing disruptive innovations into multisided ecosystems confront the disruptor's dilemma: gaining the support of the very incumbents they disrupt. Through a longitudinal study of TiVo, a company that pioneered the Digital Video Recorder, we examine how these firms may address this dilemma. Our analysis reveals how TiVo navigated coopetitive tensions by continually adjusting its strategy, its technology platform, and its relational positioning within the evolving U.S. television industry ecosystem. We theorize how (1) disruption may affect not just specific incumbents, but also the entire ecosystem; (2) coopetition is not just dyadic, but also multilateral and intertemporal, and (3) strategy is both a deliberative and emergent process involving continual adjustments, as the disruptor attempts to balance coopetitive tensions over time. Managerial summary: New entrants confront a dilemma when they introduce a disruptive innovation into an existing business ecosystem, viz., how can they gain the support of the incumbents that their innovation disrupts? Confronting this “disruptor's dilemma”, the disruptor must consider several issues: How might it pitch its innovation to attract end customers and yet reduce the threat of disruption perceived by ecosystem incumbents? How can the innovation be modified to fit into legacy systems while transforming them? Based on an in‐depth analysis of TiVo and its entrepreneurial journey, we explore the strategies disruptors can deploy to address these issues. Copyright © 2015 John Wiley & Sons, Ltd.
    December 29, 2015   doi: 10.1002/smj.2442   open full text
  • Problem‐formulation and problem‐solving in self‐organized communities: How modes of communication shape project behaviors in the free open‐source software community.
    Nicolai j. Foss, Lars Frederiksen, Francesco Rullani.
    Strategic Management Journal. December 14, 2015
    Research summary: Building on the problem‐solving perspective, we study behaviors related to projects and the communication‐based antecedents of such behaviors in the free open‐source software (FOSS) community. We examine two kinds of problem/project‐behaviors: Individuals can set up projects around the formulation of new problems or join existing projects and define and/or work on subproblems within an existing problem. The choice between these two behaviors is influenced by the mode of communication. A communication mode with little a priori structure is the best mode for communicating about new problems (i.e., formulating a problem); empirically, it is associated with project launching behaviors. In contrast, more structured communication fits subproblems better and is related to project joining behaviors. Our hypotheses derive support from data from the FOSS community. Managerial summary: We study how the way in which individuals communicate influence the project‐behaviors they engage in. We find that relatively unstructured communication is associated with the setting up new projects, while communication that is structured around an artifact is associated with joining projects. Our findings hold implications for understanding how management may influence project behaviors and problem‐solving: Firms that need to concentrate on more incremental problem‐solving efforts (e.g., because a sufficient number of attractive problems have already been defined) should create environments in which interaction is undertaken mainly via artifacts. On the other hand, if firms seek to generate new problems (e.g., new strategic opportunities), they should create environments in which open‐ended, verbal conversation is relatively more important than artifact‐based communication. Copyright © 2015 John Wiley & Sons, Ltd.
    December 14, 2015   doi: 10.1002/smj.2439   open full text
  • The relevance of political affinity for the initial acquisition premium in cross‐border acquisitions.
    Olivier Bertrand, Marie‐Ann Betschinger, Alexander Settles.
    Strategic Management Journal. December 01, 2015
    Research summary: In the context of economic nationalism, we investigate the relevance of political affinity between countries to the initial acquisition premium offered in cross‐border acquisitions. Political affinity is defined as the similarity of national interests in global affairs. We argue that political affinity affects how foreign acquirers anticipate their bargaining position in their negotiations with domestic target firms. With decreasing political affinity, the host government becomes increasingly likely to intervene against foreign firms in an acquisition deal. Consequently, foreign acquirers need to provide a more lucrative initial offer to dissuade target firms from leveraging government intervention to oppose the acquisition. Our prediction is supported by strong evidence that political affinity, as revealed by UN general assembly voting patterns, leads to lower initial acquisition premiums. Managerial summary: Media reports suggest that politics plays an important role in international business transactions. However, we still know very little about how bilateral political relations affect corporate decision‐making. In this article, we analyze the influence of the quality of bilateral political relations on the bidding behavior of foreign acquirers in cross‐border acquisitions. We argue that the host government is more likely to intervene against the foreign acquirer during deal negotiations if the quality of bilateral political relations is poor. A lower political affinity between countries therefore decreases the bargaining power of the acquirer and pushes up the initial bid premium the acquirer has to offer to the local target. Our empirical results confirm our argument. Copyright © 2015 John Wiley & Sons, Ltd.
    December 01, 2015   doi: 10.1002/smj.2438   open full text
  • Toward an integrated theory of the firm: The interplay between internal organization and vertical integration.
    Francisco Brahm, Jorge Tarziján.
    Strategic Management Journal. November 17, 2015
    Research summary: Two central issues in strategic management are the determination of a firm's internal delegation and its vertical boundaries. Despite the importance of these issues, there is scant analysis concerning their interaction. Using a comprehensive database of the construction industry, we show that vertical integration positively influences the centralization decision and that the main mechanism driving this relationship is an improvement in the hierarchically coordinated adaptation of firm activities when complexity and uncertainty are high. We also observe that centralization is negatively related to the extent of relational contracts between principals and agents, and positively related to an exogenous increase in the cost of employee layoffs. Our results suggest that managers cannot consider firm boundaries and internal organization to be independent decisions. Managerial summary: We ask whether a firm's decision about vertically integrating or outsourcing its activities affects the choice of centralizing or delegating its internal decision‐making process. Our statistical analysis shows that firms with more vertical integration tend to centralize the decision‐making process and that firms that outsource more tend to decentralize more. Why? Vertical integration enables the use of centralized authority to coordinate activities that interact intensively. Accordingly, we found that the positive influence of vertical integration on centralization is especially significant in more complex and uncertain environments, when the need for coordination is higher. Thus, our results suggest that managers should choose vertical integration considering its effect on internal decision‐making processes, particularly when coordination is important. Copyright © 2015 John Wiley & Sons, Ltd.
    November 17, 2015   doi: 10.1002/smj.2446   open full text
  • Going short‐term or long‐term? CEO stock options and temporal orientation in the presence of slack.
    Geoffrey P. Martin, Robert M. Wiseman, Luis R. Gomez‐Mejia.
    Strategic Management Journal. November 17, 2015
    Research summary: We draw on behavioral agency theory to explain how decision heuristics associated with CEO stock options interact with firm slack to shape the CEO's preference for short‐ or long‐term strategies (temporal orientation). Our findings suggest CEO current option wealth substitutes for the influence of slack resources in encouraging a long‐term orientation, while prospective option wealth enhances the positive effect of slack on temporal orientation. Our theory offers explanations for non‐findings in previous analysis of the relationship between CEO equity based pay and temporal orientation and provides the insights that CEO incentives created by stock options (1) enhance the effect of available slack upon temporal orientation and (2) can both incentivize and de‐incentivize destructive short‐termism, depending upon the values of current and prospective option wealth. Managerial summary: We explore how compensation design can play a role in affecting the CEO's preference for short‐ or long‐term strategic projects. When the CEOs have accumulated option wealth, they are more likely to invest in the long term. Yet when they have a large number of recently granted options with the potential to generate significant wealth in the event of successful risk taking, the CEO is more likely to prefer the short term in order to achieve personal wealth gains more quickly. The more liquid assets the firm holds, the weaker both of the aforementioned effects. An implication for boards is that they should anticipate CEO short‐termism if the CEO has been granted new options, underlining the potential negative consequences of option compensation. Copyright © 2015 John Wiley & Sons, Ltd.
    November 17, 2015   doi: 10.1002/smj.2445   open full text
  • That special someone: When the board views its chair as a resource.
    Ryan Krause, Matthew Semadeni, Michael C. Withers.
    Strategic Management Journal. November 17, 2015
    Research summary: Many boards view their chairs as valuable resources. We predict that whether a board adopts such a view depends on the board chair's human and social capital. Data from S&P 500 firms suggest that while a board chair's human capital increases the probability that the board views him or her as a resource, social capital has no overall effect. In a post‐hoc investigation, however, we find the board chair's independence to be an important boundary condition for the effect of social capital. With this exploratory research, we aim to spur research devoted specifically to board chairs. Such research will become increasingly important over time as firms continue to separate their CEO and board chair positions. Managerial summary: The purpose of this research was to determine the factors that lead a board of directors to view its chair as a valuable resource. We expected that board chairs with high human and social capital would be more likely to be viewed as a resource by their colleagues. Surprisingly, only human capital exhibited such an effect overall. Social capital increases the likelihood a chair is viewed as a resource when the chair is independent, but actually decreases the likelihood a chair is viewed as a resource when the chair is either the current or former CEO. These results suggest that boards generally value human capital in their chairs, but view social capital through a somewhat more complex lens. We explore the possible implications of these findings in the article. Copyright © 2015 John Wiley & Sons, Ltd.
    November 17, 2015   doi: 10.1002/smj.2444   open full text
  • Increase in takeover protection and firm knowledge accumulation strategy.
    Heli Wang, Shan Zhao, Jinyu He.
    Strategic Management Journal. November 17, 2015
    Research summary: We argue that the extent to which a firm faces takeover threats affects its knowledge structure. In particular, takeover threats may lead to managers' reluctance to adopt a strategy toward firm‐specific knowledge accumulation because implementing this strategy requires them to acquire specialized skills, which are at risk under takeover threats. Conversely, takeover protection leads to an increase in firm‐specific knowledge. Further, the relationship between takeover protection and firm‐specific knowledge is positively moderated by managerial ownership, which helps align managerial interests with those of shareholders. But the relationship is negatively moderated by managerial tenure, as long‐tenured managers have already committed to their firms. Using a differences‐in‐differences method with Delaware antitakeover rulings in the mid‐1990s as an exogenous shock, we found results supporting these arguments. Managerial summary: We examined how changes in the Delaware antitakeover rulings in mid‐1990s affected the knowledge structure of firms incorporated in Delaware. We reasoned that with a greater level of takeover protection, top managers of those firms incorporated in Delaware felt higher job security, thus providing them stronger incentives to make strategic decisions toward the development of firm‐specific knowledge and to make corresponding human capital investments in specialized skills. Empirically, firms incorporated in Delaware were found to have an increase in the level of firm‐specific knowledge in their knowledge structure after the mid‐1990s. Furthermore, our analysis suggests that the role of takeover protection on top manager incentives is particularly salient when the managers are awarded with more company shares and when the managers have shorter organizational tenure. Copyright © 2015 John Wiley & Sons, Ltd.
    November 17, 2015   doi: 10.1002/smj.2443   open full text
  • Married to the firm? A large‐scale investigation of the social context of ownership.
    Sharon Belenzon, Andrea Patacconi, Rebecca Zarutskie.
    Strategic Management Journal. November 17, 2015
    Research summary: Using a large sample of private firms across Europe, we examine how the social context of owners affects firm strategy and performance. Drawing on embeddedness theory and the institutional logics perspective, we argue that embeddedness in a family, in particular the nuclear family, can strengthen identification and commitment to the firm, but can also induce owners to behave more conservatively. Consistent with this argument, we find that family‐owned firms have higher profit margins, returns on assets, and survival rates compared to single‐owner or unrelated‐owners' firms, but also invest and grow more slowly, hold greater reserves of cash, and rely less on external debt. These differences are most pronounced when the two largest shareholders are married. Our results highlight the key role of marital ties in explaining differences in behavior and performance among firms. Managerial summary: Despite the prevalence of the married‐couple ownership structure in firms, little research has been dedicated to understanding how these firms are managed and perform. We examine the behavior and performance of firms owned by married couples in a large panel of closely held Western European firms. We find that married‐owner family firms are managed more conservatively relative to firms with unrelated owners and even to other family‐owned firms. In particular, married‐owner family firms invest and grow more slowly and rely less on external finance. However, they also exhibit greater performance stability and higher profitability. Our findings suggest that social relationships among owners have a large impact on firm strategy and performance, and highlight some potential trade‐offs to performance when married couples control firms. Copyright © 2015 John Wiley & Sons, Ltd.
    November 17, 2015   doi: 10.1002/smj.2441   open full text
  • Mental representation and the discovery of new strategies.
    Felipe A. Csaszar, Daniel A. Levinthal.
    Strategic Management Journal. November 17, 2015
    Research summary: Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over possible representations and over policy choices of a strategy “landscape.” We analyze when it is preferable to emphasize searching for the best policies rather than the best mental representation, and vice versa. We show that, in the long run, a balance between the two search modes not only results in better expected performance, but also reduces the variation in performance. Additionally, the article describes conditions under which increased accuracy of mental representations can actually worsen firm performance. Managerial summary: Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect the quality of strategies managers can discover. We analyze a computer simulation of how managers use mental representations to search for strategies. This sheds light on how managers should deal with the trade‐off between searching for policies and searching for representations; that is, whether managers should think creatively about how to represent a strategy problem or whether they should just stick to the current problem understanding, and try to find ways to improve performance as suggested by the current representation. We provide insight regarding the balance between the two search modes and describe conditions under which increasingly accurate mental representations can worsen firm performance. Copyright © 2015 John Wiley & Sons, Ltd.
    November 17, 2015   doi: 10.1002/smj.2440   open full text
  • The implementation imperative: Why one should implement even imperfect strategies perfectly.
    Eucman Lee, Phanish Puranam.
    Strategic Management Journal. October 07, 2015
    Research summary: We propose a theory that explains why the relentless pursuit of perfect implementation of strategy may be useful even in a world in which the strategies being implemented are far from optimal. We formulate a computational model in which an organization's strategy adapts based on performance feedback. However, the distinctive feature of our approach is that we abandon the “organization as a unitary actor” assumption, and model a separation of beliefs and actions. The central insight is that, given this separation, precise implementation has benefits beyond the well‐known effect of enabling exploitation of good strategies. It enables the discovery of better strategies by allowing more effective learning from feedback on the value of current strategies. Managerial summary: Given the reality that the strategies coming from the C‐suite are seldom perfect, is it sensible for managers to place such a heavy emphasis on implementing them precisely? In this paper we develop a theory that explains why the answer may be “yes”. In most organizations, the formulators and implementors of strategy are distinct. Imprecise implementation makes it difficult for the formulators to learn the value of their strategies, as neither success nor failure necessarily indicates something about the value of the strategy itself, when implementation is imprecise. Copyright © 2015 John Wiley & Sons, Ltd.
    October 07, 2015   doi: 10.1002/smj.2414   open full text
  • On the relation between multimarket contact and service quality: Mutual forbearance or network coordination?
    Peran van Reeven, Enrico Pennings.
    Strategic Management Journal. October 01, 2015
    Research summary: We reconsider the relationship between multimarket contact and product quality in the airline industry by arguing that multimarket contact has both a negative mutual forbearance effect on quality and a positive network coordination effect on quality. Multimarket contact increases the frequency of contact between firms, and this anticipated future interaction promotes cooperation. In network industries, especially small firms may want to cooperate in order to increase the attractiveness of the composite product. By using size as a moderating variable, we indeed find a consistent positive effect of multimarket contact on product quality for small airlines. We show that this effect can be attributed to network coordination and that this effect generally dominates the negative mutual forbearance effect in a recent period. Managerial summary: Firms with sales in multiple geographical markets likely encounter each other with mutual respect (i.e., live and let live) because aggressive behavior in one market may lead to retaliatory responses in other markets. Such responses weaken competitive pressures on price and quality. Insofar these firms sell complementary products, they may however also coordinate and improve their joint product offering, resulting in better quality for the consumer. This paper shows that this positive effect of cooperation may dominate the negative competition‐reducing effect, depending on the size distribution of firms. The reason is that small or nondominant firms have a stronger incentive to produce compatible products than large or dominant firms with already a strong position in the (global) market. Copyright © 2015 John Wiley & Sons, Ltd.
    October 01, 2015   doi: 10.1002/smj.2435   open full text
  • Agency, structure, and the dominance of OEMs: Change and stability in the automotive sector.
    Michael G. Jacobides, John Paul MacDuffie, C. Jennifer Tae.
    Strategic Management Journal. October 01, 2015
    Research summary: This article reviews structural change in the automotive sector from 1997 to 2007. We find that, following internal framing contests, Original Equipment Manufacturers (OEMs) led efforts to change their sector's architecture, starting from both strong and weak competitive positions and working with suppliers to advocate a new vision based on modularity and outsourcing. As the risks and costs of this vision became apparent, OEMs were able to reverse course and reaffirm their hierarchical control on the sector, taking advantage of structural features that weren't salient ex ante. We consider why certain OEMs initiated this status‐quo challenging change, and identify how sector structure mediated their (and suppliers') efforts to implement it. We document the complex change process, driven by agency, structure, and heterogeneity in firms' understanding of their sector's architecture. Managerial summary: We study the “industry architecture” (i.e., division of labor and profit) of the automotive sector. During the late 1990s, Original Equipment Manufacturers (OEMs) embraced a new vision, based on “Modularity + Outsourcing,” inspired by an analogy with Personal Computers (PCs). This seems puzzling since such a change was hard to implement and could have led to OEMs relinquishing strategic control of the sector. The misstep was caused by internal framing contests and the agendas and influence of suppliers, consultants, and academics. We also consider why OEMs were able to partially reverse these changes, and document the role of structural features that let them control their sector and retain value: managing the customer experience, acting as guarantors of quality, and preserving hierarchical supply chains in which they functioned as system integrators. Copyright © 2015 John Wiley & Sons, Ltd.
    October 01, 2015   doi: 10.1002/smj.2426   open full text
  • Near and dear? The role of location in CSR engagement.
    Bryan W. Husted, Dima Jamali, Walid Saffar.
    Strategic Management Journal. October 01, 2015
    Research summary: Building on economic geography and institutional theory, we develop and test theory relating geographic variables to the strength of corporate social responsibility (CSR) engagement and the cost of equity capital. For a large sample of U.S. firms over the period 1998–2009, we find strong and robust evidence that firms located in areas characterized by high levels of local CSR density score higher in CSR engagement. In addition, firms located close to major cities and financial centers exhibit higher CSR engagement compared to firms located in more remote areas. Moreover, the effect of CSR engagement on reducing equity financing costs is even greater for firms in high CSR density areas than for firms in low CSR density areas. Managerial summary: Does the location of CSR engagement by firms affect the strength of CSR engagement by their neighbors? Does the geography of engagement have an impact on financial performance? Our findings show that a firm's CSR engagement increases in areas where there is dense CSR engagement and when it is located near large cities. In these areas, norms, values, and knowledge related to CSR are transmitted to firms through face‐to‐face meetings and frequent social interactions with groups such as peers, labor unions, news media, universities, and community organizations, which tend to be concentrated in large cities. Our findings further highlight that CSR engagement reduces equity financing costs for firms in areas where CSR is widely practiced. Copyright © 2015 John Wiley & Sons, Ltd.
    October 01, 2015   doi: 10.1002/smj.2437   open full text
  • Pipes, pools, and filters: How collaboration networks affect innovative performance.
    Harpreet Singh, David Kryscynski, Xinxin Li, Ram Gopal.
    Strategic Management Journal. October 01, 2015
    Research summary: Innovation requires inventors to have both new knowledge and the ability to combine and configure knowledge (i.e., combinatory knowledge), and such knowledge may flow through networks. We argue that both combinatory knowledge and new knowledge are accessed through collaboration networks, but that inventors' abilities to access such knowledge depends on its location in the network. Combinatory knowledge transfers from direct contacts, but not easily from indirect contacts. In contrast, new knowledge transfers from both direct and indirect contacts, but is far more likely to be new and useful when it comes from indirect contacts. Exploring knowledge flows in 69,476 patents and 89,930 unique inventors reveals evidence that combinatory knowledge from direct contacts and new knowledge from indirect contacts significantly affects innovative performance. Managerial summary: Inventors often combine ideas to create innovations. To do this, they need ideas to combine and they need the ability to combine those ideas. Inventors can get ideas to combine as well as the ability to combine ideas through prior co‐workers. Prior co‐workers can share ideas that may be relevant for the inventor's project and can tell the inventor about other things that other people are working on, especially people the inventor may not know. This can help inventors easily learn about ideas from friends‐of‐friends. The ability to combine ideas, however, is much harder to pass on. Prior co‐workers must carefully work with the inventor to teach him or her the complex processes of combining ideas. This means that it is very hard to learn how to combine knowledge from a friend‐of‐a‐friend, but it may be possible to learn from prior co‐workers. We explore this phenomenon in the social relationships of software inventors. Copyright © 2015 John Wiley & Sons, Ltd.
    October 01, 2015   doi: 10.1002/smj.2419   open full text
  • Bribery and investment: Firm‐level evidence from Africa and Latin America.
    Addis G. Birhanu, Alfonso Gambardella, Giovanni Valentini.
    Strategic Management Journal. September 23, 2015
    Research summary: Using a unique database that measures firm‐level bribery in Africa and Latin America, we corroborate extant results in the literature that paying bribes deters firm investments in fixed assets. Our contribution is to explore four mechanisms. By adopting a reverse causality approach (Gelman and Imbens, 2013), we find evidence consistent with one of them: short‐term oriented firms prefer to bribe rather than invest in fixed assets, while the opposite is true for firms with a long‐term orientation. We rule out that bribe payments drain financial resources for investment, that firms that invest do not bribe because fixed assets make them less flexible and more vulnerable to future bribes, and that less efficient firms bribe rather than invest. Managerial summary: We ask whether, along with ethical issues, bribing affects the behavior and performance of firms in Africa and Latin America. Our statistical analysis shows that bribe payments do not reduce the short‐term performance of firms, but frustrate investments in fixed assets, which is the foundation of firms' long‐term growth. It is like seeking a job via nepotism or education. Nepotism makes it likely to find a job in the short term. However, the solid skills generated by education raise the odds of finding better jobs in the future. We rule out some common explanations for the trade‐off between bribing and investment (e.g., bribes drain resources to invest or that less efficient firms bribe and do not invest). Our analysis suggests that firms with short‐term orientations are more likely to bribe and firms with long‐term orientation are more likely to invest. Copyright © 2015 John Wiley & Sons, Ltd.
    September 23, 2015   doi: 10.1002/smj.2431   open full text
  • Investor perceptions of CEO successor selection in the wake of integrity and competence failures: A policy capturing study.
    Brian L. Connelly, David J. Ketchen, K. Ashley Gangloff, Christopher L. Shook.
    Strategic Management Journal. September 21, 2015
    Research summary: Drawing on theory about signaling, sensemaking, and the romance of leadership, we extend inquiry on investors' perceptions of CEO succession following misconduct. Whereas past studies have treated misconduct monolithically, we examine failures of integrity and competence separately. Using a policy capturing methodology that isolates investors' decision making from potential confounds, we find that, following an integrity failure, investors perceive outside and interim successors positively but inside successors negatively. Following a competence failure, investors perceive outside successors positively but are ambivalent toward inside and interim successors. Our findings indicate that whether an act of misconduct was an integrity failure or a competence failure, and what type of successor the firm chooses, are important considerations when using CEO succession as a means to restore investor confidence. Managerial summary: Business headlines regularly feature episodes of organizational misconduct, such as product safety problems, environmental violations, employee mistreatment, and securities lawsuits, and their aftermath. In such scenarios, shareholders demand answers from the people at the top, even if those people were not directly responsible for the problem. As a result, companies often fire the CEO as a means to restore investor confidence. Does this work? It depends on the type of misconduct and who is the CEO's successor. Following a competence failure, investors welcome the appointment of an outsider, but they are indifferent to inside and interim successors. Following an integrity failure, shareholders greet outside and interim CEO successors favorably while frowning on the promotion of insiders. Copyright © 2015 John Wiley & Sons, Ltd.
    September 21, 2015   doi: 10.1002/smj.2430   open full text
  • Stepping in and stepping out: Strategic alliance partner reconfiguration and the unplanned termination of complex projects.
    Rene M. Bakker.
    Strategic Management Journal. September 21, 2015
    Research summary: I add to work that emphasizes the stability of strategic alliances by considering the consequences of alliance partner reconfiguration. I offer two contrasting perspectives: (1) alliance partner reconfiguration leads to disruption, hence increases the risk of subsequent project termination; (2) partner reconfiguration leads to adaptation, hence decreases this risk. Data on 1,025 interfirm Australian mining alliances (2002–2011) shows that on average alliance partner reconfiguration increases the risk of project termination. For firm exit from an alliance, the effect is contingent on a firm's resource base, but not for firm entry. Surprisingly, I do not find that alliance partner reconfiguration is beneficial in a dynamic environment. I discuss the implications of these findings for the literature on strategic alliance dynamics and that on strategic alliance outcomes. Managerial summary: This paper studies what happens when over time strategic alliances change their original membership. The research shows that both entry in and exit from an alliance increase the risk of project termination. Hence, weathering difficult times and managing conflict by keeping teams stable should be a prime directive if project survival is the alliance partners' overriding concern. In addition, I find that the exit of a firm with a comparatively large resource base increases the hazard of termination more than if the departing firm has a relatively small resource base. Therefore, one cannot underestimate the importance of trying to keep on board those alliance partners who bring a critical resource to the table. Copyright © 2015 John Wiley & Sons, Ltd.
    September 21, 2015   doi: 10.1002/smj.2429   open full text
  • Monitoring global supply chains.
    Jodi L. Short, Michael W. Toffel, Andrea R. Hugill.
    Strategic Management Journal. September 21, 2015
    Research summary: Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers' conduct. But little is known about what influences auditors' ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains. Managerial summary: Firms reliant on supply chains to manufacture their goods risk reputational harm if the working conditions in those factories are revealed to be dangerous, illegal, or otherwise problematic. While firms are increasingly relying on private‐sector “social auditors” to assess factory conditions, little has been known about the accuracy of those assessments. We analyzed nearly 17,000 code‐of‐conduct audits conducted at nearly 6,000 suppliers around the world. We found that audits yield fewer violations when the audit team has been at that particular supplier before, when audit teams are less experienced or less trained, when audit teams are all male, and when the audits were paid for by the supplier instead of by the buyer. We describe implications for firms relying on social auditors and for auditing firms. Copyright © 2015 John Wiley & Sons, Ltd.
    September 21, 2015   doi: 10.1002/smj.2417   open full text
  • Learning to collaborate through collaboration: How allying with expert firms influences collaborative innovation within novice firms.
    Michael Howard, H. Kevin Steensma, Marjorie Lyles, Charles Dhanaraj.
    Strategic Management Journal. September 16, 2015
    Research summary: Strategic alliances have been recognized as a means for firms to learn their partners' proprietary knowledge; such alliances are also valuable opportunities for partner firms to learn tacit organizational routines from their counterparts. We consider how relatively novice technology firms can learn intraorganizational collaborative routines from more experienced alliance partners and then deploy them independently for their own innovative pursuits. We examine the alliance relationships between Eli Lilly & Co. (Lilly), a recognized expert in collaborative innovation, and 55 small biotech partner firms. Using three levels of analysis (firm, patent, and inventor dyad), we find that greater social interaction between the partner firm and Lilly subsequently increases internal collaboration among the partner firm's inventors. Managerial summary: Can collaborating externally advance internal collaboration? Yes. Our research found that collaboration among scientists at small, early‐stage biotechnology firms significantly increased after these firms formed highly interactive R&D alliances with a large pharmaceutical company known for its expertise in such collaboration. It is well known that alliances help new firms learn specific new technologies and commercialize innovations. Our study broadens the scope of potential benefits of alliances. New firms can also learn collaboration techniques, deploying them internally to enhance their own abilities in collaborative innovation. Managers should take this additional benefit into consideration in developing their alliance strategies. Pursuing alliance partners with expertise in collaboration and keeping a high level of mutual interactions with partner firm personnel should be important considerations to extract this value. Copyright © 2015 John Wiley & Sons, Ltd.
    September 16, 2015   doi: 10.1002/smj.2424   open full text
  • Managerial compensation and corporate spinoffs.
    Emilie R. Feldman.
    Strategic Management Journal. September 16, 2015
    Research summary: This article investigates how corporate spinoffs affect managerial compensation. These deals are found to improve the alignment of spinoff firm managers' incentive compensation with stock market performance, especially among spinoff firm managers that used to be divisional managers of the spun‐off subsidiary, and particularly when the spun‐off subsidiary performs better than or is unrelated to its parent firm's remaining businesses. By contrast, incentive alignment does not improve for the parent firm managers running the divesting companies. This finding appears to be driven by a significant post‐spinoff increase in these managers' incentive compensation, the magnitude of which is inversely related to governance quality in their firms. Together, these results elucidate how spinoffs influence managerial compensation in diversified firms and the companies they divest. Managerial summary: This article explores how spinoffs affect incentive alignment: the correlation between incentive compensation and stock market performance. The incentive alignment of spinoff firm managers improves following these deals. These gains are the largest when spinoff firm managers used to be divisional managers of the spun‐off subsidiary and when the spun‐off subsidiary performs better than or is unrelated to the other businesses in the parent firm. By contrast, incentive alignment does not improve for parent firm managers. Instead, the level of these managers' incentive compensation rises significantly post‐spinoff, and the magnitude of this increase is inversely related to governance quality in these firms. Together, these results shed light on the ways in which spinoffs influence managerial compensation in diversified firms and in the companies they divest. Copyright © 2015 John Wiley & Sons, Ltd.
    September 16, 2015   doi: 10.1002/smj.2434   open full text
  • Heavy lies the crown? How job anxiety affects top executive decision making in gain and loss contexts.
    Michael J. Mannor, Adam J. Wowak, Viva Ona Bartkus, Luis R. Gomez‐Mejia.
    Strategic Management Journal. September 16, 2015
    Research summary: Despite abundant anecdotal evidence that many top executives experience anxiety in their jobs, the upper echelons literature has remained largely silent on the organizational implications of executive job anxiety. In this study, we theorize that job anxiety will cause executives to (1) create a social buffer against threats by surrounding themselves with supportive decision‐making teams, and (2) pursue lower‐risk firm strategies. We further argue that these effects will vary depending upon whether strategic decisions occur in gain versus loss contexts. We test our ideas using a novel multisource, multimethod approach that includes data from 84 top executives of large organizations, their decision‐making teams, their friends and families, and archival sources. Results from an analysis of 154 major strategic decisions provide general support for our theory. Managerial summary: Although many top executives experience anxiety in their jobs, some struggle more with anxiety than others. Our paper is the first to focus on how job anxiety affects executives' decisions. We analyze 154 major strategic decisions made by 84 top executives of large organizations in a range of industries, collecting data from personal interviews with executives and surveys of their decision‐making teams, spouses, and friends. We find that anxious executives take fewer strategic risks, especially when things are going well. We further argue that anxious executives focus more on “buffering” themselves from threats, and find that they surround themselves with close supporters when times are tough. Our results demonstrate a pattern through which anxiety causes top executives to focus more heavily on avoiding potential threats. Copyright © 2015 John Wiley & Sons, Ltd.
    September 16, 2015   doi: 10.1002/smj.2425   open full text
  • Adaptation and inertia in dynamic environments.
    Nils Stieglitz, Thorbjørn Knudsen, Markus C. Becker.
    Strategic Management Journal. September 13, 2015
    Research summary: We address conflicting claims and mixed empirical findings about adaptation as a response to increased environmental dynamism. We disentangle distinct dimensions of environmental dynamism—the direction, magnitude, and frequency of change—and identify how selection shapes adaptive responses to these dimensions. Our results show how frequent directional changes undermine the value of exploration and decisively shift performance advantages to inert organizations that restrict exploration. In contrast, increased environmental variance rewards exploration. Our results also show that, in dynamic environments, the best‐performing organizations are generally more inert than less successful organizations. Managerial summary: Our research helps managers to understand under what business conditions investments into exploration and strategic flexibility are more likely to pay off. Dynamic business environments characterized by persistent trends and by large, infrequently occurring structural shocks reward strategic pursuit of temporary advantage. Thus, exploration and strategic flexibility are preferred strategies. In contrast, the challenge in frequently changing environments with fleeting opportunities is to identify and to focus on strategic actions whose payoffs on average are high, independent of environmental volatility. Low levels of exploration and long‐term strategic focus are preferred strategies in these circumstances. Copyright © 2015 John Wiley & Sons, Ltd.
    September 13, 2015   doi: 10.1002/smj.2433   open full text
  • Strategic planning as a complex and enabling managerial tool.
    Richard J. Arend, Y. Lisa Zhao, Michael Song, Subin Im.
    Strategic Management Journal. September 13, 2015
    Research summary: The role of the strategic planning process in the ongoing generation of innovative knowledge is vital to the survival and growth of a firm, especially when technologies and market conditions are rapidly changing. We analyze data from a survey of firms in high‐technology industries to determine whether it is possible to break the commonly experienced trade‐off between strategic planning's positive influence on firm profitability and its negative influence on firm innovation. We draw on Adler and Borys's (1996) conceptualization of bureaucratic process types to identify several firm characteristics that have the potential to affect whether employees perceive strategic planning as enabling to their creative endeavors. We find that contingent effects between strategic planning and the identified firm characteristics exist that can break the trade‐off. Managerial summary: A tension exits in the literature about whether strategic planning hurts or helps innovative activity. Our analysis of data from 227 business units in high‐technology industries indicates that strategic planning is a complex process that can be perceived by employees as enabling or coercive. Our results confirm that strategic planning negatively affects innovative activity but positively affects profitability for average firms. We find, however, controllable firm characteristics—risk‐taking and knowledge‐based reward systems—affect the trade‐off. Given the higher levels of risk‐taking and knowledge‐based reward systems, firms can use strategic planning to achieve both high returns on investment and a high level of innovative activity. Copyright © 2015 John Wiley & Sons, Ltd.
    September 13, 2015   doi: 10.1002/smj.2420   open full text
  • Independent directors' dissent on boards: Evidence from listed companies in China.
    Juan Ma, Tarun Khanna.
    Strategic Management Journal. September 13, 2015
    Research summary: Although opinion conformity is believed to be commonly used by corporate elites to invoke reciprocity, it is hard to study in the context of corporate boards since boards are typically “black boxes.” Focusing on publicly traded companies in China, where disclosure of dissent is mandated, we show that dissent is associated with a breakdown of the social exchange relationship within boards. Specifically, dissent is more likely to occur when the board chair who appointed the independent director has left the board, or when the board “game” is reaching its last round, defined as a 60‐day window before departure of the board chair or the director herself. Our findings lend considerable support to conceptualization of boards as a social exchange device. Managerial summary: With a novel dataset from China we ask the question of whether the social norm of reciprocity compromises independent directors' decisions. Our results lend considerable support to the hypothesis that independent directors would generally defer to top management as they feel indebted for being offered a director position and in exchange independent directors provide support. We identified two instances in which independent directors are more likely to dissent due to a breakdown of social exchange relationships: (1) when the board chair who appointed the independent director has left the board, and (2) when the board “game” was reaching its last round, that is, either the board chair or the director herself is leaving the board. © 2015 The Authors. Strategic Management Journal published by John Wiley & Sons, Ltd.
    September 13, 2015   doi: 10.1002/smj.2421   open full text
  • The double‐edged effect of knowledge acquisition: How contracts safeguard pre‐existing resources.
    Giorgio Zanarone, Desmond (Ho‐Fu) Lo, Tammy L. Madsen.
    Strategic Management Journal. September 10, 2015
    Research summary: Acquiring knowledge on a partner's pre‐existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer‐supplier relationship. We show that, when the buyer's pre‐existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non‐renegotiable closed‐price contract prevents such overinvestment and reduces the supplier's ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed‐price contracts, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary: This study yields new insights regarding the use of contract design in protecting pre‐existing, nonrelationship specific assets in buyer‐supplier arrangements. Anecdotal examples illustrate the “dark side” of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre‐existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed‐price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre‐existing resources. As such, when a buyer's pre‐existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non‐renegotiable closed‐price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts. Copyright © 2015 John Wiley & Sons, Ltd.
    September 10, 2015   doi: 10.1002/smj.2432   open full text
  • Revisiting the firm, industry, and country effects on profitability under recessionary and expansion periods: A multilevel analysis.
    Vassiliki Bamiatzi, Konstantinos Bozos, S. Tamer Cavusgil, G. Tomas M. Hult.
    Strategic Management Journal. September 10, 2015
    Research summary: Despite voluminous past research, the relevance of firm, industry, and country effects on profitability, particularly under adverse contexts, is still unclear. We reconcile institutional theory with the resource‐based view and industrial organization economics to investigate the effects of economic adversity, such as the 2008 global economic crisis. Using a three‐level random coefficient model, we examine 15,008 firms across 10 emerging and 10 developed countries for the 2005–2011 period. We find that firm effects become stronger under adversity, whereas industry effects become weaker, as well as country main and interaction effects, particularly among the emerging economies. These findings confirm our assumptions that the firm's own fate is, to a great extent, self‐determined; a reality that is even more pronounced during periods of extreme economic hardship. Managerial summary: In this research, we examine how generalized economic adversity affects the balance across the firm‐, industry‐, and country‐specific factors determining firm profitability. We specifically examine 15,008 firms from 10 emerging and 10 developed countries during the 2005–2011 period to investigate the effects of the 2008 global economic crisis on firm performance. We find that in such adverse conditions, the role of the industry and the country are reduced and the firm's own resources and capabilities become more pertinent for firm performance. This phenomenon is more pronounced across emerging markets. We conclude that the firm's own fate is, to a great extent, self‐determined, a reality that is markedly more evident during periods of extreme economic hardship. Copyright © 2015 John Wiley & Sons, Ltd.
    September 10, 2015   doi: 10.1002/smj.2422   open full text
  • Reassessing board member allegiance: CEO replacement following financial misconduct.
    David Gomulya, Warren Boeker.
    Strategic Management Journal. September 06, 2015
    Research summary: We examine how board members' reactions following financial misconduct differ from those following other adverse organizational events, such as poor performance. We hypothesize that inside directors and directors appointed by the CEO may be particularly concerned about their reputation following deceptive financial practices. We demonstrate that directors more closely affiliated with the CEO are more likely to reduce their support for the CEO following financial misconduct, increasing the likelihood of CEO replacement. Enactment of the Sarbanes‐Oxley Act similarly alters governance dynamics by creating a greater expectation for sound corporate governance. We demonstrate our findings in U.S. public firms that restated their financial earnings during a 12‐year period before and after the passage of Sarbanes‐Oxley. Managerial summary: Given past concerns about lack of oversight by boards of directors leading to firm financial misconduct, we examine how the relationship between directors and CEOs may be altered in the face of such misconduct. We argue that directors most closely tied to the CEO (inside board members and board members appointed by the CEO), typically the most supportive of the CEO, may become most concerned about their own reputation following financial misconduct. We find that CEOs receive less support from these directors, a finding in contrast to past studies demonstrating that such board members tend to shield CEOs following poor performance. These findings are accentuated following the passage of the Sarbanes‐Oxley Act, which places greater responsibility on the CEO for the accuracy of financial reports. Copyright © 2015 John Wiley & Sons, Ltd.
    September 06, 2015   doi: 10.1002/smj.2427   open full text
  • Right person in the right place: How the host country IPR influences the distribution of inventors in offshore R&D projects of multinational enterprises.
    Anand Nandkumar, Kannan Srikanth.
    Strategic Management Journal. September 06, 2015
    Research summary: Prior work has shown that the strength of the intellectual property regime (IPR) in a host country influences offshore R&D to that country. Building on this work we propose that the strength of the IPR in a host country differentially influences the threat of knowledge leakage on projects that are produced for the location where the multinational firm is headquartered (home) versus the offshore location to which the R&D project is sent (host). We argue and show that when the host location has a weak IPR, fewer host inventors are involved in host R&D projects when compared to home R&D projects. We test our hypotheses using a dataset of patents held by US assignees, but coinvented in 43 host locations with differing IPR strength. Managerial summary: Multinational enterprises often cite the weak IPRs at emerging economy host destinations as a significant impediment to offshore R&D activities in those countries, despite the abundant supply of inexpensive scientific talent there. We find that the weak IPR at the host destination is a greater impediment to offshore R&D that is aimed for end use at the host market than for R&D that is aimed for end use globally or in the home market. Since IPRs are local, a weaker IPR at the host location does not protect IP that is relevant to the host market. Since the IPR at the home country is more relevant for technologies aimed at the home market, the IPR at the host country is irrelevant for such R&D projects. Copyright © 2015 John Wiley & Sons, Ltd.
    September 06, 2015   doi: 10.1002/smj.2418   open full text
  • Survey measures of first‐ and second‐order competences.
    Erwin Danneels.
    Strategic Management Journal. September 04, 2015
    Research summary: This study tests and validates survey measures of first‐ and second‐order competences in order to foster cumulative empirical research and theoretical refinement in the area of dynamic capabilities. Data from two informants and two time periods for a sample of publicly traded U.S. manufacturing firms are used to examine the convergent, discriminant, and nomological validity, and the reliability of scales to measure various levels and types of competences. Findings suggest that customer competence, technological competence, marketing competence, and R&D competence are related but distinct dimensions, evidencing strong validity and reliability. Qualifying this empirical support, it was found that items regarding manufacturing operations and facilities seemed to measure aspects unrelated to the focal competences, and that marketing competence had no relation to future market‐resource accumulation. Managerial summary: This study enhances understanding and measurement of dynamic capabilities, in particular, marketing and R&D second‐order competences. Marketing and R&D second‐order competences are a firm's ability to build new competences to serve new markets or use new technologies, respectively. The ability of a firm to add new market‐related resources (such as brands and distribution channels) and technological resources (such as patents and engineering skills) helps it cope with environmental change and grow in new directions. For firms in stable environments, being able to serve new markets and use new technologies provide opportunities for growth. For firms in turbulent environments, these skills are a matter of survival. Using data collected from publicly traded U.S. manufacturing firms, this study tests and validates questions that can be asked in questionnaires presented to management. It finds that even if a firm has strong skills in serving current customers and great technology, it may not be able to go after new markets or technologies. The survey questions tested here could be used not only by other researchers, but also by practitioners. Managers, management consultants, and industry association advisors could use the scales as diagnostic instruments or to perform benchmarking. Copyright © 2015 John Wiley & Sons, Ltd.
    September 04, 2015   doi: 10.1002/smj.2428   open full text
  • How exploitation impedes and impels exploration: Theory and evidence.
    Ming Piao, Edward J. Zajac.
    Strategic Management Journal. September 04, 2015
    Research summary: This study suggests that strategy and organizational scholars seeking to analyze the impact of exploitation on exploration would benefit by moving away from the generally assumed unitary perspective on exploitation. Specifically, we propose a multifaceted perspective on exploitation by theoretically and empirically distinguishing between repetitive exploitation versus incremental exploitation. We argue that repetitive exploitation can impede exploration and delay firms' responses to environmental changes, while incremental exploitation can impel exploration and accelerate firms' responses to environmental changes. We test our arguments using extensive longitudinal data from the hard disk drive (HDD) industry, and our supportive empirical findings highlight the relevance of our distinction between the two types of exploitation and their very different effects on exploration. Managerial summary: This study offers a solution to the puzzle of why many believe firms cannot excel at advancing existing practices and developing new initiatives, typically described as the trade‐off between exploitation and exploration. We introduce the distinction between repetitive and incremental exploitation and show that only the former type of innovation generates rigidity toward exploration, whereas the latter actually promotes exploration. More specifically, our evidence from the hard disk drive industry shows that those firms emphasizing incremental innovation (as opposed to repetition of their existing practices) were most likely to remain explorative over time, whereas firms emphasizing more repetitive innovation proved less open to changes. We discuss the implications of our findings as suggesting that firms seeking to optimize their innovativeness over the long term should strive to remain active in incrementally innovating their existing practices. Copyright © 2015 John Wiley & Sons, Ltd.
    September 04, 2015   doi: 10.1002/smj.2402   open full text
  • The perilous leap between exploration and exploitation.
    Tim Swift.
    Strategic Management Journal. September 04, 2015
    Research summary: R&D‐based exploration and exploitation are necessary in order for firms to have sustainable competitive advantage. Yet, transitioning between these orthogonal types of R&D is considered profound organizational change. Building on recent research showing that compact, significant changes in R&D expenditure is an antecedent to the transition between explorative and exploitative R&D, I show that this leap between exploration and exploitation is quite hazardous. The magnitude of changes in R&D expenditure, whether increases or decreases, is positively associated with organizational failure. Firms maintaining higher levels of absorptive capacity are more capable of surviving the leap from R&D‐based exploitation to exploration, and firms that do not use reductions in R&D expenditure to manipulate short‐term earnings performance are more likely to survive the leap from exploration to exploitation. Managerial summary: In order to survive and thrive, innovative companies must be able to exploit their existing competencies, and to explore for new ones once those current competencies decline in value. However, transiting from one form of innovation to the other is difficult because the skills required to explore are fundamentally opposed to those required to exploit. In this article, I describe how difficult this leap between exploration and exploitation can be. I show that the move between R&D‐based exploration and exploitation is related to organizational failure. In addition, firms that are superior learners are more likely to survive the leap from exploitation to exploration, and firms that are not cutting R&D expenditure to manipulate earnings are more likely to survive the leap from exploration to exploitation. Copyright © 2015 John Wiley & Sons, Ltd.
    September 04, 2015   doi: 10.1002/smj.2423   open full text
  • Choosing the right target: Relative preferences for resource similarity and complementarity in acquisition choice.
    Yu Yu, Nita Umashankar, Vithala R. Rao.
    Strategic Management Journal. August 24, 2015
    Research summary: Corporate acquisition is a popular strategic option for firms seeking new resources. However, little research exists on the question of why one firm is chosen over another. We develop a model relating characteristics of similarity and complementarity between acquirers' and target firms' key resources, including their products and R&D pipelines, to the likelihood of the acquirers choosing a particular firm. We construct measures of similarity and complementarity between and across products and R&D pipelines, and test their effects using a novel application of the choice model. Findings reveal that acquirers view similarity and complementarity differently, based on the resource they are comparing. When making comparisons to their own R&D pipelines, acquirers prefer similarity over complementarity whereas when making comparisons to their product portfolios, they prefer complementarity over similarity. Managerial summary: Corporate acquisition is a popular way for firms to grow and obtain innovative resources. However, we know little about why acquirers choose one firm over another. We capture the influence of similarity and complementarity between acquirers' and target firms' products (current innovative value) and R&D pipelines (future innovative value) on whether a particular target firm is acquired. Insights from the pharmaceutical industry reveal that acquirers value similarity and complementarity in target firms differently, based on whether the comparison being made is with respect to their products or their R&D pipelines. Regarding their R&D pipelines, acquirers prefer that the target firm has similar, rather than complementary, resources. However, the opposite is true concerning their own products: acquirers prefer that the target firm has complementary, versus similar, resources. Copyright © 2015 John Wiley & Sons, Ltd.
    August 24, 2015   doi: 10.1002/smj.2416   open full text
  • The direct and indirect effects of core and peripheral social capital on organizational performance.
    Fabio Fonti, Massimo Maoret.
    Strategic Management Journal. August 17, 2015
    Research summary: In this paper we adopt a core‐periphery approach to specify the direct and indirect effects of social capital on organizational performance. We suggest that social capital deriving from stable task relationships between organizational members has a direct positive effect on organizational performance. Said effect depends, in both strength and functional form, on whether actors involved in stable dyads are located at the core or at the periphery of the organization. We also argue that core and peripheral social capital affect performance indirectly by moderating the organization's ability to leverage its human capital to improve performance. Results from a 48‐year study of the National Basketball Association support our arguments and bear important implications for strategic human resource practices and organizational performance in competitive settings. Managerial summary: Stable work relationships among employees generate trust, more efficient work routines, common understanding and thus higher organizational performance. These benefits depend on the location of such stable relationships in the organization. Relational stability among core organizational members has an immediate, strong impact on performance, an effect that plateaus as stability grows. Stable relationships between core and peripheral members have instead a weaker, yet linear effect on performance. The location of stable relationships is also critical to leverage the talent of core employees, whose contribution to performance is stronger when relational stability is high in the organizational core, yet hindered by stable relations between core and periphery. Such findings provide relevant implications for strategic human resource management, in particular for choices regarding team composition and managing stars. Copyright © 2015 John Wiley & Sons, Ltd.
    August 17, 2015   doi: 10.1002/smj.2409   open full text
  • Learning by hiring and change to organizational knowledge: Countering obsolescence as organizations age.
    Amit Jain.
    Strategic Management Journal. August 13, 2015
    Research summary: This paper investigates the relationship between hiring and the ability of organizations to evolve their capabilities as they age. While prior research establishes that organizations become rigid to change as they age, it underemphasizes measures that they may take to renew their adaptive potential. I address this gap by investigating whether hiring stimulates change to the knowledge organizations possess. Learning by hiring, I argue, helps organizations to evolve their knowledge as they age by disrupting routine, introducing distant knowledge, and facilitating socialization. I test the effectiveness of these mechanisms using 38 years (1970–2007) of data from the U.S. biotechnology industry, and find that hiring stimulates more change as organizations age, enabling them to renew their knowledge and counter the effects of obsolescence. Managerial summary: As organizations age, they become less responsive to the needs of their environment, resulting in a trend for them to become technologically obsolete. Little is known as to how they may reverse this trend and counter obsolescence. I provide evidence that hiring may be used to stimulate change to organizational knowledge and capabilities as they age by disrupting routine activity, introducing new‐to‐the‐firm knowledge, and inducing incumbent members to learn. Copyright © 2015 John Wiley & Sons, Ltd.
    August 13, 2015   doi: 10.1002/smj.2411   open full text
  • Reversing course: Competing technologies, mistakes, and renewal in flat panel displays.
    J. P. Eggers.
    Strategic Management Journal. August 13, 2015
    Research summary: The study explores renewal in a novel but understudied context—an era of ferment with competing technological options. It focuses on IBM's transition from market leadership in a failed path (plasma) to leadership in the emerging dominant technology (LCD) in the 1980s. Interviews and internal documents offer two primary factors explaining renewal at IBM. First, IBM Research had a hybrid structure that captured the benefits of both centralized and decentralized R&D. Second, middle managers shaped senior management cognitive frames to focus on business‐related issues instead of specific technical issues, thus bypassing biases often resulting from failure. The study offers an integrated framework on what facilitates flexibility at the technology, organization, and decision‐making levels. This flexibility helps firms survive a turbulent era of ferment. Managerial summary: Firms facing technological uncertainty may need to recover from unlucky bets. But responding to failure is politically and organizationally difficult. This study explores how IBM recovered from its failed bet on plasma displays to lead the LCD display market. This study identifies six key factors, highlighting two. First, IBM's researchers received centralized funding, but could also receive funding directly from division managers. This structure helped preserve options and variety. Second, internal LCD champions focused on the business case for displays and not technology. This fostered technology agnosticism and helped avoid managerial biases from failure. For managers looking to use real options to maintain flexibility in an uncertain environment, this study offers clear suggestions related to design and decision making that can foster flexibility. Copyright © 2015 John Wiley & Sons, Ltd.
    August 13, 2015   doi: 10.1002/smj.2412   open full text
  • Do ratings of firms converge? Implications for managers, investors and strategy researchers.
    Aaron K. Chatterji, Rodolphe Durand, David I. Levine, Samuel Touboul.
    Strategic Management Journal. August 11, 2015
    Research summary: Raters of firms play an important role in assessing domains ranging from sustainability to corporate governance to best places to work. Managers, investors, and scholars increasingly rely on these ratings to make strategic decisions, invest trillions of dollars in capital, and study corporate social responsibility (CSR), guided by the implicit assumption that the ratings are valid. We document the surprising lack of agreement across social ratings from six well‐established raters. These differences remain even when we adjust for explicit differences in the definition of CSR held by different raters, implying the ratings have low validity. Our results suggest that users of social ratings should exercise caution in interpreting their connection to actual CSR and that raters should conduct regular evaluations of their ratings. Managerial summary: Ratings of corporate social responsibility (CSR) guide trillions of dollars of investment, but managers, investors, and researchers know little about whether these ratings accurately measure CSR. In practice, there are examples of highly rated firms becoming embroiled in scandals and the same firm receiving sharply different ratings from different rating agencies. We evaluate six of the leading raters and find little overlap in their assessments of CSR. This lack of consensus suggests that social responsibility is challenging to measure reliably and that users of these ratings should be cautious in drawing conclusions about firms based on this data. We encourage the rating agencies to regularly validate their data in an effort to improve the measurement of CSR. Copyright © 2015 John Wiley & Sons, Ltd.
    August 11, 2015   doi: 10.1002/smj.2407   open full text
  • Does R&D offshoring lead to SME growth? Different governance modes and the mediating role of innovation.
    Alicia Rodríguez, María Jesús Nieto.
    Strategic Management Journal. August 04, 2015
    Research summary: In this article, we address the role of R&D offshoring strategies in the sales growth of small‐ and medium‐sized enterprises (SMEs). We propose that different governance modes of R&D offshoring—insourcing versus outsourcing—may lead to growth, but that they differ in their effects. In turn, we argue that innovation mediates the relation between international R&D sourcing strategies and sales growth. Based on a large database of SME manufacturing enterprises in Spain, we find that offshore outsourcing positively affects sales growth both directly and indirectly, while offshore insourcing only affects sales growth indirectly via innovation results. The analysis reveals different contributions of each governance mode to sales growth and the mediating role of innovation in the relation between R&D offshoring and firm growth. Managerial summary: We analyze how different governance modes of international R&D sourcing—offshore insourcing and outsourcing—may contribute to growth in SMEs. Modes of offshore R&D outsourcing positively affect the growth of sales in two ways. One effect is direct, produced by improved efficiency, flexibility, enhanced resources, and access to new markets. And the other effect is indirect as offshore R&D outsourcing favors the achievement of innovations, and this in turn, positively affects firm growth. For their part, captive modes only exert an indirect effect. Offshore R&D insourcing contributes to the achievement of innovations, and thus, ultimately to firm growth in so far as these innovations enable SMEs to increase sales. Therefore, innovation results perform a mediating role in the relation between R&D offshoring and sales growth. Copyright © 2015 John Wiley & Sons, Ltd.
    August 04, 2015   doi: 10.1002/smj.2413   open full text
  • Awards: A strategic management perspective.
    Jana Gallus, Bruno S. Frey.
    Strategic Management Journal. August 04, 2015
    Research summary: Awards are a valuable strategic resource. Motivation theory and the emerging body of empirical literature suggest that awards can have a significant effect on employee motivation and corporate performance, though not always in the intended direction. Awards can also destroy value. The organizational award literature has so far largely neglected this important issue. We develop a synthesis of the dimensions critical for successful award bestowals, and analyze under which conditions awards generate firm‐specific value that is sustained and difficult for competitors to imitate. The process of value creation and capture is contingent on the given firm's organizational characteristics and nature of production. The article concludes by laying out empirical implications. JEL codes: M52, M54, J24, J30. Managerial summary: Awards are widely used in the corporate sector. They fundamentally differ from monetary incentives, which risk crowding out employees' intrinsic motivation. Among the variety of awards, two general types can be distinguished: confirmatory awards based on explicit, pre‐determined performance criteria, and discretionary awards, which rely on broad performance evaluations and may be used ex post to honor outstanding performance. Appropriately designed and adjusted to the specific firm's characteristics, awards enhance employees' motivation and corporate performance. They express recognition and support their recipients' perceived competence and social status. Awards help to retain valuable employees and to establish role models. However, awards may also backfire, for instance, when they provoke envy among coworkers. We propose when awards risk destroying value and when they are particularly useful. Copyright © 2015 John Wiley & Sons, Ltd.
    August 04, 2015   doi: 10.1002/smj.2415   open full text
  • The long‐term benefits of organizational resilience through sustainable business practices.
    Natalia Ortiz‐de‐Mandojana, Pratima Bansal.
    Strategic Management Journal. August 04, 2015
    Research summary: Prior work on the benefits of business sustainability often applies short‐term causal logic and data analysis. In this article, we argue that the social and the environmental practices (SEPs) associated with business sustainability not only contribute to short‐term outcomes, but also to organizational resilience, which we define as the firm's ability to sense and correct maladaptive tendencies and cope positively with unexpected situations. Because organizational resilience is a latent, path‐dependent construct, we assess it through the long‐term outcomes, including improved financial volatility, sales growth, and survival rates. We tested these hypotheses with data from 121 U.S.‐based matched‐pairs (242 individual firms) over a 15‐year period. We also tested, but did not find support for, the relationship between SEPs and short‐term financial performance. Managerial summary: Most managers look for short‐term financial benefits to justify socially responsible or sustainable practices. In this article, we argue that such practices also help firms become more resilient, which helps them avoid crises and bounce back from shocks. However, it is difficult to measure the avoidance of shocks, so we analyzed long‐term outcomes. We show that firms that adopt responsible social and environmental practices, relative to a carefully matched control group, have lower financial volatility, higher sales growth, and higher chances of survival over a 15‐year period; yet, we were unable to find any differences in short‐term profits. We hope this research provides good reasons for firms to practice sustainability beyond the pursuit of short‐term profits. Copyright © 2015 John Wiley & Sons, Ltd.
    August 04, 2015   doi: 10.1002/smj.2410   open full text
  • Resolving a dilemma of signaling bankrupt‐firm emergence: A dynamic integrative view.
    Jun Xia, David D. Dawley, Han Jiang, Rong Ma, Kimberly B. Boal.
    Strategic Management Journal. August 03, 2015
    Research summary: Predicting the emergence of bankrupt firms relying on firm signals involves a stigma‐related dilemma. On the one hand, bankrupt firms tend to send positive signals through restructuring to decouple themselves from the stigma of bankruptcy. On the other hand, the preexistence of the bankruptcy stigma may reduce the signaling effectiveness of firms' restructuring efforts, making the outcome prediction difficult. We address this dilemma by developing a dynamic integrative view to extend signaling theory, arguing that subsequent signals from key external stakeholders can effectively help evaluate bankrupt firms' quality and reduce the ambiguity in interpreting firms' restructuring signals. Using a sample of U.S. public bankrupt firms under Chapter 11 reorganization, we find evidence supporting the argument. Managerial summary: Applications of signaling theory to predict reorganization outcomes are in their infancy. The dynamic integrative framework developed in this study is useful in identifying different types of signals and predicting outcomes of firms in crisis. The results of this study can be useful for various decision makers to predict the turnaround potential of bankrupt firms. Our results show that an increase in alliance partners, institutional investors, and securities analysts following a bankrupt firm predicts the firm's reorganization outcome. Moreover, firms that are able to gain positive attention from key stakeholders will also gain positive interpretations of their strategic efforts. Signals from alliance partners and institutional investors amplify the signaling effect of a firm's de‐diversification effort in predicting its reorganization outcome. Copyright © 2015 John Wiley & Sons, Ltd.
    August 03, 2015   doi: 10.1002/smj.2406   open full text
  • Does experience imply learning?
    Jaideep Anand, Louis Mulotte, Charlotte R. Ren.
    Strategic Management Journal. July 16, 2015
    Research summary: Research traditionally uses experiential learning arguments to explain the existence of a positive relationship between repetition of an activity and performance. We propose an additional interpretation of this relationship in the context of discrete corporate development activities. We argue that firms choose to repeat successful activities, thereby accumulating high experience with them. Data on 437 aircraft projects introduced through three governance modes show that the positive performance effect of the firm's experience with the focal mode becomes insignificant after accounting for experience endogeneity. We suggest that in a general case, experience with corporate development activities may be tinged with both learning and selection effects. Therefore, omitting to account for experience endogeneity may lead to incorrect conclusions from an “empirically observed” positive experience–performance relationship. Managerial summary: This paper emphasizes that firms generally choose to undertake the corporate development activities (new product introductions, diversification moves, international expansions, alliances, acquisitions, etc.) with which they have been the most successful in the past and that they expect to be the most successful in the future. Hence, if a firm possesses certain capabilities, it will repeatedly engage in certain activities corresponding to those capabilities, thereby simultaneously achieving high levels of activity experience as well as superior activity performance. This view suggests that an “empirically observed” positive experience–performance relationship may not be due solely to learning‐based enhanced capabilities but may also be driven by astute self‐selection. Overall, we provide a new interpretation of the relationship between experience and performance in the context of infrequent, heterogeneous, and causally‐ambiguous corporate development activities. Copyright © 2015 John Wiley & Sons, Ltd.
    July 16, 2015   doi: 10.1002/smj.2401   open full text
  • Buying bad behavior: Tournament incentives and securities class action lawsuits.
    Wei Shi, Brian L. Connelly, Wm. Gerard Sanders.
    Strategic Management Journal. July 07, 2015
    Research summary: Tournament theory suggests that a large gap in pay between CEOs and top managers can provide incentives to perform, but we argue that it can also elicit negative effort and even motivate the kind of behavior that leads to lawsuits. We posit that this negative effort is greater when firms have high levels of unrelated diversification because there is less operational interdependency, so tournament effects are stronger. We also contend that the influence of tournament incentives on behavior leading to lawsuits is weaker when environmental uncertainty is high. We discuss the consequences of these findings for research on fraud and tournament theory as well as the practical repercussions for firms, investors, and policymakers. Managerial summary: Each year, the press has a field day when companies announce the outsized compensation packages laid out for CEOs. Economists use “tournament theory” to describe how high CEO pay motivates everyone else to work hard to get into the top job. The problem with this approach is that, yes, top managers work harder when the gap between their and the CEO's pay increases, but as that gap widens, it also incentivizes top managers to cheat or cut corners. As a result, we find that the gap between CEO and top manager compensation predicts the likelihood that shareholders will file a securities class action lawsuit against the company. This gap in pay is an especially good predictor of lawsuits for highly unrelated diversified companies and companies facing a low level of external uncertainty. Copyright © 2015 John Wiley & Sons, Ltd.
    July 07, 2015   doi: 10.1002/smj.2400   open full text
  • A path to value creation for foreign entrepreneurs.
    Elena Kulchina.
    Strategic Management Journal. July 07, 2015
    Research summary: Firms founded by foreign entrepreneurs constitute an influential and growing part of the world economy. Yet, the existing research has given little consideration to the strategies of foreign entrepreneurs beyond their decisions to start a firm. In this article, we address this gap by examining how foreign entrepreneurs may bring value to their firms as firm managers. We argue that foreign owner‐managers may benefit their firms by having access to home‐country resources. We demonstrate that, compared to hired local managers, foreign owner‐managers reduce firms' operating costs by disproportionately hiring home‐country labor when this labor is more cost‐efficient. This effect is larger for labor‐intensive industries and for entrepreneurs from less wealthy countries. Managerial summary: Foreign entrepreneurs represent an important part of the world economy. Yet, we know little of how foreign entrepreneurs manage their firms. In this article, we examine whether foreign entrepreneurs and domestic managers hire different employees. We find that when foreign entrepreneurs manage their firms personally, they hire a larger number of foreign workers, and such workers are cheaper and more productive than the local labor. Conversely, domestic managers tend to hire local employees, despite their higher relative wages. Foreign owner‐managers are particularly valuable in labor‐intensive industries and when their home‐country labor is inexpensive. Copyright © 2015 John Wiley & Sons, Ltd.
    July 07, 2015   doi: 10.1002/smj.2403   open full text
  • Contingent value of director identification: The role of government directors in monitoring and resource provision in an emerging economy.
    Hongjin Zhu, Toru Yoshikawa.
    Strategic Management Journal. July 07, 2015
    Research summary: Although previous studies have explored the value of government directors, less attention has been directed at the antecedents of government directors' engagement in value‐adding activities, such as managerial monitoring and resource provision. Drawing on social identity theory, we offer a novel model that specifies how a government director's dual identifications with the focal firm, and with the government individually and interactively affect his or her governance behavior. An investigation of government directors in China shows that their identification with the focal firm enhances monitoring and resource provision, while their identification with the government affects monitoring and resource provision differently. depending on the dominance of state ownership. The synergistic/substitutable effects between the two types of identification are contingent on state ownership and governance roles. Managerial summary: This study examines how a government director's dual identities—as a government official and as a board member of a focal firm affect his or her engagement in managerial monitoring and resource provision. Using data of Chinese listed firms, we find that government directors who strongly identify with the focal firm or with the government are highly motivated to fulfill their fiduciary obligations. However, the positive effects of their identification with the government differ between state‐owned enterprises (SOEs) and non‐SOEs. The combination of the two identifications offers a further boost to monitoring in non‐SOEs, and to resource provision in both SOEs and non‐SOEs, but it acts as a disincentive to monitoring in SOEs. Copyright © 2015 John Wiley & Sons, Ltd.
    July 07, 2015   doi: 10.1002/smj.2408   open full text
  • Network structure effects on incumbency advantage.
    Jeho Lee, Jaeyong Song, Jae‐Suk Yang.
    Strategic Management Journal. July 07, 2015
    Research summary: The literature on network effects has implicitly assumed that an increase in the size of the installed base magnifies network effects, which is a source of incumbency advantage. We argue that the overemphasis on this relationship has resulted in controversy and confusion in the literature, where the role of social networks remains largely unaddressed. By developing computational models of network effects with various network structures, we show that social distance in a customer network plays a moderating role that strengthens or weakens the relationship between the installed base and network effects, which in turn, affects the durability of incumbency advantage. When the average social distance between members in a customer network is large, the incumbency advantage will not be amplified, and an entrant with an incompatible product or service may find ways into the market. On the other hand, when the average social distance is small, early entry with a growing installed base will magnify incumbency advantage. Managerial summary: In evaluating the strength of incumbency advantage or determining the price of an early mover, the size of the installed base has been widely used. We find that it is not a sufficient statistic, and confusion and error appear to result from assuming that it is. Our study suggests that degrees of separation, a measure of social distance in a network, can provide managers with an additional yardstick to sharpen their evaluation. When customer networks are characterized by fewer degrees of separation, the conventional use of the installed base as a metric may be reasonable. On the other hand, when customer networks are characterized by larger degrees of separation, the conventional use may potentially mislead managers in their decision‐making. Thinking about the roots of user benefits (e.g., access to a few significant others vs. hubs) may be a reasonable starting point for assessing degrees of separation in a customer network. Copyright © 2015 John Wiley & Sons, Ltd.
    July 07, 2015   doi: 10.1002/smj.2405   open full text
  • Learning to let go: Social influence, learning, and the abandonment of corporate venture capital practices.
    Vibha Gaba, Gina Dokko.
    Strategic Management Journal. July 07, 2015
    Research summary: This study examines the abandonment of organizational practices. We argue that firm choices in implementing practices affect how firms experience a practice and their subsequent likelihood of abandonment. We focus on utilization of the practice and staffing (i.e. career backgrounds of managers), as two important implementation choices that firms make. The findings demonstrate that practice utilization and staffing choices not only affect abandonment likelihood directly but also condition firms' susceptibility to pressures to abandon when social referents do. Our study contributes to diffusion research by examining practice abandonment—a relatively unexplored area in diffusion research—and by incorporating specific aspects of firms' post‐adoption choices into diffusion theory. Managerial summary: When do firms shut down practices? Prior research has shown that firms learn from the actions of other firms, both adopting and abandoning practices when their peers do. But unlike adoption decisions, abandonment decisions need to account for firms' own experiences with the practice. We study the abandonment of corporate venture capital (CVC) practices in the U.S. IT industry, which has experienced waves of adoption and abandonment. We find that firms that make more CVC investments are less likely to abandon the practice, and are less likely to learn vicariously from other firms' abandonment decisions, such that they are less likely to exit CVC when other firms do. Staffing choices also matter: hiring former venture capitalists makes firms less likely to abandon CVC practices, while hiring internally makes abandonment more likely. Plus, staffing choices affect how firms learn from the environment, as CVC managers pay attention to and learn more from the actions of firms that match their work backgrounds; i.e., firms that staff CVC units with former venture capitalists are more likely to follow exit decisions of VC firms, while those that staff with internal hires are more likely to follow their industry peers. Our results suggest that firms wanting to retain CVC practices should think carefully about the implementation choices they make, as they may be inadvertently sowing seeds of abandonment. Copyright © 2015 John Wiley & Sons, Ltd.
    July 07, 2015   doi: 10.1002/smj.2404   open full text
  • Thinking about U: Theorizing and testing U‐ and inverted U‐shaped relationships in strategy research.
    Richard F. J. Haans, Constant Pieters, Zi‐Lin He.
    Strategic Management Journal. June 28, 2015
    Research summary:U‐ and inverted U‐shaped relationships are increasingly explored in strategy research, with 11 percent of all articles published in Strategic Management Journal (SMJ) in 2008–2012 investigating such quadratic relationships. Moreover, a movement towards introducing moderation to quadratic relationships has emerged. By reviewing 110 articles published in SMJ from 1980 to 2012, we identify several critical issues in theorizing and testing of these relationships for which current practice falls short. These include insufficient causal argumentation, incorrect testing, mixing up two different types of moderation, and not realizing that the curve can flip completely. For these and other issues, a guideline is provided which, when followed, may bring clarity to theoretical motivation and rigor to empirical testing. Managerial summary:Too much can be as bad as too little. Many relationships in strategic management follow an inverted U‐shaped pattern, where moderate levels of a strategy lead to optimal performance. To gain deeper insights into the conventional wisdom that too much of a good thing can be harmful to performance, we discuss how such relationships can be better theorized and tested based on a review of articles exploring U‐shaped relationships in Strategic Management Journal during 1980–2012. We identify several critical issues that require close attention and provide a guideline to further develop and validate this important managerial intuition. Copyright © 2015 John Wiley & Sons, Ltd.
    June 28, 2015   doi: 10.1002/smj.2399   open full text
  • Motivation matters: Corporate scope and competition in complementary product markets.
    Victor M. Bennett, Lamar Pierce.
    Strategic Management Journal. June 22, 2015
    Research summary: We argue that a pure capabilities‐based view does not accurately explain the competitive dynamics of increasingly common settings in which firms act as both complementors and competitors. We propose that the Awareness‐Motivation‐Capability framework is more appropriate for these settings. We derive predictions from both a pure capabilities view and the AMC framework, and test those predictions in the U.S. auto leasing market, in which the leasing subsidiaries of car manufacturers directly compete with the same independent lessors who provide complements to the manufacturers. Although our results are consistent with capabilities playing an important role, motivation appears to be a critical factor explaining the competitive dynamics of the market. Managerial summary: Firms that compete with business units owned by larger corporate parents face additional considerations. Such subsidiary competitors can be motivated by broader corporate considerations, shifting their objectives, and consequently, their strategic actions. Expecting subsidiary competitors to pursue business unit profitability can mislead managers toward pricing, product mix, or market entry errors. We present an important example from consumer finance, where independent auto lessors, such as Bank of America (BoA), compete with captive leasing subsidiaries like Ford Motor Credit (FMC). Since FMC is motivated to subsidize and support vehicle sales for its manufacturer parent, a cost advantage is not enough for BoA to dominate the market. Understanding broader corporate motivations of competitors helps managers anticipate competition levels in potential markets, thereby improving decision‐making and performance. Copyright © 2015 John Wiley & Sons, Ltd.
    June 22, 2015   doi: 10.1002/smj.2398   open full text
  • Market frictions and the competitive advantage of internal labor markets.
    Sharon Belenzon, Ulya Tsolmon.
    Strategic Management Journal. June 19, 2015
    Research summary: We show that frictions in labor and capital markets can be a source of competitive advantage for affiliates of corporate groups over stand‐alone firms in environments where benefits from internal markets' flexibility are high. We argue that the advantage of flexibility in changing labor inputs is related to how difficult it is to change capital inputs. We predict that if substituting labor with capital is difficult, the group advantage of flexibly changing labor would be stronger in countries with high levels of financial development. Consistent with this prediction, we find a stronger competitive advantage for group affiliates in countries with rigid labor markets but flexible capital markets. In these environments, group affiliates are more prevalent and outperform stand‐alone firms in terms of growth and profitability. Managerial summary: This research shows that the capacity to redeploy workers across internal units of the firm can be a source of competitive advantage in countries that impose strict employment protection laws. We show that the strategic advantage of labor flexibility is affected by how difficult it is to change capital inputs and that labor flexibility is a stronger source of competitive advantage in countries where developed financial markets allow for more flexible capital adjustment. In these settings, strategies designed to lower costs of internal mobility (e.g., locations of greater geographic concentration between units and in regions with less competitive external markets), development of corporate culture supportive of frequent change, and personnel development through internal rotation can result in substantial financial payoffs. Copyright © 2015 John Wiley & Sons, Ltd.
    June 19, 2015   doi: 10.1002/smj.2395   open full text
  • Whom are you promoting? Positive voluntary public disclosures and executive turnover.
    Ithai Stern, Sharon D. James.
    Strategic Management Journal. June 17, 2015
    Research summary: This paper uses signaling theory to bring together two complementary research streams that have largely ignored each other: strategic human resource management and media relations management. We argue that when publicly traded firms voluntarily and publicly disclose positive information about their value creation and appropriation activities, they also send positive signals to managerial labor markets regarding executives' capabilities. Accordingly, we hypothesize a positive association between public disclosures and voluntary executive turnover. An analysis of pharmaceutical and communications equipment firms from 1990 to 2004 supports this prediction, underscoring the need to understand better the effects of voluntary public disclosures on a firm's ability to protect its human capital. More generally, our results highlight the importance of considering the impact of a single signal on multiple receivers. Managerial summary: Given the organizational benefits of positive media coverage, the considerable effort that firms put into managing their image in the media is not surprising. We argue and show, however, that when a firm enhances its public image it also improves its executives' positions in the managerial labor market and, by so doing, increases their likelihood of voluntarily leaving the firm. In particular, we find that corporate press releases, an important mechanism for managing information released in the public domain to signal a firm's competitive advantages, may result in unintentional loss of senior management talent. This trade‐off suggests that firms should increase coordination between their strategy, human resources, and corporate communications/investor relations departments to ensure that they collectively weigh the benefits and costs of publicly disclosing value‐relevant information. Copyright © 2015 John Wiley & Sons, Ltd.
    June 17, 2015   doi: 10.1002/smj.2393   open full text
  • Equity‐based incentives and collaboration in the modern multibusiness firm.
    Joanne Oxley, Gurupdesh Pandher.
    Strategic Management Journal. June 17, 2015
    Research summary: This paper examines the role of equity‐based incentives in fostering cross‐business‐unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business‐unit managers with the objective of maximizing total expected firm returns. The resulting compensation contract provides a rich mechanism for aggregating value from collaborative interactions across business units, aligning managers' efforts with the firm's growth prospects and organization structure and managing the dual risks in profits and firm market value. The inclusion of equity incentives elicits higher levels of own‐unit and collaborative efforts over the profits‐only contract. Our results suggest that equity‐based incentives are most beneficial when profitability is uncertain relative to long‐term growth prospects, in firms pursuing related diversification strategies, and in periods of rising equity markets. Managerial summary: Equity‐based compensation such as restricted stock grants and options are increasingly common, not only for CEOs and other top executives, but also for business unit managers and other non‐C‐suite employees. The paper studies the role of such “global” incentives in enabling multibusiness firms to benefit from cross‐unit collaboration. Results from our model show that managerial contracts that include appropriate levels of equity incentives, in addition to profit‐based incentives, generate higher own‐unit and collaborative efforts. We also find that equity incentives are likely to be most beneficial for large firms in high‐growth sectors, for firms pursuing a related diversification strategy, and in periods of rising stock markets. The model can also provide useful guidance on designing return‐maximizing compensation contracts for business unit managers in different firm, organizational, and industry contexts. Copyright © 2015 John Wiley & Sons, Ltd.
    June 17, 2015   doi: 10.1002/smj.2392   open full text
  • What do i want? The effects of individual aspiration and relational capability on collaboration preferences.
    Simon J. D. Schillebeeckx, Sankalp Chaturvedi, Gerard George, Zella King.
    Strategic Management Journal. June 08, 2015
    Research summary: We examine individuals' collaboration preferences in the Knowledge Transfer Network (KTN) for the UK plastics electronics sector. Using conjoint analysis, we investigate how aspiration gaps and relational capability affect the value placed on potential organizational collaborations. Aspiration gaps reflect individuals' perception of whether they are ahead of or behind peers on their career trajectory, and relational capability captures three distinct dimensions: networking skills, openness to collaborate, and network awareness. Our findings suggest that positive and negative aspiration gaps augment preferences to form organizational partnerships. These effects are positively moderated by networking skills and openness and negatively moderated by network awareness. We discuss the implications of these findings for theories of partnership formation, scientific collaboration, and behavioral strategy. Managerial summary: University–industry collaboration is important to the creation and application of new knowledge. Such collaboration requires individuals of different backgrounds to work together, which can be difficult. We investigate what drives individuals' preferences to collaborate. We find that individuals who consider themselves ahead of or behind their peers are more favorable toward collaboration. We also find that networking skill and openness augment this positive collaboration disposition whereas awareness of the network members makes one more selective and reduces the proclivity to collaborate. Copyright © 2015 John Wiley & Sons, Ltd.
    June 08, 2015   doi: 10.1002/smj.2396   open full text
  • Leveraging foreign institutional logic in the adoption of stock option pay among Japanese firms.
    Xuesong Geng, Toru Yoshikawa, Asli M. Colpan.
    Strategic Management Journal. June 06, 2015
    Research summary: We investigate why Japanese firms have adopted executive stock option pay, which was developed with shareholder‐oriented institutional logic that was inconsistent with Japanese stakeholder‐oriented institutional logic. We argue that Japanese managers have self‐serving incentives to leverage stock ownership of foreign investors and their associated institutional logic to legitimize the adoption of stock option pay. Our empirical analyses with a large sample of Japanese firms between 1997 and 2007 show that when managers have elite education, high pay inequality with ordinary employees, and when firms experience poor sales growth, foreign ownership is more likely associated with the adoption of stock option pay. The study shows the active role of managers in facilitating the diffusion of a new governance practice embodying new institutional logic. Managerial summary: Why have Japanese firms adopted stock option pay for executives? Inconsistent with Japanese stakeholder‐oriented tradition in corporate governance, such pay has been believed to prioritize managerial attention to the interests of shareholders over those of other stakeholders. However, to the extent that shareholders' interests are legitimate in the Japanese context, executives who have self‐serving incentives to adopt such pay can leverage the need to look after shareholders' interest in their firms to legitimize their decisions. In a large sample of Japanese firms, we find that foreign ownership (representing shareholders' interests) is more likely to be associated with the adoption of stock option pay when managers are motivated to receive such pay, such as when they have elite education, high pay inequality with ordinary employees, or poor sales growth. Copyright © 2015 John Wiley & Sons, Ltd.
    June 06, 2015   doi: 10.1002/smj.2391   open full text
  • Does experience help or hinder top managers? Working with different types of resources in Hollywood.
    Michael J. Mannor, Jamal Shamsie, Donald E. Conlon.
    Strategic Management Journal. June 06, 2015
    Research summary: Research on the resource‐based view has begun to place more emphasis on the ability of managers to extract better performance from the resources that are available to them. In this paper, we show that prior experience can both help and hinder their ability to generate performance from various categories of resources. Further, we argue that the fungibility of each resource influences the opportunities managers have to use their experiences in order to find the best method to deploy them. We test our hypotheses by examining the ability of Hollywood film producers to generate results from financial, brand, and human resources. Our findings show that experienced producers can generate better performance from more fungible resources, but they actually achieve weaker results with less fungible resources. Managerial summary: Do more experienced top managers get better results from their resources? We examine this question for Hollywood film producers. Our results show that experience can really help when producers work with resources such as cash (budgets) and brand resources (such as film sequels). However, such experiences actually reduce performance when they work with some human resources, such as highly talented directors. We argue that experience can be most helpful when managers work with more fungible resources, which can be used in a variety of different ways but can actually hurt when they work with resources that are more constrained in how they can be deployed. Under ideal circumstances, we find that experienced producers can generate nearly 40 percent more revenue with the right mix of resources. Copyright © 2015 John Wiley & Sons, Ltd.
    June 06, 2015   doi: 10.1002/smj.2394   open full text
  • A capabilities‐based perspective on target selection in acquisitions.
    Aseem Kaul, Brian Wu.
    Strategic Management Journal. June 06, 2015
    We develop a capabilities‐based theory of acquirer target selection, arguing that acquirers will pursue both low capability targets in existing contexts to deploy existing capabilities, and high capability targets in new contexts to acquire new capabilities. These arguments are formalized in an analytical model that jointly considers the benefits and costs of acquisition as a function of target capability level and context. The predictions from this model are tested in the Chinese brewing industry (1998–2007), with results showing that acquirers strongly prefer inferior targets in existing geographic markets, but are relatively more likely to choose superior targets in new markets, especially if they have strong acquisition capabilities. Our study provides insight into the factors driving target selection, and contributes to a capabilities‐based understanding of acquisitions. Copyright © 2015 John Wiley & Sons, Ltd.
    June 06, 2015   doi: 10.1002/smj.2389   open full text
  • Corporate spinoffs and analysts' coverage decisions: The implications for diversified firms.
    Emilie R. Feldman.
    Strategic Management Journal. June 06, 2015
    Research summary: This paper investigates how spinoffs improve the quality of analysts' research about diversified firms, theorizing that these deals may induce analysts to revisit their earlier coverage decisions. The gains resulting from these shifts are expected to be more pronounced when a firm undertakes a legacy (rather than a non‐legacy) spinoff, which removes the business that may be constraining analysts' coverage decisions in the first place. Consistent with this argument, firms that undertake legacy spinoffs experience greater improvements in the composition and quality of their analyst coverage than their non‐legacy counterparts, and in their overall forecast accuracy and stock market performance. Taken together, these findings shed light on the relationships among the scope decisions, analyst coverage, and valuations of diversified firms. Managerial summary: Existing research has established that when companies undertake spinoffs, analysts produce more accurate forecasts about the divesting firms than they did prior to those deals, and the stock market performance of those firms also improves relative to pre‐spinoff levels. This paper explores the effects of legacy spinoffs (the spinoff of a firm's original or “legacy” business) for forecast accuracy and stock market performance. Firms that undertake legacy spinoffs are found to enjoy greater improvements in forecast accuracy and stock market performance than their non‐legacy counterparts. These findings are driven by the fact that legacy spinoffs induce analysts to revisit their existing coverage decisions to a greater extent than non‐legacy spinoffs, contributing significantly to the economic benefits of these deals for shareholders. Copyright © 2015 John Wiley & Sons, Ltd.
    June 06, 2015   doi: 10.1002/smj.2397   open full text
  • Do‐no‐harm versus do‐good social responsibility: Attributional thinking and the liability of foreignness.
    Donal Crilly, Na Ni, Yuwei Jiang.
    Strategic Management Journal. May 15, 2015
    Research summary: The efforts of multinational corporations to be socially responsible do not always engender positive evaluations from overseas stakeholders. Drawing on attribution theory, we argue that two heuristics guide stakeholders in evaluating firms' social performance: foreignness and the valence of firms' social responsibility. We provide evidence from a field study of secondary stakeholders and an experimental study involving 129 non‐governmental organizations. Consistent with attribution theory, the liability of foreignness is minimized when firms engage in “do‐good” social responsibility (focused on proactive engagement creating positive externalities) but is substantial when firms engage in “do‐no‐harm” social responsibility (focused on attenuating negative externalities). In online supporting information, Appendix S1, we demonstrate that these evaluations have consequences for whether stakeholders subsequently cooperate, or sow conflict, with firms. Managerial summary: There is no guarantee that efforts to be socially responsible will improve multinational corporations' relations with overseas stakeholders, such as customers, governments, and activists. In a field study and an experiment, we unpack when foreign firms suffer from harsh stakeholder evaluations. Foreign firms especially suffer from harsh evaluations when they conduct “do‐no‐harm” CSR rather than “do‐good” CSR. Stakeholders attribute the motive for foreign firms' do‐no‐harm CSR to managerial interests and shareholder pressures, perceiving a wedge between managers and owners (who may be unmotivated to reduce the negative impacts of their business activities) and local stakeholders (who bear the social costs). A practical implication is that foreign firms gain more from highlighting do‐good rather than do‐(no)‐harm CSR initiatives. Copyright © 2015 John Wiley & Sons, Ltd.
    May 15, 2015   doi: 10.1002/smj.2388   open full text
  • Appropriability and the retrieval of knowledge after spillovers.
    Tufool Alnuaimi, Gerard George.
    Strategic Management Journal. May 15, 2015
    Research summary: Firms create and capture value through innovation. In technology‐driven firms, there has been an explicit emphasis on appropriability through imitation deterrence and cumulative inventions that build on prior firm innovation. We introduce systematic empirical evidence for a third mechanism of appropriability namely, knowledge retrieval, which is defined as the re‐absorption of previously spilled knowledge. We extend previous studies which consider technological complexity and organizational coupling as predictors of appropriability by examining their impact on knowledge retrieval. We find that technological complexity has a curvilinear relationship with retrieval while organizational coupling has a negative relationship. We discuss the implications of these findings for theories of absorptive capacity, organizational design and appropriability of innovation. Managerial summary: It is a widely held assumption that knowledge should be protected and held tightly within the firm to ensure value creation and value capture. The implicit recognition is that knowledge spillovers, or knowledge leakage, is detrimental to performance. By examining the patterns of citations among patents of 142 semiconductor firms, we study how organizational structure and technological complexity play a role. We find that moderate technological complexity improves appropriability. If imitation deterrence is paramount, then the optimal structure would be a tightly‐coupled organization. In other instances, loosely‐coupled organizations may be superior because they foster internal cumulative innovations and, if spillovers were to occur, they also maximize knowledge retrieval. Our findings suggest that all is not lost when spillovers occur and that firms can continue to benefit in downstream innovations. Copyright © 2015 John Wiley & Sons, Ltd.
    May 15, 2015   doi: 10.1002/smj.2383   open full text
  • Ecological uncertainty, adaptation, and mitigation in the U.S. ski resort industry: Managing resource dependence and institutional pressures.
    Pete Tashman, Jorge Rivera.
    Strategic Management Journal. May 07, 2015
    We draw on resource dependence and institutional theories to study how firms manage uncertainty in nature (ecological uncertainty) in the U.S. ski resort industry. Through resource dependence theory, we develop the concept of ecological uncertainty and explain its effects on firms' access to and management of natural resources. We then predict that firms adapt to ecological uncertainty with natural‐resource‐intensive practices, as well as practices that attempt to mitigate its underlying causes. Using institutional theory, we also predict that environmental expectations moderate these responses. Our results indicate that firms did manage ecological uncertainty by adopting natural‐resource‐intensive practices, but not mitigation practices. They also show that stronger environmental expectations constrained firms from adopting natural‐resource‐intensive practices and promoted their adoption of mitigation practices in response to ecological uncertainty. Copyright © 2015 John Wiley & Sons, Ltd.
    May 07, 2015   doi: 10.1002/smj.2384   open full text
  • Making the news: Heterogeneous media coverage and corporate litigation.
    David Tan.
    Strategic Management Journal. May 07, 2015
    Research summary: This study explores how relative prominence shapes rivalry between firms. Corporate litigation, an increasingly costly domain of interfirm rivalry, is threatening not just because of the immediate legal stakes but because of the indirect losses that unwanted negative publicity inflicts on defendants. I argue that potential defendants' incentives to avoid such losses create a source of value that firms can capture by agreeing to forgo litigation. The more prominent a firm is relative to rivals, the greater its threat and the more value it stands to capture from potential targets by sparing them from litigation. Managerial summary: The power to attract media attention can be valuable to firms beyond its role in managing relations with investors or the public. It can also provide leverage against industry rivals. Being sued by a prominent firm carries the threat of potential damaging publicity, especially for lesser‐known rivals. Firms may be able to leverage this threat to elicit concessions in return for sparing rivals from litigation. Prominent firms stand to benefit not just from eliciting concessions from rivals but from the ability to do so while avoiding costly litigation. Data from the semiconductor industry show that firms that command much higher levels of media coverage than rivals are able to avoid litigation more often than firms with comparable or lower levels of media coverage. Copyright © 2015 John Wiley & Sons, Ltd.
    May 07, 2015   doi: 10.1002/smj.2390   open full text
  • Microfoundations In Strategy Research.
    Nicolai J. Foss, Torben Pedersen.
    Strategic Management Journal. December 29, 2014
    There is no abstract available for this paper.
    December 29, 2014   doi: 10.1002/smj.2362   open full text
  • Employee Mobility and Entrepreneurship A Virtual Special Issue [1].
    Rajshree Agarwal, Alfonso Gambardella, Daniel M. Olson.
    Strategic Management Journal. December 29, 2014
    There is no abstract available for this paper.
    December 29, 2014   doi: 10.1002/smj.2361   open full text
  • Corporate Venturing Virtual Special Issue.
    Gary Dushnitsky, Julian Birkinshaw.
    Strategic Management Journal. December 29, 2014
    There is no abstract available for this paper.
    December 29, 2014   doi: 10.1002/smj.2360   open full text
  • Asset divestment as a response to media attacks in stigmatized industries.
    Rodolphe Durand, Jean‐Philippe Vergne.
    Strategic Management Journal. June 02, 2014
    In stigmatized industries characterized by social contestation, hostile audiences, and distancing between industry insiders and outsiders, firms facing media attacks follow different strategies from firms in uncontested industries. Because firms avoid publicizing their tainted‐sector membership, when threatened, they can respond by divesting assets from that industry. Our analyses of the arms industry demonstrate that media attacks on the focal firm and its peers both increase the likelihood of divestment for the focal firm. Specifically, attacks on the focal firm are the most consequential, followed by attacks on peers in the same industry subcategory, and by attacks on peers in different subcategories. These findings shed new light on divestment as a response to media attacks in stigmatized industries and lead us to rethink impression management theory. Copyright © 2014 John Wiley & Sons, Ltd.
    June 02, 2014   doi: 10.1002/smj.2280   open full text
  • Decision‐making and uncertainty: The role of heuristics and experience in assessing a politically hazardous environment.
    Elizabeth Maitland, André Sammartino.
    Strategic Management Journal. May 31, 2014
    Heuristics have long been associated with problems of bias and framing error, often on the basis of simulation and laboratory studies. In this field study of a high‐stakes strategic decision, we explore an alternative view that heuristics may serve as powerful cognitive tools that enable, rather than limit, decision‐making in dynamic and uncertain environments. We examine the cognitive efforts of senior decision‐makers of an inexperienced multinational, as they assessed a potential acquisition in a politically hazardous African country. They applied a diversity of heuristics, some with clear building block rules, to build small world representations of this very uncertain strategic context. More expert individuals drew on experiential learning to build richer representations of the political hazard environment.
    May 31, 2014   doi: 10.1002/smj.2297   open full text
  • Reconceptualizing Entrepreneurial Orientation.
    Brian S. Anderson, Patrick M. Kreiser, Donald F. Kuratko, Jeffrey S. Hornsby, Yoshihiro Eshima.
    Strategic Management Journal. May 30, 2014
    Entrepreneurial orientation (EO)—a firm's strategic posture towards entrepreneurship—has become the predominant construct of interest in strategic entrepreneurship research. Despite the ever‐increasing volume of nomological research on EO, there remain ongoing conversations regarding its ontology. Drawing from measurement theory, we outline an EO reconceptualization addressing the likely prevalence of Type II nomological error in the EO literature stemming from measurement model misspecification. Focusing on the question of whether EO is an attitudinal construct, a behavioral construct, or both, we propose a formative construction of EO viewing the exhibition of entrepreneurial behaviors and of managerial attitude towards risk as jointly necessary dimensions that collectively form the higher‐order EO construct. We present an empirical illustration of our reconceptualization followed by a discussion of future research opportunities.
    May 30, 2014   doi: 10.1002/smj.2298   open full text
  • The Relationship Between Product And International Diversification: The Role Of Experience.
    Michael C.J. Mayer, Christian Stadler, Julia Hautz.
    Strategic Management Journal. May 28, 2014
    We establish prior diversification experience as a key determinant of the relationship between growth of product and international diversification. Prior diversification experience allows firms to overcome short run constraints on simultaneous diversification growth imposed by the difficulty to transfer tacit knowledge, ambiguous competencies, and limited absorptive capacity. Studying U.S. and European firms we find a positive relationship between growth in product and international scope for firms with high and a negative one for those with little prior diversification experience. Further we find that product diversification experience has greater impact than international diversification experience.
    May 28, 2014   doi: 10.1002/smj.2296   open full text
  • Corporate governance and IPO underpricing in a cross‐national sample: A multilevel knowledge‐based view.
    William Q. Judge, Michael A. Witt, Alessandro Zattoni, Till Talaulicar, Jean Jinghan Chen, Krista Lewellyn, Helen Wei Hu, Dhirendra Shukla, R. Greg Bell (Robert), Jonas Gabrielsson, Felix Lopez, Sibel Yamak, Yves Fassin, Daniel McCarthy, Jose Rivas, Stav Fainshmidt, Hans Van Ees.
    Strategic Management Journal. May 27, 2014
    Prior studies of IPO underpricing, mostly using agency theory and single‐country samples, have generally fallen short. In this study, we employ the knowledge‐based view (KBV) to explore underpricing across 17 countries. We find that agency indicators are insignificant predictors, board of director knowledge limits underpricing, and external knowledge both substitutes for and complements internal board knowledge. This third finding suggests that future KBV studies should consider how internal and external knowledge states interact with each other. Our study offers new insights into the antecedents of underpricing and extends our understanding of comparative governance and the KBV of the firm. Copyright © 2014 John Wiley & Sons, Ltd.
    May 27, 2014   doi: 10.1002/smj.2275   open full text
  • The Interactions Of Institutions On Foreign Market Entry Mode.
    Siah Hwee Ang, Mirko H. Benischke, Jonathan P. Doh.
    Strategic Management Journal. May 23, 2014
    This paper examines the interaction effects of institutional differences in the cognitive, normative, and regulatory domains on cross‐border acquisition and alliance formation. Using a sample of 673 cross‐border acquisitions and alliances conducted by multinational corporations (MNCs) from the manufacturing sector of six emerging economies (EEs) over the period 1995 to 2008, we find significant mimicking (cognitive domain) of local firms’ choice of ownership modes by EE firms. We also find that regulatory distance (regulatory domain) moderates the mimicking of both foreign and local firms while normative distance does not have any moderating effect. These findings contribute to our understanding of how EE MNCs mimic ownership modes in foreign market entry and how the interaction of this mimetic tendency with other institutional pillars affect these decisions.
    May 23, 2014   doi: 10.1002/smj.2295   open full text
  • The effects of opportunities and founder experience on new firm performance.
    John C. Dencker, Marc Gruber.
    Strategic Management Journal. May 22, 2014
    Much prior research in entrepreneurship has focused on the role of the founder's knowledge in affecting new firm performance. Yet, little is known about how and why the entrepreneurial opportunity itself shapes outcomes in this arena. We begin filling in this critical gap in the literature by examining how the riskiness of the opportunity not only affects start‐up performance, but also conditions the relevance of the founder's distinct knowledge endowments. Analyses of a sample of 451 new firms show that the riskier the opportunity, the greater the performance of the start‐up, above and beyond founder characteristics. Moreover, the value of founder knowledge is relative to the type of opportunity exploited: high‐risk opportunities favor founders with managerial experience, whereas low‐risk opportunities favor founders with industry experience. Copyright © 2014 John Wiley & Sons, Ltd.
    May 22, 2014   doi: 10.1002/smj.2269   open full text
  • The Double‐Edged Sword Of Recombination In Breakthrough Innovation.
    Sarah Kaplan, Keyvan Vakili.
    Strategic Management Journal. May 22, 2014
    We explore the double‐edged sword of recombination in generating breakthrough innovation: recombination of distant or diverse knowledge is needed because knowledge in a narrow domain might trigger myopia; but, recombination can be counterproductive when local search is needed to identify anomalies. We take into account how creativity shapes both the cognitive novelty of the idea and the subsequent realization of economic value. We develop a text‐based measure of novel ideas in patents using topic modeling to identify those patents that originate new topics in a body of knowledge. We find that, counter to theories of recombination, patents that originate new topics are more likely to be associated with local search, while economic value is the product of broader recombinations as well as novelty.
    May 22, 2014   doi: 10.1002/smj.2294   open full text
  • Fishing for sharks: Partner selection in biopharmaceutical R&D alliances.
    Richard Mason, Donald L. Drakeman.
    Strategic Management Journal. May 22, 2014
    A recent study of R&D alliances between new biotechnology firms (NBFs) and pharmaceutical firms investigated how NBFs deal with the “swimming with sharks” dilemma involved in allying with firms capable of appropriating value. It concludes that NBFs are less likely to select alliance partners with related expertise because of greater appropriation risk. Based on our experience as NBF managers and a survey of NBF executives, we believe that such situations are uncommon, and that the study more likely shows pharmaceutical firms seeking diversification. Thousands of NBFs seek alliances with the top 100 pharmaceutical firms, and the larger company is much more likely to be the one to select among multiple potential partners. Copyright © 2013 John Wiley & Sons, Ltd.
    May 22, 2014   doi: 10.1002/smj.2177   open full text
  • Effect of Scenario Planning on Field Experts’ Judgment of Long‐range Investment Decisions.
    Shardul Phadnis, Chris Caplice, Yossi Sheffi, Mahender Singh.
    Strategic Management Journal. May 20, 2014
    We present the results of three field experiments demonstrating the effect of scenario planning on field experts’ judgment of several long‐range investment decisions. Our results show, contrary to the past findings, that the use of multiple scenarios does not cause an aggregate increase or decrease in experts’ confidence in their judgment. Rather, expert judgment changes in accordance with how an investment fares in a given scenario: it becomes more favorable if the investment is found to be useful for a particular scenario used by the expert, and vice versa. This scenario‐induced change is moderated by the expert's confidence in his/her judgment before using the scenario. Finally, our results show that field experts prefer more flexible options to make specific long‐range investments after using multiple scenarios.
    May 20, 2014   doi: 10.1002/smj.2293   open full text
  • When Do Family Firms Have An Advantage In Transitioning Economies? Toward A Dynamic Institution‐Based View.
    Elitsa R. Banalieva, Kimberly A. Eddleston, Thomas M. Zellweger.
    Strategic Management Journal. May 20, 2014
    We advance a dynamic institution‐based view of the firm that extends the theory's current focus on scope of pro‐market reforms (degree of market liberalization in a given year) to consider how speed of reforms (rate of market liberalization achieved over time) affects the performance of firms from transitioning economies. Utilizing a sample of public firms from Chinese provinces with varying reform speeds, we find that while scope of reforms positively impacts firm performance, speed of reforms detracts from firm performance. We further find that while family firms have an advantage in gradually reforming provinces, non‐family firms have an advantage in rapidly reforming provinces. Thus, we extend the institution‐based view across time (speed of reforms) and firms (family vs. non‐family firms).
    May 20, 2014   doi: 10.1002/smj.2288   open full text
  • Upper‐echelon executive human capital and compensation: Generalist vs specialist skills.
    Sudip Datta, Mai Iskandar‐Datta.
    Strategic Management Journal. May 19, 2014
    This study extends current knowledge of upper echelon executive compensation beyond the CEO, specifically CFO compensation, based on whether they possess generalist or specialist skills. We find that “strategic” CFOs with an elite MBA (generalist) consistently command a compensation premium, while “accounting” CFOs (specialist) and CFOs with a non‐MBA master's degree, even from an elite institution, do not. Further, scarce “strategic” CFOs are awarded both higher salaries and higher equity‐based compensation. Our findings support the view that unique complementarities between scarce CFOs and firms increase these executives' bargaining power leading to pay premium. Our results are robust to post‐hiring years, firm sizes, board characteristics, and CFO's insider/outsider status. We contribute at the confluence of upper‐echelon compensation, executive human capital, resource‐based view, and assortative matching literatures. Copyright © 2014 John Wiley & Sons, Ltd.
    May 19, 2014   doi: 10.1002/smj.2267   open full text
  • When is human capital a valuable resource? The performance effects of Ivy league selection among celebrated CEOs.
    Danny Miller, Xiaowei Xu, Vikas Mehrotra.
    Strategic Management Journal. May 19, 2014
    We investigate whether and when highly trained human capital constitutes a rent‐sustaining resource. Our study of 444 CEOs celebrated on the covers of major U.S. business magazines found an advantage accruing to graduates of selective universities. Such CEOs led firms with higher and more sustained market valuations. The advantage was strongest for undergraduate programs as these related to the kinds of talent demanded of a CEO. The advantage also was greatest in smaller firms where CEO discretion might be highest and for younger CEOs who may benefit most from college and are less able to appropriate rents. Finally, the advantage accrued to graduates of more recent years, when selective schools had become less socially elitist and increasingly meritocratic, thus favoring human versus social capital. Copyright © 2014 John Wiley & Sons, Ltd.
    May 19, 2014   doi: 10.1002/smj.2251   open full text
  • When Does Transitioning From Family To Professional Management Improve Firm Performance?
    Sea‐Jin Chang, Jungwook Shim.
    Strategic Management Journal. May 19, 2014
    Using long‐term data on Japanese family firms, this study explores when the transition from family to professional management leads to better performance. In order to avoid endogeneity bias, we employ propensity score matching and difference‐in‐differences techniques. We find evidence that firms that transition from family to professional CEOs outperform those that maintain family leadership. This performance improvement is more pronounced when (a) families maintain high ownership control but leave no family legacy behind, (b) when the transition moves from non‐founder family managers to professionals, and (c) when professional managers graduated from elite universities.
    May 19, 2014   doi: 10.1002/smj.2289   open full text
  • The Market That Never Was: Turf Wars And Failed Alliances In Mobile Payments.
    Pinar Ozcan, Filipe M. Santos.
    Strategic Management Journal. May 19, 2014
    In this inductive multiple‐case study set in the nascent market for mobile payments, we investigate how global firms from different industries attempt to define the architecture for a new market. We find that powerful players from different industries have difficulty in reaching agreement on the new market's architecture due to their history of dominance in their respective industries. This disagreement in turn leads to a weak compromise on market architecture and creates a vicious cycle of resource allocation deferment. We show that the nascent market is thus less likely to emerge despite country‐level attempts at resolving these issues. Our findings contribute to resource dependence theory and to theories of market emergence, and lead to a deeper understanding of when and how markets fail to emerge.
    May 19, 2014   doi: 10.1002/smj.2292   open full text
  • Making the Same Mistake All Over Again: CEO Overconfidence and Corporate Resistance to Corrective Feedback.
    Guoli Chen, Craig Crossland, Shuqing Luo.
    Strategic Management Journal. May 19, 2014
    Firms often make mistakes, from simple manufacturing overruns all the way to catastrophic blunders. However, there is considerable heterogeneity in the nature of corporate responses when faced with evidence that an error has taken place, and, therefore, in the likelihood that such errors will reoccur in the future. In this paper, we explore an important but understudied influence on firms’ responses to corrective feedback – a CEO’s level of overconfidence. Using multiple distinct measures of overconfidence and the empirical context of voluntary corporate earnings forecasts, we find strong, robust evidence that firms led by overconfident CEOs are less responsive to corrective feedback in improving management forecast accuracy. We further show that this relationship is moderated by prior forecast error valence, time horizon, and managerial discretion.
    May 19, 2014   doi: 10.1002/smj.2291   open full text
  • Within‐Industry Diversification and Firm Performance—An S‐shaped Hypothesis.
    Niron Hashai.
    Strategic Management Journal. May 19, 2014
    This study shows that the interplay between “adjustment costs”, "coordination costs” and within‐industry diversification benefits, results in an S‐shaped relationship between within‐industry diversification and firm performance. At low levels of within industry diversification, coordination costs are negligible but “adjustment costs” are higher than the synergy benefits of a limited product scope, hence leading to negative performance outcomes. At moderate levels of within within‐industry diversification synergies between related product categories substantially increase and outweigh the rise in adjustment and coordination costs, resulting in positive performance outcomes. Yet, extensive within‐industry diversification gives rise to considerable coordination costs, which, coupled with adjustment costs, outweigh synergy effects and hamper performance. The study further shows that a greater change rate of within‐industry diversification results in negative performance outcomes.
    May 19, 2014   doi: 10.1002/smj.2290   open full text
  • How CEO Hubris Affects Corporate Social (Ir)responsibility.
    Yi Tang, Cuili Qian, Guoli Chen, Rui Shen.
    Strategic Management Journal. May 16, 2014
    Grounded in the upper echelons perspective and stakeholder theory, this study establishes a link between CEO hubris and corporate social responsibility (CSR). We first develop the theoretical argument that CEO hubris is negatively related to a firm's socially responsible activities but positively related to its socially irresponsible activities. We then explore the boundary conditions of hubris effects and how these relationships are moderated by resource dependence mechanisms. With a longitudinal dataset of S&P 1500 index firms for the period 2001–2010, we find that the relationship between CEO hubris and CSR is weakened when the firm depends more on stakeholders for resources, such as when its internal resource endowments are diminished as indicated by firm size and slack, and when the external market becomes more uncertain and competitive. The implications of our findings for upper echelons theory and the CSR research are discussed.
    May 16, 2014   doi: 10.1002/smj.2286   open full text
  • Business Groups in Developing Capital Markets: Towards a Complementarity Perspective.
    Raveendra Chittoor, Prashant Kale, Phanish Puranam.
    Strategic Management Journal. May 16, 2014
    Prior research suggests that Business Groups (BGs) in developing economies have emerged as alternatives to poorly developed economic institutions in these countries. In this paper, we argue that this does not necessarily imply they are substitutes. Specifically, we consider the case of capital markets, a key economic institution: while the absence of well developed capital markets may indeed have stimulated the emergence of business groups, we propose that BG affiliation and the scrutiny that maturing capital markets impose on firms that participate actively in them nevertheless can play a complementary role in influencing a firm's performance. We find support for our predictions in a novel longitudinal data set of Indian firms that contain both listed and unlisted, BG affiliated as well as unaffiliated firms.
    May 16, 2014   doi: 10.1002/smj.2287   open full text
  • Do female and ethnically diverse executives endure inequity in the CEO position or do they benefit from their minority status? An empirical examination.
    Aaron D. Hill, Arun D. Upadhyay, Rafik I. Beekun.
    Strategic Management Journal. May 16, 2014
    We present competing hypotheses regarding whether gender and ethnic minority CEOs endure inequities resulting in lower compensation and higher likelihood of job exit or benefit from their valuable, rare, and inimitable minority status, resulting in higher compensation and lower likelihood of job exit. Using a longitudinal sample, we find support for the resource‐based hypothesis regarding compensation that suggests CEOs benefit from their minority status to receive higher compensation than white male CEOs receive. However, we also find mixed support for our hypotheses relating CEO minority status to the likelihood of exit. We find that the effects of minority status on likelihood of exit are significantly different for female and ethnic minority CEOs such that the former relationship is negative while the latter is positive. Copyright © 2014 John Wiley & Sons, Ltd.
    May 16, 2014   doi: 10.1002/smj.2274   open full text
  • Value creation and value capture under moral hazard: Exploring the micro‐foundations of buyer– supplier relationships.
    Tomasz Obloj, Peter Zemsky.
    Strategic Management Journal. May 16, 2014
    We combine the formalism of a principal–agent framework with a value‐based analysis in order to investigate the micro‐foundations of business partner selection and the division of value in contracting relationships. In particular, we study how the key contracting parameters such as efficiency, transactional integrity, incentive alignment, and gaming affect outcomes when buyers face competing suppliers. We show that integrity and efficiency increase value creation and capture for all parties and are complements. While incentive gaming is unambiguously bad for value creation, and reduces buyers' value capture, it can benefit some suppliers. For alignment, we find that neither party has an incentive to use fully aligned performance measures that maximize total value creation. We conclude by analyzing buyers' and suppliers' incentives to invest in integrity. Copyright © 2014 John Wiley & Sons, Ltd.
    May 16, 2014   doi: 10.1002/smj.2271   open full text
  • I used to work at Goldman Sachs! How firms benefit from organizational status in the market for human capital.
    Matthew Bidwell, Shinjae Won, Roxana Barbulescu, Ethan Mollick.
    Strategic Management Journal. May 16, 2014
    How does employer status benefit firms in the market for general human capital? On the one hand, high status employers are better able to attract workers, who value the signal of ability that employment at those firms provides. On the other hand, that same signal can help workers bid up wages and capture the value of employers' status. Exploring this tension, we argue that high status firms are able to hire higher ability workers than other firms, and do not need to pay them the full value of their ability early in the career, but must raise wages more rapidly than other firms as those workers accrue experience. We test our arguments using unique survey data on careers in investment banking. Copyright © 2014 John Wiley & Sons, Ltd.
    May 16, 2014   doi: 10.1002/smj.2272   open full text
  • Heuristics in the strategy context—commentary on Bingham and Eisenhardt (2011).
    Natalia Vuori, Timo Vuori.
    Strategic Management Journal. May 08, 2014
    Bingham and Eisenhardt (2011) highlight the positive role of heuristics in the strategy context. They discuss four mechanisms through which heuristics have positive effects for strategy. The first mechanism—using a heuristic cue as a proxy for complex, correlated information—builds directly on Gigerenzer's research on positive heuristics. The second (capturing a window of opportunity) and third (providing some direction while allowing freedom to improvise) mechanisms, combine Gigerenzer's ideas with Eisenhardt's earlier work. The fourth one relates to coordination. In this commentary, we critically evaluate the applicability of these four mechanisms in the strategy context, which differs fundamentally from Gigerenzer's context. Our primary contribution is the explication of central limitations in the ways heuristics can function in the strategy context. Copyright © 2014 John Wiley & Sons, Ltd.
    May 08, 2014   doi: 10.1002/smj.2259   open full text
  • Attention allocation to multiple goals: The case of for‐profit social enterprises.
    Robin Stevens, Nathalie Moray, Johan Bruneel, Bart Clarysse.
    Strategic Management Journal. May 08, 2014
    The complexity of issues firms have to attend to make it impossible for CEOs to give their full attention to all issues concurrently. Drawing on the “attention‐based view” of the firm, this paper opens the black box of attention allocation in for‐profit social enterprises by showing how attention structures and the context in which the firm operates interplay. Utilizing empirical data on 148 for‐profit social enterprises, findings show that the attention structures—other‐regarding values, utilitarian identity, and resource availability—have a significant impact on the relative attention to social goals, while past firm performance as a context variable moderates these relations. Applying the principles of structural and situated attention, this paper makes an important contribution to management theory and attention allocation in for‐profit social enterprises. Copyright © 2014 John Wiley & Sons, Ltd.
    May 08, 2014   doi: 10.1002/smj.2265   open full text
  • Strategy tools‐in‐use: A framework for understanding “technologies of rationality” in practice.
    Paula Jarzabkowski, Sarah Kaplan.
    Strategic Management Journal. May 08, 2014
    In response to critiques of strategy tools as unhelpful or potentially dangerous for organizations, we suggest casting a sociological eye on how tools are actually mobilized by strategy makers. In conceptualizing strategy tools as tools‐in‐use, we offer a framework for examining the ways that the affordances of strategy tools and the agency of strategy makers interact to shape how and when tools are selected and applied. Further, rather than evaluating the correct or incorrect use of tools, we highlight the variety of outcomes that result, not just for organizations but also for the tools and the individuals who use them. We illustrate this framework with a vignette and propose an agenda and methodological approaches for further scholarship on the use of strategy tools. Copyright © 2014 John Wiley & Sons, Ltd.
    May 08, 2014   doi: 10.1002/smj.2270   open full text
  • Examining a key corporate role: The influence of capital allocation competency on business unit performance.
    Mathias Arrfelt, Robert M. Wiseman, Gerry McNamara, G. Tomas M. Hult.
    Strategic Management Journal. May 08, 2014
    Research on the role of the corporate office in firm performance has focused on establishing how much performance variance can be attributed to a “corporate effect,” with little attention devoted to understanding how this influence occurs. In this study, we model capital allocation competency as a dynamic managerial capability and find that lower levels of allocation competency in the form of excess investment to business units with relatively poorer future prospects reduce business unit performance. We also find that market conditions affect performance implications of capital allocation—allocation competency is more salient in more competitive markets. These results enhance our understanding of how the corporate office influences business unit performance through its role in allocating capital across business units. Copyright © 2014 John Wiley & Sons, Ltd.
    May 08, 2014   doi: 10.1002/smj.2264   open full text
  • Response to Mason and Drakeman's comment.
    Luis Diestre, Nandini Rajagopalan.
    Strategic Management Journal. May 07, 2014
    We respond to Mason and Drakeman's comment on our published paper titled “Are All ‘Sharks’ Dangerous? New Biotechnology Ventures and Partner Selection in R&D Alliances” (Diestre and Rajagopalan, 2012). We discuss both their survey analysis and alternative explanation and conclude that neither of them invalidates our theoretical premise and our empirical conclusions. Copyright © 2014 John Wiley & Sons, Ltd.
    May 07, 2014   doi: 10.1002/smj.2266   open full text
  • New Venture Strategic Adaptation: The interplay of belief structures and industry context.
    Andreea N. Kiss, Pamela S. Barr.
    Strategic Management Journal. May 06, 2014
    We adopt an information processing perspective to investigate how the interplay of belief structures and industry context shapes new venture strategic adaptation in a sample of 104 publicly traded new ventures founded between 1996 and 2006 in several technology intensive industries. Results highlight that distinct espoused belief structures attributes (complexity, centrality, proactive causal logics) and industry growth combinations predict diversity, frequency, and speed of new venture strategic actions. We contribute to prior literature on early firm strategic adaptation by providing an elaborated understanding of the role of espoused belief structures in interpreting and translating industry signals into new venture strategic action. Further, we highlight the role of belief structures in facilitating the fast, diverse, and frequent organizational actions typically associated with continuous adaptation.
    May 06, 2014   doi: 10.1002/smj.2285   open full text
  • The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics.
    Ioannis Ioannou, George Serafeim.
    Strategic Management Journal. May 04, 2014
    We explore the impact of corporate social responsibility (CSR) ratings on sell‐side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that, over time, the emergence of a stakeholder focus shifts the analysts' perceptions of CSR. Using a large sample of publicly traded U.S. firms over 15 years, we confirm that, in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, analysts progressively assess these firms more optimistically over time. Furthermore, we find that analysts of highest status are the first to shift the relation between CSR ratings and investment recommendation optimism. Copyright © 2014 John Wiley & Sons, Ltd.
    May 04, 2014   doi: 10.1002/smj.2268   open full text
  • The role of reference point in CEO restricted stock and its impact on R&D intensity in high‐technology firms.
    Elizabeth N. K. Lim.
    Strategic Management Journal. May 04, 2014
    Prior work based on agency theory and behavioral agency model has focused on how absolute pay values affect firm outcomes. Departing from this traditional approach, we draw from behavioral decision theory to explain how relative pay levels influence firm risk taking. We investigate how CEO restricted stock value relative to reference point influences R&D intensity in high‐technology firms. We propose that negative deviation increases are related to R&D increases and positive deviation increases lead to R&D decreases, while negative deviation has greater effect than positive deviation. We establish theoretical boundary conditions by considering CEO duality and board vigilance as moderators. Drawing from agency theory, we predict the main effects will be enhanced under duality and weakened under high board vigilance. Our hypotheses are largely supported. Copyright © 2014 John Wiley & Sons, Ltd.
    May 04, 2014   doi: 10.1002/smj.2252   open full text
  • Has the “CEO effect” increased in recent decades? A new explanation for the great rise in America's attention to corporate leaders.
    Timothy J. Quigley, Donald C. Hambrick.
    Strategic Management Journal. May 04, 2014
    We introduce a new explanation for one of the most pronounced phenomena on the American business landscape in recent decades: a dramatic increase in attributions of CEO significance. Specifically, we test the possibility that America's CEOs became seen as increasingly significant because they were, in fact, increasingly significant. Employing variance partitioning methodologies on data spanning 60 years and more than 18,000 firm‐years, we find that the proportion of variance in performance explained by individual CEOs, or “the CEO effect,” increased substantially over the decades of study. We discuss the theoretical and practical implications of this finding. Copyright © 2014 John Wiley & Sons, Ltd.
    May 04, 2014   doi: 10.1002/smj.2258   open full text
  • The effects of geographic and network ties on exploitative and exploratory product innovation.
    Muammer Ozer, Wen Zhang.
    Strategic Management Journal. May 04, 2014
    Addressing the inconsistent findings in the literature, we first distinguish the type of innovation and study the relationship of industrial clusters with exploitative and exploratory product innovation. Furthermore, we study how focal cluster firms' network ties with their suppliers and buyers in their clusters might moderate these relationships. Our empirical study showed that, while cluster membership enhanced firms' exploitative product innovation, it hindered their exploratory product innovation. Moreover, the results showed that focal cluster firms' network ties with their suppliers and buyers in their clusters strengthened the effects of cluster membership on exploitative product innovation. They also showed that focal cluster firms' network ties with their buyers but not suppliers in their clusters reduced the negative effects of cluster membership on exploratory product innovation. Copyright © 2014 John Wiley & Sons, Ltd.
    May 04, 2014   doi: 10.1002/smj.2263   open full text
  • Executive succession and strategic change in Japan.
    Motohiro Nakauchi, Margarethe F. Wiersema.
    Strategic Management Journal. May 04, 2014
    Scholars studying upper echelons have found that executive succession can serve as an important adaptation mechanism. The bulk of these findings, however, derive from market‐based governance settings, which raises an issue of contextual robustness. This study examines this issue by investigating the link between executive succession and strategic change in Japan, a context noted for relatively weak market‐based corporate governance and lack of board independence. We find a greater likelihood of strategic change after non‐routine executive succession, with the extent of change unaffected by firm performance. Routine succession in the case of a powerful prior president leads to less post‐succession strategic change. Copyright © 2014 John Wiley & Sons, Ltd.
    May 04, 2014   doi: 10.1002/smj.2255   open full text
  • Motivation and Sorting of Human Capital in Open Innovation.
    Sharon Belenzon, Mark Schankerman.
    Strategic Management Journal. May 02, 2014
    This paper studies how business models can be designed to tap effectively into open innovation labor markets with heterogeneously motivated workers. Using data on open source software, we show that motivations are diverse, and demonstrate how managers can strategically influence the flow of code contributions and their impact on project performance. Unlike previous literature using survey data, we exploit the observed pattern of project membership and code contributions ‐‐ the "revealed preference" of developers‐‐‐to infer the motivations driving their decision to contribute. Developers strongly sort along key dimensions of the business model chosen by project managers, especially the degree of openness of the project license. The results indicate an important role for intrinsic motivation, reputation, and labor market signaling, and a more limited role for reciprocity.
    May 02, 2014   doi: 10.1002/smj.2284   open full text
  • Productivity enhancement at home via cross‐border acquisitions: The roles of learning and contemporaneous domestic investments.
    Olivier Bertrand, Laurence Capron.
    Strategic Management Journal. April 28, 2014
    We examine whether ex post domestic productivity gains accrue to firms making cross‐border acquisitions. We argue that cross‐border acquisitions can enhance the acquirers' productivity at home, and we posit that these domestic productivity gains will be greater when there are learning opportunities in the target's host country and when contemporaneous domestic productivity‐enhancing investments are made by the acquirer in conjunction with the acquisition. These predictions are supported by data drawn from a sample of French acquiring and nonacquiring firms. Our results indicate that cross‐border acquisitions and investing in productivity at home are complementary: each makes the other more beneficial to firm productivity. Copyright © 2014 John Wiley & Sons, Ltd.
    April 28, 2014   doi: 10.1002/smj.2256   open full text
  • Adaptive aspirations and performance heterogeneity: Attention allocation among multiple reference points.
    Daniela P. Blettner, Zi‐Lin He, Songcui Hu, Richard A. Bettis.
    Strategic Management Journal. April 28, 2014
    Organizations learn and adapt their aspiration levels based on reference points (prior aspiration, prior performance, and prior performance of reference groups). The relative attention that organizations allocate to these reference points impacts organizational search and strategic decisions. However, very little research has explored this. Therefore, we build a recursive feedback model of learning from organizational experience that explains heterogeneity of attention allocation to the reference points in adaptive aspirations. In a sample of the German magazine industry (1972–2010), we find when early in their life cycle and as they or their parent company age, organizations tend to focus more on their own aspirations; however, when at the verge of bankruptcy, they increase their attention to competitors' performance. Copyright © 2014 John Wiley & Sons, Ltd.
    April 28, 2014   doi: 10.1002/smj.2260   open full text
  • Exploring Longitudinal Risk‐Return Relationships.
    Torben J. Andersen, Richard A. Bettis.
    Strategic Management Journal. April 26, 2014
    We study a longitudinal fit model of adaptation and its association with the longitudinal risk‐return relationship. The model allows the firm to adjust its position in response to partial learning about a changing environment characterized by two path dependent processes – a random walk and a stochastic trend. Computational simulations at low levels of learning in both environmental contexts are consistent with empirical data. However, the results are also consistent when firm behavior appears to be mindless in the form of a random walk. Hence, both imperfect learning and a mindless random walk can lead to the inverse longitudinal risk‐return relationships observed empirically. We discuss this apparent paradox and the possible resolution between mindless and conscious behavior as plausible causes of the longitudinal Bowman Paradox.
    April 26, 2014   doi: 10.1002/smj.2281   open full text
  • Predicting Organizational Identification at the CEO Level.
    Donald Lange, Steven Boivie, James D. Westphal.
    Strategic Management Journal. April 23, 2014
    To develop further insight into antecedents of the CEO’s psychological orientation toward the firm, we investigate what might lead CEOs to identify with their firms. Although research suggests that CEO organizational identification can be quite consequential for the firm, little research attention has been paid to its determinants. To predict how the special context of the CEO position might lead to identification, we consider a set of motives that members have for identifying with their organizations and consider how unique features of the CEO position might be relevant to those motives. Our theory and supportive findings help explain how the context of the CEO position, including variables often conceptualized as control mechanisms in agency theory research, can have important effects on subsequent CEO organizational identification.
    April 23, 2014   doi: 10.1002/smj.2283   open full text
  • The Quest For Expansive Intellectual Property Rights And The Failure To Disclose Known Relevant Prior Art.
    H. Kevin Steensma, Mukund Chari, Ralph Heidl.
    Strategic Management Journal. April 21, 2014
    Expansive patent portfolios may be used by firms to fence off technological space for commercialization, impede the commercialization efforts of competitors, and enhance bargaining power in cross‐licensing negotiations. Low quality patents with claims that overlap those of other patents contribute to these portfolios and patent strategies. By failing to disclose known relevant prior art during the patenting process, inventors and their firms may be granted low quality patents with intellectual property claims which would not otherwise have been granted. We find that the failure of inventors to disclose known relevant prior art increases as they gain experience with the patenting process. Such failure is also greater among inventors employed by relatively small, poorly performing firms that rely on outsourced legal counsel during the application process.
    April 21, 2014   doi: 10.1002/smj.2279   open full text
  • Throwing Caution to the Wind: The Effect of CEO Stock Option Pay on the Incidence of Product Safety Problems.
    Adam J. Wowak, Michael J. Mannor, Kaitlin D. Wowak.
    Strategic Management Journal. April 17, 2014
    Stock options are thought to align the interests of CEOs and shareholders, but scholars have shown that options sometimes lead to outcomes that run counter to what they are meant to achieve. Building on this research, we argue that options promote a lack of caution in CEOs that manifests in a higher incidence of product safety problems. We also posit that this relationship varies across CEOs, and that the effect of options will depend upon CEO characteristics such as tenure and founder status. Analyzing product recall data for a large sample of FDA‐regulated companies, we find support for our theory.
    April 17, 2014   doi: 10.1002/smj.2277   open full text
  • Firm Responses To Social Movement Pressures: A Competitive Dynamics Perspective.
    Desiree F. Pacheco, Thomas J. Dean.
    Strategic Management Journal. April 10, 2014
    Why do firms respond to social movement pressures differently? This study investigates how the strategic motivation of firms, as captured by competitor activity and market dependence, influences the likelihood of their response to social movement demands. We examine this through a longitudinal analysis of wind power adoption by electric utilities in U.S. deregulated markets. We find that when either competitor actions aligned with movement demands or firm dependence on targeted markets increase, the positive effect of movement activism on firm response diminishes. In contrast, as strategic motivation declines, increases in movement activism become more influential at eliciting firm responses.
    April 10, 2014   doi: 10.1002/smj.2273   open full text
  • Time to Exit: Rational, Behavioral, and Organizational Delays.
    Daniel Elfenbein, Anne Marie Knott.
    Strategic Management Journal. March 19, 2014
    Existing studies of exit delay typically focus on rational, behavioral, or organizational explanations in isolation. We integrate these different theoretical explanations, develop testable hypotheses for each, and examine them using the population of US banks between 1984 and 1997. Banks’ exit behavior is not consistent with theories emphasizing the option value of avoiding re‐entry costs. Patterns of exit do, however, support models of rational delay under ability uncertainty. Controlling for this source of rational delay, we find evidence of delay due to behavioral bias – firms discount negative signals of profitability relative to positive signals – and organizational considerations – delay increases with the separation of ownership and control. These results demonstrate that all three sets of theories are necessary to describe exit behavior.
    March 19, 2014   doi: 10.1002/smj.2262   open full text
  • Confounding changes in averages with marginal effects: How anchoring can destroy economic value in strategic investment assessments.
    Zur Shapira, J. Myles Shaver.
    Strategic Management Journal. August 14, 2013
    Profit maximization requires that decision makers assess marginal profits. We demonstrate that decision makers often confound marginal profits with changes in average profits (e.g., changes in return‐on‐investment). This results in systematic deviations from profit maximization where decision makers forgo profit‐enhancing investments that reduce average profits or engage in loss‐enhancing investments that decrease average losses. In other words, average profit becomes an anchor by which new investments are assessed. We conduct two decision‐making experiments that show this bias and demonstrate it is pronounced when average profit data are accessible or task‐relevant. Moreover, we find within‐subject effects across experiments, which helps demonstrate the mechanism that invokes the bias. Copyright © 2013 John Wiley & Sons, Ltd.
    August 14, 2013   doi: 10.1002/smj.2165   open full text
  • Independent boards and the institutional investors that prefer them: Drivers of institutional investor heterogeneity in governance preferences.
    Karen Schnatterly, Scott G. Johnson.
    Strategic Management Journal. August 14, 2013
    Institutional investors report that they prefer to invest in firms with greater board independence despite the fact that researchers have been unable to demonstrate a link between board independence and firm performance. We investigate whether differences among institutional investors affect these preferences. We find that trading strategies have some effect but that mutual funds—facing the strongest institutional pressures—have significantly stronger preferences for firms with greater board independence than do other types of institutional investors. This suggests that institutional investor preferences for independent boards are at least partially driven by institutional pressures rather than anticipated reductions in agency costs. Copyright © 2013 John Wiley & Sons, Ltd.
    August 14, 2013   doi: 10.1002/smj.2166   open full text
  • Competition‐driven repositioning.
    Richard D. Wang, J. Myles Shaver.
    Strategic Management Journal. August 10, 2013
    We study competition as an impetus for firms to reposition—to abandon their current positioning strategy and adopt a new one. We predict that as a strong firm moves closer, competition erodes the profitability of situated firms and prompts them to reposition. We expect this effect is pronounced the greater difference in competitive strength. However, we expect that countervailing forces exist such that the viability of alternative positions and the opportunity cost of abandoning a current position mitigate this effect. Evidence from a natural experiment in China's satellite television industry supports our hypotheses. This research adds to the existing literature on repositioning, which emphasizes the phenomenon as opportunity‐driven, and to the competitive interaction literature, which typically does not distinguish between noncounterattack strategies. Copyright © 2013 John Wiley & Sons, Ltd.
    August 10, 2013   doi: 10.1002/smj.2167   open full text
  • Models of causal inference: Imperfect but applicable is better than perfect but inapplicable.
    Florian Ellsaesser, Eric W. K. Tsang, Jochen Runde.
    Strategic Management Journal. August 08, 2013
    We assess a recent paper by Durand and Vaara (2009) that advances causal graph modeling as a tool for inferring causes in strategy research. We focus on the Markov condition, a key assumption on which causal graph modeling is based, and show why this condition is invariably violated in strategic management in general and the resource‐based view of the firm in particular. We then introduce vector space modeling as a quantitative alternative to causal graph modeling, and consider how improved methods of causal inference might enhance our ability to test some of the central propositions of the resource‐based view. Copyright © 2013 John Wiley & Sons, Ltd.
    August 08, 2013   doi: 10.1002/smj.2164   open full text
  • Strategic consensus mapping: A new method for testing and visualizing strategic consensus within and between teams.
    Murat Tarakci, Nufer Yasin Ates, Jeanine P. Porck, Daan van Knippenberg, Patrick J.F. Groenen, Marco de Haas.
    Strategic Management Journal. August 02, 2013
    Research on strategic consensus focuses primarily on the extent of agreement among team members regarding organizational strategy. It does not include elements such as the content of the agreement, between‐group consensus, or the significance of differences in consensus (e.g., for evaluating the effectiveness of strategic interventions). We propose a new analytical approach, Strategic Consensus Mapping, that provides a comprehensive analysis of strategic consensus within and between groups and that includes intuitive and easy‐to‐understand visualizations. This approach offers researchers the necessary tools for integrative theory building in strategic consensus, as well as in the broader managerial and organizational cognition domain. Using a case example, we illustrate the proposed methods for a multidimensional, multilevel, and longitudinal analysis of strategic consensus. Copyright © 2013 John Wiley & Sons, Ltd.
    August 02, 2013   doi: 10.1002/smj.2151   open full text
  • Institutional barriers and industry dynamics.
    Sea‐Jin Chang, Brian Wu.
    Strategic Management Journal. August 02, 2013
    This study demonstrates that new entrants exhibit higher productivity but also higher exit hazard than incumbents in post‐liberalization China. We argue this seemingly paradoxical relationship is attributable to institutional barriers, defined as the hindrance in the institutional environment that prevents market selection forces to function. New entrants require higher productivity to compensate for those institutional barriers, which in turn implies a higher exit hazard after controlling for productivity. Our empirical findings support this argument and further show that the differences in productivity and exit hazard between new entrants and incumbents become smaller where and when institutional barriers recede. By integrating economic and institutional perspectives, we highlight the importance of institutional factors in shaping industry evolution. Copyright © 2013 John Wiley & Sons, Ltd.
    August 02, 2013   doi: 10.1002/smj.2152   open full text
  • Firm litigation risk and the insurance value of corporate social performance.
    Ping‐Sheng Koh, Cuili Qian, Heli Wang.
    Strategic Management Journal. August 02, 2013
    This paper advances the risk management perspective that superior social performance enhances firm value by serving as an ex ante valuable insurance mechanism. We posit that good social performance is more valuable as an insurance mechanism for firms with higher litigation risks. Moreover, value generation of corporate social performance (CSP) depends on whether a firm has gained pragmatic legitimacy (i.e., a firm's financial health) and moral legitimacy (i.e., whether or not a firm operates in a socially contested industry) among its stakeholders. We find that the value of CSP as insurance against litigation risk is practically significant, adding 2 to 4 percent to firm value. But CSP is less likely to create value if the firm is in financial distress or is operating in socially contested industries. Copyright © 2013 John Wiley & Sons, Ltd.
    August 02, 2013   doi: 10.1002/smj.2171   open full text
  • Settling up in CEO compensation: The impact of divestiture intensity and contextual factors in refocusing firms.
    Seemantini Pathak, Robert E. Hoskisson, Richard A. Johnson.
    Strategic Management Journal. August 02, 2013
    We examine the relationship between strategic change and CEO compensation by studying how a firm's refocusing program influences CEO compensation after completing the change. We contribute to the ‘settling up’ literature by arguing that strategic change is often uncertain for both the CEO and the board of directors responsible for executive compensation. As such the firm is likely to settle up with the CEO by paying for compensation risk and effort undertaken during refocusing after the extent and impact of strategic change are better known. We find that refocusing intensity is positively related to post‐refocusing CEO total compensation, suggesting that ‘settling up’ through post hoc compensation is an important factor in strategic change. We also find that prior firm performance, governance structure and industry dynamism are important moderators of this relationship. © 2013 John Wiley & Sons, Ltd.
    August 02, 2013   doi: 10.1002/smj.2153   open full text
  • From autonomous strategic behavior to emergent strategy.
    Laurent Mirabeau, Steve Maguire.
    Strategic Management Journal. August 01, 2013
    This study develops a model of emergent strategy formation at a large telecommunications firm. It integrates prominent traditions in strategy process research—strategy as patterned action, as iterated resource allocation and as practice—to show how emergent strategy originates as a project through autonomous strategic behavior, then subsequently becomes realized as a consequence of mobilizing wider support to provide impetus, manipulating strategic context to legitimate the project by constructing it as consonant with the prevailing concept of strategy, and altering structural context to embed it within organizational units, routines, and objectives. The study theorizes the role of “practices of strategy articulation” in emergent strategy formation, and explains why some autonomous strategic behavior becomes “ephemeral” and disappears rather than enduring to become emergent strategy. Copyright © 2013 John Wiley & Sons, Ltd.
    August 01, 2013   doi: 10.1002/smj.2149   open full text
  • Information diffusion and value redistribution among transaction partners of the IPO firm.
    Kun Liu, Jonathan D. Arthurs, Daeil Nam, Fariss‐Terry Mousa.
    Strategic Management Journal. August 01, 2013
    This paper examines the diffusion of information around the initial public offering (IPO) process and identifies transaction partners on which IPO firms are dependent. Using a resource payments perspective, we argue that this dependence will lead to greater cumulative abnormal stock returns for transaction partners when this information is revealed in the market (when the initial form S‐1 is filed with the SEC). Moreover we examine the uniqueness of the resource configuration between the IPO firm and transaction partners and find that greater uniqueness is associated with higher valuation for these transaction partners. We also find that multiple dependencies (by the IPO firm) reduce the valuation effect for transaction partners indicating that a bargaining effect reduces the potential value that any transaction partner can appropriate.
    August 01, 2013   doi: 10.1002/smj.2176   open full text
  • Good learners: How top management teams affect the success and frequency of acquisitions.
    Anna Nadolska, Harry G. Barkema.
    Strategic Management Journal. July 31, 2013
    We develop new theory and hypotheses on how a firm's top management team learns from acquisition experience, why, in consequence, the composition of the team is crucial, and how this affects acquisition frequency and success. We focus on the diversity of the top team and argue that heterogeneous teams, as compared to homogenous ones, acquire less but benefit more from their acquisition experience and are more successful with their acquisitions because they avoid mis‐transferring their experiences. We tested our hypotheses on acquisition frequency and success using longitudinal data on more than 2,000 acquisitions by 25 Dutch companies over four decades (1966 to 2006). Copyright © 2013 John Wiley & Sons, Ltd.
    July 31, 2013   doi: 10.1002/smj.2172   open full text
  • Attributional tendencies in cultural explanations of M&A performance.
    Eero Vaara, Paulina Junni, Riikka M. Sarala, Mats Ehrnrooth, Alexei Koveshnikov.
    Strategic Management Journal. July 31, 2013
    This paper focuses on managers' attributions of M&A performance. Our analysis indicates that there is a linear association between performance and attributions to cultural differences, which is moderated by prior experience. Furthermore, our results suggest that there is a curvilinear association between performance and attributions to managers' actions, but we found no support for the moderating effect of experience for this association. By substantiating these attributional tendencies, our results contribute to research on M&As and studies on attribution more generally. In particular, our study helps to put cultural differences in perspective and cautions researchers and practitioners alike to avoid simplistic explanations of M&A performance. Copyright © 2013 John Wiley & Sons, Ltd.
    July 31, 2013   doi: 10.1002/smj.2163   open full text
  • Governance mode vs. governance fit: Performance implications of make‐or‐ally choices for product innovation in the worldwide aircraft industry, 1942–2000.
    Xavier Castañer, Louis Mulotte, Bernard Garrette, Pierre Dussauge.
    Strategic Management Journal. July 26, 2013
    We examine the impact of governance mode and governance fit on performance in make‐or‐ally decisions. We argue that while horizontal collaboration and autonomous governance have direct and countervailing performance implications, the alignment of make‐or‐ally choices with the focal firm's resource endowment and the activity's resource requirements leads to better performance. Data on the aircraft industry show that relative to aircraft developed autonomously, collaborative aircraft exhibit greater sales but require longer time‐to‐market. However, governance fit increases unit sales and reduces time‐to‐market. We contribute to the alliance and economic organization literatures. Copyright © 2013 John Wiley & Sons, Ltd.
    July 26, 2013   doi: 10.1002/smj.2160   open full text
  • Above the glass ceiling: When are women and racial/ethnic minorities promoted to CEO?
    Alison Cook, Christy Glass.
    Strategic Management Journal. July 26, 2013
    Using a dataset of all CEO transitions in Fortune 500 companies over a 15‐year period, we analyze mechanisms that shape the promotion probabilities and leadership tenure of women and racial/ethnic minority CEOs. Consistent with the theory of the glass cliff, we find that occupational minorities—defined as white women and men and women of color—are more likely than white men to be promoted CEO of weakly performing firms. Though we find no significant differences in tenure length between occupational minorities and white men, we find that when firm performance declines during the tenure of occupational minority CEOs, these leaders are likely to be replaced by white men. We term this phenomenon the “savior effect.” © 2013 John Wiley & Sons, Ltd.
    July 26, 2013   doi: 10.1002/smj.2161   open full text
  • The harder they fall, the faster they rise: Approach and avoidance focus in narcissistic CEOs.
    Pankaj C. Patel, Danielle Cooper.
    Strategic Management Journal. July 26, 2013
    Drawing on theoretical underpinnings of approach‐avoidance motivation and CEO narcissism, we provide a framework examining stronger approach focus (motivation towards desirable outcomes) and weaker avoidance focus (motivation away from undesirable outcomes) in narcissistic CEOs using a quasi‐natural experimental setting—the economic crisis beginning in 2007. Because highly narcissistic CEOs possess lower avoidance motivation in the precrisis period, their firms face greater declines in the onset of the crisis. However, their greater tendency towards approach motivation enables narcissistic CEOs to increase firm performance in the postcrisis period. While narcissistic CEOs are less likely to protect against potential shocks, they are adept at helping firms recover from such shocks. Using a sample of 392 CEOs representing 2,352 CEO firm‐years, we find support for the proposed framework. Copyright © 2013 John Wiley & Sons, Ltd.
    July 26, 2013   doi: 10.1002/smj.2162   open full text
  • Firm‐specific human capital, organizational incentives, and agency costs: Evidence from retail banking.
    Douglas H. Frank, Tomasz Obloj.
    Strategic Management Journal. July 24, 2013
    This paper explores conflicting implications of firm‐specific human capital (FSHC) for firm performance. Existing theory predicts a productivity effect that can be enhanced with strong incentives. We propose an offsetting agency effect: FSHC may facilitate more‐sophisticated ‘gaming’ of incentives, to the detriment of firm performance. Using a unique dataset from a multiunit retail bank, we document both effects and estimate their net impact. Managers with superior FSHC are more productive in selling loans but are also more likely to manipulate loan terms to increase incentive payouts. We find that resulting profits are two percentage points lower for high‐FSHC managers. Finally, profit losses increase more rapidly for high‐FSHC managers, indicating adverse learning. Our results suggest that FSHC can create agency costs that outweigh its productive benefits. Copyright © 2013 John Wiley & Sons, Ltd.
    July 24, 2013   doi: 10.1002/smj.2148   open full text
  • Managing contracts for fairness in buyer–supplier exchanges.
    Laura Poppo, Kevin Zheng Zhou.
    Strategic Management Journal. July 22, 2013
    Despite the centrality of fairness in the moral and social fabric of governance, few studies relate fairness to contracting research. This paper assesses whether fairness accounts for the effects of contractual complexity and contractual recurrence on exchange performance. Based on a sample of 283 buyer–supplier dyads, we find that procedural fairness partially mediates the effect of contractual complexity, whereas distributive fairness partially mediates the effect of contractual recurrence in fostering exchange performance. Moreover, monitoring better supports the use of contractual complexity, whereas socializing better supports the use of contractual recurrence in enhancing fairness perceptions. These results suggest that contractual design must go beyond its safeguarding function to establish a fair frame of reference, and managers should complement contracts with appropriate practices (e.g., monitoring or socializing).
    July 22, 2013   doi: 10.1002/smj.2175   open full text
  • Do analysts add value when they most can? Evidence from corporate spin‐offs.
    Emilie R. Feldman, Stuart C. Gilson, Belén Villalonga.
    Strategic Management Journal. July 19, 2013
    This article investigates how securities analysts help investors understand the value of diversification. By studying the research that analysts produce about companies that have announced corporate spin‐offs, we gain unique insights into how analysts portray diversified firms to the investment community. We find that while analysts' research about these companies is associated with improved forecast accuracy, the value of their research about the spun‐off subsidiaries is more limited. For both diversified firms and their spun‐off subsidiaries, analysts' research is more valuable when information asymmetry between the management of these entities and investors is higher. These findings contribute to the corporate strategy literature by shedding light on the roots of the diversification discount and by showing how analysts' research enables investors to overcome asymmetric information. Copyright © 2013 John Wiley & Sons, Ltd.
    July 19, 2013   doi: 10.1002/smj.2169   open full text
  • Overcoming localization of knowledge – the role of professional service firms.
    Stefan Wagner, Karin Hoisl, Grid Thoma.
    Strategic Management Journal. July 19, 2013
    The literature on organizational learning asserts that external learning is often limited geographically and technologically. We scrutinize to what extent organizations acquire external knowledge by accessing external knowledge repositories. We argue that professional service firms (PSFs) grant access to non‐localized knowledge repositories and thereby not only facilitate external learning but also help to overcome localization. Focusing on patent law firms, we test our predictions using a unique dataset of 544,820 pairs of EP patent applications. Analyzing patterns of knowledge flows captured in patent citations we find that accessing a PSF’s repository facilitates the acquisition of external knowledge. As the effect is more pronounced for knowledge that is distant to a focal organization we conclude that having access to a knowledge repository compensates for localization disadvantages.
    July 19, 2013   doi: 10.1002/smj.2174   open full text
  • Outward foreign direct investment by emerging market firms: A resource dependence logic.
    Jun Xia, Xufei Ma, Jane W. Lu, Daphne W. Yiu.
    Strategic Management Journal. July 17, 2013
    This study examines and extends the resource dependence logic of diversification for a better understanding of outward foreign direct investment (OFDI) activities by emerging market firms. We contend that the diversification logic is bounded by state ownership, an important but less considered component of interdependence. Our empirical results, based on panel data analysis of Chinese listed firms, suggest that the level of interdependence between Chinese and foreign firms in China in multiple forms, including symbiotic, competitive, and partner interdependencies, is positively associated with the level of the Chinese firms' OFDI activities. However, Chinese firms with higher levels of state ownership are less susceptible to the pressures imposed by foreign firms to invest abroad. Copyright © 2013 John Wiley & Sons, Ltd.
    July 17, 2013   doi: 10.1002/smj.2157   open full text
  • Concurrent sourcing, governance mechanisms, and performance outcomes in industrial value chains.
    Jan B. Heide, Alok Kumar, Kenneth H. Wathne.
    Strategic Management Journal. July 16, 2013
    We examine transaction governance in the context of concurrent sourcing, where a manufacturer relies on sourcing from external suppliers and in‐house production simultaneously. Our focus is on (1) a buyer's use of particular safeguards or governance mechanisms vis‐à‐vis an external supplier and (2) how the effects of these mechanisms on various performance outcomes are influenced by the joint presence of an internal manufacturing branch. We conduct two studies in the apparel industry and show that performance outcomes are a joint function of (1) the individual governance mechanisms that are deployed in a particular relationship and (2) the larger sourcing context (concurrent or singular). Copyright © 2013 John Wiley & Sons, Ltd.
    July 16, 2013   doi: 10.1002/smj.2145   open full text
  • Board involvement in international joint ventures.
    Jeffrey J. Reuer, Elko Klijn, Constantinos S. Lioukas.
    Strategic Management Journal. July 13, 2013
    The last two decades have witnessed substantial scholarly interest in corporate boards, yet little research has been devoted to boards of international joint ventures (IJVs). We combine the corporate governance and alliance governance literatures in order to study this important ex post governance mechanism for IJVs. We identify a fundamental tension inherent in IJVs, which arises from the unique features of this organizational form and influences the level of involvement by their boards. International joint ventures are hybrid organizational forms that can require administrative control to facilitate monitoring and coordinated adaptation in the presence of exchange hazards. At the same time, the fact that IJVs operate in different host countries can make it efficient to delegate authority to local management for certain collaborations. In investigating the determinants of IJV board involvement, we therefore examine characteristics of IJVs that reflect this underlying tension. We conclude that board involvement reflects efficiency considerations in individual ventures, and the administrative control provided by boards is an important dimension of IJV governance.
    July 13, 2013   doi: 10.1002/smj.2173   open full text
  • Knowledge worth having in ‘excess’: The value of tacit and firm‐specific human resource slack.
    Jose R. Lecuona, Markus Reitzig.
    Strategic Management Journal. July 11, 2013
    Whether holding resources in excess of what is needed to sustain routine operations (i.e., having slack) increases or decreases firm performance is a question of ongoing interest to management scholars. We contribute to existing theory by arguing that human resource slack generally decreases a firm's performance but that holding excess numbers of employees who possess important tacit knowledge that is specific to firms may benefit the firm. We find that the value of these excess resources increases as firms face competitive pressures and decreases when firms' operational choices facilitate the standardization of workflows. We obtain initial empirical evidence for our predictions by testing them on a novel dataset comprising six years of data for 4,070 manufacturing plants in Mexico. Copyright © 2013 John Wiley & Sons, Ltd.
    July 11, 2013   doi: 10.1002/smj.2143   open full text
  • When bad news is sugarcoated: Information distortion, organizational search and the behavioral theory of the firm.
    Christina Fang, Ji‐hyun (Jason) Kim, Frances J. Milliken.
    Strategic Management Journal. July 11, 2013
    Most work in strategy and organization theory assumes that performance feedback is straightforward to interpret and truthfully reported. We raise the following question: How might the systematic distortion of negative performance information affect organizational learning and future performance? We formulate a model where (1) members do not always report the truth about what they know about their performance level, especially when performance is below aspiration and (2) their propensity to distort information is subject to social influence. We find that organizations that are characterized by a high level of information distortion tend to perform more poorly but that the effect of a low rate of sugarcoating may, in some conditions, be more benign than the literatures seem to suggest. Copyright © 2013 John Wiley & Sons, Ltd.
    July 11, 2013   doi: 10.1002/smj.2146   open full text
  • The diffusion of foreign divestment from Burma.
    Sarah A. Soule, Anand Swaminathan, Laszlo Tihanyi.
    Strategic Management Journal. July 11, 2013
    We examine variation in the rate of divestment by multinational firms from Burma. We argue that in addition to a set of firm‐level characteristics known to impact divestment decisions, firms are also influenced by characteristics of their home country and the divestment patterns of others. Using data on firms operating in Burma during 1996–2002, we model these multiple influences on firms to divest. Our results show that beyond firm‐level concerns, firms divest in response to the political characteristics of their home country, including protest, the level of political freedom, and transparency of institutions. We also find that the centrality of their home country in the network of intergovernmental organizations impacts divestment patterns in interesting ways. Copyright © 2013 John Wiley & Sons, Ltd.
    July 11, 2013   doi: 10.1002/smj.2147   open full text
  • Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes.
    Manuela N. Hoehn‐Weiss, Samina Karim.
    Strategic Management Journal. July 08, 2013
    This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.‐based, VC‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.
    July 08, 2013   doi: 10.1002/smj.2158   open full text
  • Complementary assets as pipes and prisms: Innovation incentives and trajectory choices.
    Brian Wu, Zhixi Wan, Daniel A. Levinthal.
    Strategic Management Journal. July 08, 2013
    The issue of the failure of incumbent firms in the face of radical technical change has been a central question in the technology strategy domain for some time. We add to prior contributions by highlighting the role a firm's existing set of complementary assets have in influencing its investment in alternative technological trajectories. We develop an analytical model that considers firm heterogeneity with respect to both technological trajectories and complementary assets. Complementary assets play a dual role in incumbents' investment behavior toward radical technological change: they are not only resources (pipes) that can buffer firms from technology change, but also prisms through which firms view those changes, influencing both the magnitude of resources that should be invested and the trajectory to which these resources should be directed. Copyright © 2013 John Wiley & Sons, Ltd.
    July 08, 2013   doi: 10.1002/smj.2159   open full text
  • Using users: When does external knowledge enhance corporate product innovation?
    Aaron K. Chatterji, Kira R. Fabrizio.
    Strategic Management Journal. July 04, 2013
    Prior research on corporate innovation highlights the importance of accessing external knowledge from other firms and universities. However, survey evidence indicates that product users are perhaps the most important source of external knowledge. We build on existing theory to identify the conditions under which user knowledge contributes to corporate innovation and when the benefits will be greatest. Using a panel dataset of medical device companies and their collaborative efforts with innovative physicians, we find evidence that inventive collaborations with users enhance corporate product innovation, and that the benefits are greatest in new technology areas and in the generation of radical innovations.
    July 04, 2013   doi: 10.1002/smj.2168   open full text
  • Learning from openness: The dynamics of breadth in external innovation linkages.
    James H Love, Stephen Roper, Priit Vahter.
    Strategic Management Journal. July 04, 2013
    We explore how openness in terms of external linkages generates learning effects which enable firms to generate more innovation outputs from any given breadth of external linkages. Openness to external knowledge sources, whether through search activity or linkages to external partners in new product development, involves a process of interaction and information processing. Such activities are likely to be subject to a learning process, as firms learn which knowledge sources and collaborative linkages are most useful to their particular needs, and which partnerships are most effective in delivering innovation performance. Using panel data from Irish manufacturing plants, we find evidence of such learning effects: establishments with substantial experience of external collaborations in previous periods derive more innovation output from openness in the current period.
    July 04, 2013   doi: 10.1002/smj.2170   open full text
  • When the mirror gets misted up: Modularity and technological change.
    Andrea Furlan, Anna Cabigiosu, Arnaldo Camuffo.
    Strategic Management Journal. July 03, 2013
    This study investigates how component technological change affects the relationship between product modularity and organizational modularity (the across‐firm mirroring hypothesis). Studying the air conditioning industry, we show that the across‐firm mirroring hypothesis does not hold for technologically dynamic components and the associated supply relationships. In this case, the mirror gets “misted up” with buyers and suppliers having recourse to information sharing even in the presence of highly modular components. Our study contributes to the debate on the organizational implications of modularity and its ramifications for the theory of the firm. Copyright © 2013 John Wiley & Sons, Ltd.
    July 03, 2013   doi: 10.1002/smj.2138   open full text
  • Do non‐competition agreements lead firms to pursue risky R&D projects?
    Raffaele Conti.
    Strategic Management Journal. June 29, 2013
    This study investigates the impact of non‐competition agreements on the type of R&D activity undertaken by companies. Non‐competition agreements, by reducing outbound mobility and knowledge leakages to competitors, make high‐risk R&D projects relatively more valuable than low‐risk ones. Thus, they induce companies to choose riskier R&D projects, such that corporate inventions are more likely to lie in the tails of the inventions' value distribution (as breakthroughs or failures) and be in novel technological areas. This study uses data about U.S. patent applications from 1990 to 2000 and considers longitudinal variation in the enforcement of non‐compete clauses. The results indicate that in states with stricter enforcement, companies undertake riskier R&D paths than in states that do not enforce non‐compete agreements as strictly. Copyright © 2013 John Wiley & Sons, Ltd.
    June 29, 2013   doi: 10.1002/smj.2155   open full text
  • When hubs forget, lie, and play favorites: Interpersonal network structure, information distortion, and organizational learning.
    Melissa A. Schilling, Christina Fang.
    Strategic Management Journal. June 28, 2013
    The interpersonal network structure of an organization directly influences the diffusion and recombination of ideas and can thus facilitate or impede organizational learning. Most interpersonal networks have ‘hubs’—individuals who have significantly more connections than does the average member. This raises important questions about how hubs influence organizational learning outcomes. Does the presence of hubs improve or impair performance? What happens if hubs forget or misrepresent information that is transmitted through the network? Using simulation models, we find that moderately hubby networks outperform both very hubby and democratic networks.  We also find that moderate amounts of information omission or misrepresentation can be surprisingly beneficial to performance, though the patterns of their effects are strikingly different. Copyright © 2013 John Wiley & Sons, Ltd.
    June 28, 2013   doi: 10.1002/smj.2142   open full text
  • Last dance or second chance? Firm performance, CEO career horizon, and the separation of board leadership roles.
    Ryan Krause, Matthew Semadeni.
    Strategic Management Journal. June 25, 2013
    In recent years, many firms have chosen to separate their CEO and board chair positions. Prior research has demonstrated that there are three forms that a CEO–board chair separation can take: apprentice, departure, and demotion. In this paper, we examine the antecedents of these three types. Our results show that the three types of separation each have different profiles in terms of the prior performance of the firm, the independence of the board, and the career horizon of the incumbent CEO. The findings in this paper provide unique insights into the factors that drive boards' structural choices. As questions about board leadership structure become more nuanced and more relevant in both scholarship and practice, a full understanding of these factors will only become more important. Copyright © 2013 John Wiley & Sons, Ltd.
    June 25, 2013   doi: 10.1002/smj.2139   open full text
  • Agglomeration and clustering over the industry life cycle: Toward a dynamic model of geographic concentration.
    Liang Wang, Anoop Madhok, Stan Xiao Li.
    Strategic Management Journal. June 25, 2013
    Research on agglomeration finds that either a higher survival rate of incumbent firms or a higher founding rate of new entrants, or both, can sustain an industry cluster. The conditioning effects of time on the two distinct mechanisms of survival and founding are, however, rarely examined. We argue that the forces driving geographic concentration vary across the industry life cycle. Data from Ontario's winery industry from 1865 to 1974 demonstrates a dynamic model of geographic concentration: agglomeration attracts more new entry in the growth stage only, whereas it contributes to firm survival in the mature stage only. The results not only establish the importance of understanding the temporal dynamics underlying agglomeration externalities, but also provide a possible explanation for the mixed empirical results found in previous studies. Copyright © 2013 John Wiley & Sons, Ltd.
    June 25, 2013   doi: 10.1002/smj.2141   open full text
  • Managing strategic change: The duality of CEO personality.
    Pol Herrmann, Sucheta Nadkarni.
    Strategic Management Journal. June 25, 2013
    Using the five factor model (FFM) of personality, we delineate two distinct roles of CEO personality in managing strategic change: initiating strategic change and determining the performance effects of strategic change implementation. Based on data from 120 small‐ and medium‐sized enterprises (SMEs) in Ecuador, we found that some FFM traits of CEOs influenced initiation only (extraversion and openness), others similarly influenced initiation and performance effects of implementation (emotional stability and agreeableness), and still others had opposing effects on initiation and effective implementation (conscientiousness). These results point to a dual role of CEO FFM of personality in managing strategic change, and they indicate the differences in CEO FFM traits needed to initiate strategic change and those needed to improve the performance effects of strategic change implementation. Copyright © 2013 John Wiley & Sons, Ltd.
    June 25, 2013   doi: 10.1002/smj.2156   open full text
  • How capital structure influences diversification performance: A transaction cost perspective.
    Jonathan P. O'Brien, Parthiban David, Toru Yoshikawa, Andrew Delios.
    Strategic Management Journal. June 25, 2013
    Extant theories agree that debt should inhibit diversification but predict opposing performance consequences. While agency theory predicts that debt should lead to higher performance for diversifying firms, transaction cost economics (TCE) predicts that more debt will lead to lower performance for firms expanding into new markets. Our empirical tests on a large sample of Japanese firms support TCE by showing that firms accrue higher returns from leveraging their resources and capabilities into new markets when managers are shielded from the rigors of the market governance of debt, particularly bond debt. Furthermore, we find that the detrimental effects of debt are exacerbated for R&D intensive firms and that debt is not necessarily harmful to firms that are either contracting or managing a stable portfolio of markets. Copyright © 2013 John Wiley & Sons, Ltd.
    June 25, 2013   doi: 10.1002/smj.2144   open full text
  • The perils of endogeneity and instrumental variables in strategy research: Understanding through simulations.
    Matthew Semadeni, Michael C. Withers, S. Trevis Certo.
    Strategic Management Journal. June 25, 2013
    In this paper we use simulations to examine how endogeneity biases the results reported by ordinary least squares (OLS) regression. In addition, we examine how instrumental variable techniques help to alleviate such bias. Our results demonstrate severe bias even at low levels of endogeneity. Our results also illustrate how instrumental variables produce unbiased coefficient estimates, but instrumental variables are associated with extremely low levels of statistical power. Finally, our simulations highlight how stronger instruments improve statistical power and that endogenous instruments can report results that are inferior to those reported by OLS regression. Based on our results, we provide a series of recommendations for scholars dealing with endogeneity. Copyright © 2013 John Wiley & Sons, Ltd.
    June 25, 2013   doi: 10.1002/smj.2136   open full text
  • Cleaning house or jumping ship? Understanding board upheaval following financial fraud.
    Jeremy J. Marcel, Amanda P. Cowen.
    Strategic Management Journal. June 25, 2013
    Boards experience elevated levels of turnover among outside directors following financial fraud. Scholars have proposed two mechanisms that may drive this turnover. The first views turnover as part of a board's efforts to repair organizational legitimacy and avert resource withdrawal. The second argues that turnover is a byproduct of individual directors' efforts to safeguard their own reputations and mitigate professional devaluation. We use data on director departures following 63 fraud events to explore the relative importance of these two mechanisms. The results clarify our understanding of responses to governance failures and the challenges of reconstituting board membership following financial improprieties. Copyright © 2013 John Wiley & Sons, Ltd.
    June 25, 2013   doi: 10.1002/smj.2126   open full text
  • Detecting the relationship between competitive intensity and firm product line length: Evidence from the worldwide mobile phone industry.
    Claudio Giachetti, Giovanni Battista Dagnino.
    Strategic Management Journal. June 25, 2013
    The way firms lengthen or shorten their product line with respect to rivals is regarded as one of the possible strategies firms can pursue to respond to competition. This article builds and tests hypotheses to study the effect of different levels of competitive intensity on product line length. The empirical analysis of data on 3,527 handset models introduced by 66 mobile phone vendors from 1994 to 2010 shows a consistent inverse U‐shaped relationship between competitive intensity and the firm's product line length. In this way, we pinpoint an interesting link between the product line extension literature and the competitive dynamics and competitive intensity perspectives. Copyright © 2013 John Wiley & Sons, Ltd
    June 25, 2013   doi: 10.1002/smj.2154   open full text
  • The role of external knowledge sources and organizational design in the process of opportunity exploitation.
    Nicolai J. Foss, Jacob Lyngsie, Shaker A. Zahra.
    Strategic Management Journal. June 18, 2013
    Research highlights the role of external knowledge sources in the recognition of strategic opportunities but is less forthcoming with respect to the role of such sources during the process of exploiting or realizing opportunities. We build on the knowledge‐based view to propose that realizing opportunities often involves significant interactions with external knowledge sources. Organizational design can facilitate a firm's interactions with these sources, while achieving coordination among organizational members engaged in opportunity exploitation. Our analysis of a double‐respondent survey involving 536 Danish firms shows that the use of external knowledge sources is positively associated with opportunity exploitation, but the strength of this association is significantly influenced by organizational designs that enable the firm to access external knowledge during the process of exploiting opportunities. Copyright © 2013 John Wiley & Sons, Ltd.
    June 18, 2013   doi: 10.1002/smj.2135   open full text
  • Positive and negative synergies between the CEO's and the corporate board's human and social capital: A study of biotechnology firms.
    Chamu Sundaramurthy, Kuntara Pukthuanthong, Yasemin Kor.
    Strategic Management Journal. June 18, 2013
    This paper contributes to the corporate governance literature by developing and testing theory regarding positive and negative synergies between the CEO's and the board's human and social capital. Using a sample of 360 biotechnology firms that went public between 1995 and 2010, we demonstrate that accumulated public company board experiences of the CEO and the board have positive synergistic effects on IPO performance whereas the current board appointments have negative effects. While scientific educational backgrounds have positive synergies, industry‐specific experiences produce either positive or counterproductive effects depending on the age and profitability of the firm. Thus, our paper contributes to the corporate governance and human and social capital literatures by describing the costs and benefits of specific types and combinations of CEO and board capital. Copyright © 2013 John Wiley & Sons, Ltd.
    June 18, 2013   doi: 10.1002/smj.2137   open full text
  • Learning by supplying.
    Juan Alcacer, Joanne Oxley.
    Strategic Management Journal. June 14, 2013
    Outsourcing in many industries has advanced beyond simple component supply to encompass manufacturing of entire products, often by suppliers in emerging economies. Understanding the evolving role and capabilities of suppliers in global supply chains is thus a pressing strategic issue for suppliers and customers alike. We analyze a novel panel dataset of supply relationships in the mobile telecommunications industry to answer the following questions: What factors contribute to a supplier's ability to build technological and market capabilities? Does it matter to whom the firm supplies? Is involvement in product design important, or is manufacturing the key to learning? Do the same types of relationships that support technological innovation also facilitate successful introduction of own‐brand products, or does this require a different “locus” of learning? Copyright © 2013 John Wiley & Sons, Ltd.
    June 14, 2013   doi: 10.1002/smj.2134   open full text
  • Global integration and innovation: Multicountry knowledge generation within MNCs.
    Heather Berry.
    Strategic Management Journal. June 14, 2013
    This paper examines both conditions that can enable collaborative and combinative knowledge generation within multinational corporations (MNCs) and benefits that firms can achieve from these types of innovations. I posit that more basic relationships that have been established through manufacturing integration can enable multicountry collaborative innovations and that these innovations will bring together diverse knowledge that is likely to spawn further innovation within firms. Empirical analysis of a panel that includes comprehensive and confidential data on the worldwide operations of U.S. MNCs and their worldwide patents reveals robust support for these arguments. Overall, this paper broadens extant research on knowledge generation within MNCs by exploring both the antecedents and benefits of multicountry collaborative innovations. Copyright © 2013 John Wiley & Sons, Ltd.
    June 14, 2013   doi: 10.1002/smj.2140   open full text
  • The influence of lead indicator strength on the use of nonfinancial measures in performance management: Evidence from CEO compensation schemes.
    Vincent O'Connell, Don O'Sullivan.
    Strategic Management Journal. June 13, 2013
    Nonfinancial measures (NFMs) are a common feature of strategic performance management frameworks. We examine the role of one widely used NFM: customer satisfaction, in one aspect of strategic performance management: CEO compensation schemes. Drawing on agency theory precepts, we hypothesize that the extent to which firms link CEO compensation to customer satisfaction is influenced by satisfaction's ability to act as a leading indicator of future profitability (lead indicator strength). We further hypothesize that the extent to which customer satisfaction's lead indicator strength influences the weighting of satisfaction in CEO compensation schemes has a positive influence on future shareholder value. Our empirical results offer strong support for both hypotheses and extend research on the use and efficacy of NFMs in CEO compensation schemes. Copyright © 2013 John Wiley & Sons, Ltd.
    June 13, 2013   doi: 10.1002/smj.2124   open full text
  • The influence of relative values of outside director stock options on firm strategic risk from a multiagent perspective.
    Elizabeth N. K. Lim, Brian T. Mccann.
    Strategic Management Journal. June 07, 2013
    Prior work has examined the effects of absolute levels of outside director stock option grants on risk behavior without recognizing that relative stock option values could differentially affect risk taking. Drawing from the house money effect perspective, we extend this literature by examining how positive deviation from prior outside director option grants values influences firm strategic risk. Additionally we draw from the behavioral agency model and the power literature to develop a multiagent contingency framework suggesting the effect of positive director pay deviation depends on the incentives and power of CEOs reflected in CEO stock ownership and CEO duality, respectively. Our empirical results indicate positive pay deviation has a positive effect on firm risk taking while high ownership and duality independently and jointly weaken this base relationship. Copyright © 2013 John Wiley & Sons, Ltd.
    June 07, 2013   doi: 10.1002/smj.2088   open full text
  • Does evidence of network effects on firm performance in pooled cross‐section support prescriptions for network strategy?
    Joel A. C. Baum, Robin Cowan, Nicolas Jonard.
    Strategic Management Journal. June 07, 2013
    Strategic prescriptions drawn from pooled cross‐sectional evidence of firm performance effects are not necessarily warranted. This is because firm characteristics can influence both the mean and variance of firm performance. Strategic inferences are warranted if empirically observed effects reflect increases in mean firm performance. If they reflect increases in firm performance variance, however, such inferences are warranted only if the increased odds of achieving high performance compensate sufficiently for the concomitantly increased risk of realizing poor performance. Our simulation study, which contrasts firm performance effects in pooled cross‐section and within‐firm over time, counsels caution when basing strategic prescriptions on pooled cross‐sectional studies of firm performance in general, and in the case of network effects in particular. Copyright © 2013 John Wiley & Sons, Ltd.
    June 07, 2013   doi: 10.1002/smj.2133   open full text
  • The assignment of call option rights between partners in international joint ventures.
    Tony W. Tong, Sali Li.
    Strategic Management Journal. June 06, 2013
    We examine call option rights as a contractual clause in international joint ventures (IJVs) and propose that the assignment of the call option right in an IJV is determined by certain ex ante asymmetries between the partners. Results show that between the two partners in an IJV, the firm with greater complementarity with the venture and greater prior IJV experience is more likely to hold the call option right; in addition, the firm's contractual choice on the call option right and its ownership choice on a greater initial equity stake are substitutive. Our focus on explicit call options advances the real options theory of collaborative agreements, and our results also highlight that option rights be considered an important part of alliance design. Copyright © 2013 John Wiley & Sons, Ltd.
    June 06, 2013   doi: 10.1002/smj.2061   open full text
  • Structural equality at the top of the corporation: Mandated quotas for women directors.
    Bruce Kogut, Jordi Colomer, Mariano Belinky.
    Strategic Management Journal. June 06, 2013
    We propose a concept of structural equality as a compromise between competing policy preferences of equality and individual liberty to address a stunning property of the governance of corporations, namely, the paucity of female directors on corporate boards. An argument for imposing a quota for women directors on boards is the need to disrupt structural impediments to permit endogenous mechanisms to sustain female recruitment beyond a critical mass. Using estimates from the Norwegian experiment, we apply an agent‐based model to American board data to show that modest numerical quotas generate well‐connected networks of women directors who attain equality in their centrality and influence. The analysis demonstrates the utility of computational social science for identifying policies that generate alternative and possible worlds of greater structural equality. Copyright © 2013 John Wiley & Sons, Ltd.
    June 06, 2013   doi: 10.1002/smj.2123   open full text
  • The relationship between knowledge sourcing and fear of imitation.
    Marco S. Giarratana, Myriam Mariani.
    Strategic Management Journal. June 05, 2013
    When firms tap external knowledge sources, they risk spillovers of their own internal knowledge. If the value of this potential loss and the imitation capabilities of neighboring organizations are high, fear of imitation might overshadow the benefits of openness. In such situations, firms might voluntarily reduce their use of external sources, relative to knowledge available internally. Data pertaining to 4,623 European inventions and direct information about the use of knowledge sources confirm that firms reduce their use of external, relative to internal, knowledge when they conduct costly research projects in locations characterized by high levels of absorptive capacity in a specific technology. This study also reveals fear of imitation as a mediating factor of this behavior.
    June 05, 2013   doi: 10.1002/smj.2150   open full text
  • Vertical integration, innovation, and alliance portfolio size: Implications for firm performance.
    Nandini Lahiri, Sriram Narayanan.
    Strategic Management Journal. June 04, 2013
    We examine the consequences of alliance portfolio configuration by focusing on contingencies that affect the impact of alliance portfolio size on innovation and financial performance. While increasing alliance portfolio size is expected to positively impact innovation and financial performance, we propose that, at high levels of innovation of the focal firm, increasing alliance portfolio size dampens financial performance. We also propose that firm boundaries moderate the impact of alliance portfolio size on innovation and financial performance differently. Specifically, vertically integrated firms benefit less (more) than their vertically specialized counterparts in leveraging higher innovation (financial) performance with increasing alliance portfolio size. Our analysis suggests that both vertical scope and innovation levels of the firm play an important role in understanding how alliance portfolios impact performance. Copyright © 2013 John Wiley & Sons, Ltd.
    June 04, 2013   doi: 10.1002/smj.2045   open full text
  • Expatriation and its effect on headquarters' attention in the multinational enterprise.
    Yves Plourde, Simon C. Parker, Jean‐Louis Schaan.
    Strategic Management Journal. May 29, 2013
    We explore the circumstances under which expatriates can help their host‐subsidiary capture headquarters' attention. Our central contention is that expatriates will be particularly helpful in situations where a subsidiary or its market is showing signs of growth, allowing headquarters to recognize information signaling opportunities for the firm that could otherwise go unnoticed. We test this contention using a robust instrumental variable approach in a single multinational enterprise. Our results show that subsidiaries hosting expatriates and experiencing growth at the subsidiary or market level have a higher probability of capturing headquarters' attention. Copyright © 2013 John Wiley & Sons, Ltd.
    May 29, 2013   doi: 10.1002/smj.2125   open full text
  • New product deployment: The moderating influence of economic institutional context.
    George A. Shinkle, Brian T. McCann.
    Strategic Management Journal. May 29, 2013
    We compare the determinants of new product deployment across transition and nontransition economy environments to show the importance of variance in economic institutional context. We argue that the expected positive relationships of institutional development, resource levels, and competitive pressure to new product deployment all weaken in transition economy contexts. Hypotheses are tested with survey data of over 7,000 firms in 7 industries from 33 countries. Copyright © 2013 John Wiley & Sons, Ltd.
    May 29, 2013   doi: 10.1002/smj.2132   open full text
  • Performance of acquirers of divested assets: Evidence from the U.S. software industry.
    Tomi Laamanen, Matthias Brauer, Olli Junna.
    Strategic Management Journal. May 28, 2013
    We provide a comparative analysis of acquirer returns in acquisitions of public firms, private firms, and divested assets. On the basis of a sample of 5,079 acquisitions by U.S. software industry companies during 1988–2008, we find that acquisitions of divested assets outperform acquisitions of privately held firms, which in turn outperform acquisitions of publicly held firms. While the higher returns for acquisitions of divested assets relative to stand‐alone acquisition targets can be explained by market efficiency arguments, seller distress and improved asset fit further enhance the positive returns of acquirers of divested assets consistent with the relative bargaining power explanation. Finally, we find that the effects of these buyer bargaining advantages are mutually strengthening and that they also hold for longer‐term acquirer performance Copyright © 2013 John Wiley & Sons, Ltd.
    May 28, 2013   doi: 10.1002/smj.2120   open full text
  • Media coverage and location choice.
    Elena Kulchina.
    Strategic Management Journal. May 24, 2013
    Emphasizing the importance of informed location choice, prior strategy research has examined how private information about locations affects foreign direct investment. Publicly available media information has received little attention, however, perhaps because its impact on location choice is expected to be trivial. This study examines the relationship between the extent of a location's media coverage and the number of entering foreign firms in Russia, using a novel instrumental variable for media coverage, a major anniversary of a city's establishment date. The results suggest that extensive foreign media coverage of a city increases the number of foreign entrants. This effect is stronger for firms with less private information about Russian cities; i.e., more socially and geographically distant firms and foreign entrepreneurs. Copyright © 2013 John Wiley & Sons, Ltd.
    May 24, 2013   doi: 10.1002/smj.2106   open full text
  • Takeover defenses, innovation, and value creation: Evidence from acquisition decisions.
    Mark Humphery‐Jenner.
    Strategic Management Journal. May 23, 2013
    The desirability of antitakeover provisions (ATPs) is a contentious issue. ATPs might enable managerial empire building by insulating managers from disciplinary takeovers. However, some companies, such as “hard‐to‐value” (HTV) companies, might trade at a discount due to valuation difficulties, thereby exposing HTV companies to opportunistic takeovers and creating agency conflicts of managerial risk aversion. ATPs might ameliorate such managerial risk aversion by inhibiting opportunistic takeovers. This paper analyzes acquisitions made by HTV firms, focusing on whether the acquirer (not the target) is entrenched in order to examine the impact of entrenchment managerial decision making. The results show that HTV firms that are entrenched make acquisitions that generate more shareholder wealth and are more likely to increase corporate innovation, suggesting that ATPs can be beneficial in some firms. Copyright © 2013 John Wiley & Sons, Ltd.
    May 23, 2013   doi: 10.1002/smj.2121   open full text
  • Resource allocation strategy for innovation portfolio management.
    Ronald Klingebiel, Christian Rammer.
    Strategic Management Journal. May 22, 2013
    Our study demonstrates empirically that the choice of resource allocation strategy affects innovation performance. Allocating resources to a broader range of innovation projects increases new product sales, an effect that appears to outweigh that of resource intensity. In addition, we find that the performance benefit of breadth is higher for firms that allocate resources selectively at later stages of the innovation process. This breadth‐selectiveness effect is greatest for firms intending to create relatively more novel products, departing further from their knowledge base. Based on these results, we theorize that breadth increases performance because it spreads firms' bets on unproven innovative endeavors. Limiting resource commitments by selecting out deteriorating projects prevents an escalation in the costs of breadth. This advantage increases with the uncertainty implicit in greater innovative intent. The paper thus contributes to theory of how resource allocation strategies influence performance outcomes of innovation project portfolios. Copyright © 2013 John Wiley & Sons, Ltd.
    May 22, 2013   doi: 10.1002/smj.2107   open full text
  • Weak links and the management of reputational interdependencies.
    Emmanuelle Fauchart, Robin Cowan.
    Strategic Management Journal. May 21, 2013
    This paper builds on a growing literature that takes into account the fact that firms in an industry may be interdependent with regard to their corporate reputations, thus sharing a “reputation commons.” We argue that the theory of public goods can help us to understand the interdependencies that link corporate reputations and to frame the contexts and requirements for collective action that they induce. In particular, we suggest that more and more frequently these interdependencies make industry reputation a “weak link” public good. We show that this raises new challenges for the strategic management of industry reputation by communities of firms. The discussion of these challenges is based on the case study of the collective action of the European chlorine companies towards restoring their reputation after being accused of not being safe, and on a model of the production of reputation by companies. Copyright © 2013 John Wiley & Sons, Ltd.
    May 21, 2013   doi: 10.1002/smj.2122   open full text
  • Beating competitors to international markets: The value of geographically balanced networks for innovation.
    Pankaj C. Patel, Stephanie A. Fernhaber, Patricia P. McDougall‐Covin, Robert P. van der Have.
    Strategic Management Journal. May 17, 2013
    Being able to launch new products internationally is critical for technology‐based ventures to recoup the high costs of R&D and to exploit their innovations fully. Despite the widely recognized importance of networks within the innovation development process, there appear to be contrasting viewpoints as to whether local or foreign network partners contribute more in the race to internationalize. Drawing on the theoretical underpinnings of comparative advantage, we propose and empirically confirm that ventures pursuing a balance of local and foreign network connections for the development of an innovation are able to bring the product more rapidly into the international marketplace. Furthermore, both innovation complexity and industry clockspeed heighten the importance of geographic network balance to the speed of product internationalization. Copyright © 2013 John Wiley & Sons, Ltd.
    May 17, 2013   doi: 10.1002/smj.2114   open full text
  • Toward more accurate contextualization of the CEO effect on firm performance.
    Donald C. Hambrick, Timothy J. Quigley.
    Strategic Management Journal. May 17, 2013
    We introduce multiple refinements to the standard method for assessing CEO effects on performance, variance partitioning methodology, more accurately contextualizing CEOs' contributions. Based on a large 20‐year sample, our new ‘CEO in Context’ technique points to a much larger aggregate CEO effect than is obtained from typical approaches. As a validation test, we show that our technique yields estimates of CEO effects more in line with what would be expected from accepted theory about CEO influence on performance. We do this by examining the CEO effects in subsamples of low‐, medium‐, and high‐discretion industries. Finally, we show that our technique generates substantially different—and we argue more logical—estimates of the effects of many individual CEOs than are obtained through customary analyses. Copyright © 2013 John Wiley & Sons, Ltd.
    May 17, 2013   doi: 10.1002/smj.2108   open full text
  • Reciprocity and R&D search: Applying the behavioral theory of the firm to a communitarian context.
    Jonathan P. O'Brien, Parthiban David.
    Strategic Management Journal. May 15, 2013
    We propose that the behavioral theory of the firm perspective on R&D search requires modification when applied to “communitarian” cultures such as Japan because reciprocity and embeddedness can influence the search decision. When performance exceeds aspirations, communitarian‐oriented firms are more inclined to use their privileged position to help their less fortunate stakeholders by engaging in additional R&D search that should yield greater payoffs for these stakeholders in the future. Our results indicate that while Japanese firms engage in “problemistic” search in a manner similar to what has been found in other contexts, they respond differently when performance exceeds expectations. We find that as performance rises above aspirations, communitarian‐oriented firms raise R&D search to a greater extent than do firms that lack a communitarian orientation. Copyright © 2013 John Wiley & Sons, Ltd.
    May 15, 2013   doi: 10.1002/smj.2105   open full text
  • Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector.
    Guy L. F. Holburn, Richard G. Vanden Bergh.
    Strategic Management Journal. May 15, 2013
    We examine how firms use political strategies to protect economic rents created by mergers and acquisitions against dissipation by regulators. In regulated industries, regulators can impose costly merger conditions, for instance consumer rate reductions in the utilities sector, thereby reducing shareholder gains. We investigate empirically whether and how firms use election campaign contributions to politicians as a method of influencing regulatory merger approvals. In a statistical analysis of campaign contributions by all electric utilities from 1998 to 2006, we find that utilities increased their contributions in the year before they announced a merger and that merging utilities increased their contributions more in states with greater political party competition. Our findings contribute to political strategy research by providing novel evidence that firms integrate market and nonmarket strategies. Copyright © 2013 John Wiley & Sons, Ltd.
    May 15, 2013   doi: 10.1002/smj.2096   open full text
  • Chief strategy officers: Contingency analysis of their presence in top management teams.
    Markus Menz, Christine Scheef.
    Strategic Management Journal. May 11, 2013
    Drawing upon contingency theory, we analyze the antecedents and performance consequences of chief strategy officer (CSO) presence in top management teams (TMTs). We argue that strategic and structural complexity affects the decision to have a CSO in the TMT and its effect on firm performance. The results of a sample of S&P 500 firms over a five‐year period reveal that diversification, acquisition activity, and TMT role interdependence are positively associated with CSO presence. However, we also find that the structural choice to have a CSO in the TMT does not significantly affect a firm's financial performance. This first systematic analysis of CSO presence informs research on CSOs and contributes to the emerging literature on TMT structure. Copyright © 2013 John Wiley & Sons, Ltd.
    May 11, 2013   doi: 10.1002/smj.2104   open full text
  • Unmixed signals: How reputation and status affect alliance formation.
    Ithai Stern, Janet M. Dukerich, Edward Zajac.
    Strategic Management Journal. May 10, 2013
    We analyze how incumbents in technology‐driven industries are influenced by founders' reputation and status when considering strategic alliances with newly emerging firms. We theorize that reputation and status represent two distinct components of perceived quality that exert independent and interdependent effects on alliance formation. Using literature on impression formation processes to derive predictions of signal congruence, we argue that the independent effects of reputation and status are amplified when the two are congruent, and that the effect of negative congruence (both reputation and status are low) is stronger than positive congruence (both are high). We find support for our arguments based on panel data on alliances between pharma and biotech firms, using data on biotech scientists' research output (reputation) and university attended (status). Copyright © 2013 John Wiley & Sons, Ltd.
    May 10, 2013   doi: 10.1002/smj.2116   open full text
  • Strategic rationale for responding to extra‐jurisdictional regulation: Evidence from firm adoption of renewable power in the US.
    Adam R. Fremeth, J. Myles Shaver.
    Strategic Management Journal. May 10, 2013
    It is well documented that firms respond to regulations in their home jurisdictions. We present hypotheses that firms also respond to regulations in jurisdictions where they do not operate. We examine renewable‐power provision in the U.S. electric utility sector between 2001 and 2006, and find that firms adopt more renewable‐power generation when their peers (i.e., firms in the same regulatory jurisdiction) face greater renewable‐power standards in other jurisdictions. The underlying mechanism is that forward‐looking firms assess when extrajurisdictional regulations foreshadow regulatory changes where they operate. Our analyses support this mechanism versus plausible alternatives. We demonstrate firms acting strategically to respond to extrajurisdictional regulations and show that the central conduit motivating this response is the extrajurisdictional footprint of firms operating in the same jurisdiction as a focal firm. Copyright © 2013 John Wiley & Sons, Ltd.
    May 10, 2013   doi: 10.1002/smj.2118   open full text
  • Surviving bear hugs: Firm capability, large partner alliances, and growth.
    Ramin Vandaie, Akbar Zaheer.
    Strategic Management Journal. May 10, 2013
    In exploring the downsides of partnering with large firms, extant literature has typically focused on the external perspective and the alliance characteristics of small firms. We argue that jointly considering the internal dimension of firm capability together with the external perspective promises to yield a fuller understanding of the nature and consequences of a small firm's relationships with large partners. We analyze a longitudinal dataset on the alliance activities and growth of small, independent studios in the U.S. motion picture industry during 1990–2010. Our findings indicate that small firms that engage in higher levels of alliance activity with large partners, i.e., the major studios, realize lower growth benefits from their internal capability. Copyright © 2013 John Wiley & Sons, Ltd.
    May 10, 2013   doi: 10.1002/smj.2115   open full text
  • Risk abatement as a strategy for R&D investments in family firms.
    Pankaj C. Patel, James J. Chrisman.
    Strategic Management Journal. May 10, 2013
    The behavioral agency model suggests family firms invest less in R&D than nonfamily firms to protect their socioemotional wealth. Studies support this contention but do not explain how family firms make R&D investments. We hypothesize that when performance exceeds aspirations, family firms manage socioemotional and economic objectives by making exploitative R&D investments that lead to more reliable and less risky sales levels. However, performance below aspirations leads to exploratory R&D investments that result in potentially higher but less reliable sales levels. Using a risk abatement model, our analyses of 847 firms over 10 years supports our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.
    May 10, 2013   doi: 10.1002/smj.2119   open full text
  • Asymmetric rivalry within and between strategic groups.
    Francisco J. Mas‐Ruiz, Felipe Ruiz‐Moreno, Antonio Ladrón de Guevara Martínez.
    Strategic Management Journal. May 07, 2013
    Our study examines asymmetric rivalry within and between strategic groups defined according to the size of their members. We hypothesize that, owing to several forms of group‐level effects, including switching costs and efficiency, strategic groups comprising large firms expect to experience a large amount of retaliation from firms within their group and accommodation from the group comprising smaller firms. Small firms, on the other hand, expect to experience a small amount of retaliation from the group comprising large firms and no reaction from the other firms in their group. We estimate the effect of group‐level strategic interactions on firm performance. Our analysis reveals that the rivalry behavior within and between groups is asymmetric, which supports the dominant‐fringe relation between firms, as described in our hypothesis. Copyright © 2013 John Wiley & Sons, Ltd.
    May 07, 2013   doi: 10.1002/smj.2102   open full text
  • Knowing when to leap: Transitioning between exploitative and explorative R&D.
    Ram Mudambi, Tim Swift.
    Strategic Management Journal. May 07, 2013
    A common perspective is that consistent R&D investment facilitates innovation, while volatile spending implies myopic decision making. However, the benefits to exploiting extant competencies eventually erode, so firms must disrupt their R&D function and explore for new competitive advantage. We suggest that high‐performing firms recognize when extant competencies decline and increase exploratory R&D to develop new competencies at the appropriate time. We find that changes in R&D expenditure away from the firm's historic trend, in either direction, are indicative of transitions between exploitative and exploratory R&D and are associated with increased firm performance. Increases in R&D expenditure above the trend are associated with an increased likelihood of highly cited patents, suggesting that firms are making the leap between R&D‐based exploitation and exploration. Copyright © 2013 John Wiley & Sons, Ltd.
    May 07, 2013   doi: 10.1002/smj.2097   open full text
  • Difference in degrees: CEO characteristics and firm environmental disclosure.
    Ben W. Lewis, Judith L. Walls, Glen W. S. Dowell.
    Strategic Management Journal. May 07, 2013
    We contribute to the literature on firms' responses to institutional pressures and environmental information disclosure. We hypothesize that CEO characteristics such as education and tenure will influence firms' likelihood to voluntarily disclose environmental information. We test our hypotheses by examining firms' responses to the Carbon Disclosure Project (CDP) and find that firms led by newly appointed CEOs and CEOs with MBA degrees are more likely to respond to the CDP, while those led by lawyers are less likely to respond. Our results have implications for research on strategic responses to institutional pressures and corporate environmental performance. Copyright © 2013 John Wiley & Sons, Ltd.
    May 07, 2013   doi: 10.1002/smj.2127   open full text
  • On the contingent value of dynamic capabilities for competitive advantage: The nonlinear moderating effect of environmental dynamism.
    Oliver Schilke.
    Strategic Management Journal. May 06, 2013
    This article suggests that dynamic capabilities can give the firm competitive advantage, but this effect is contingent on the level of dynamism of the firm's external environment. A nonlinear, inverse U‐shaped moderation is proposed, implying that the relationship between dynamic capabilities and competitive advantage is strongest under intermediate levels of dynamism but comparatively weaker when dynamism is low or high. This proposition is tested using data on alliance management capability and new product development capability, two specific dynamic capabilities widely recognized in prior research. Results based on longitudinal key informant data from 279 firms support the account that these dynamic capabilities are more strongly associated with competitive advantage in moderately dynamic than in stable or highly dynamic environments. Copyright © 2013 John Wiley & Sons, Ltd.
    May 06, 2013   doi: 10.1002/smj.2099   open full text
  • Strategic repertoire variety and new venture growth: The moderating effects of origin and industry dynamism.
    Bárbara Larrañeta, Shaker A. Zahra, José Luis Galán González.
    Strategic Management Journal. May 06, 2013
    New ventures (companies eight years or younger) face an important choice in attempting to achieve growth: Should they follow “strategic simplicity” by relying on a few similar competitive actions, or emphasize “strategic variety” by implementing multiple different competitive actions? Data from 140 new ventures in Spain suggest that new ventures benefit from pursuing strategic variety, especially when their industries are highly dynamic. Further, although new ventures in general gain from strategic variety in highly dynamic industries, independently owned ventures achieve higher growth rates than their corporate counterparts. Copyright © 2013 John Wiley & Sons, Ltd.
    May 06, 2013   doi: 10.1002/smj.2103   open full text
  • Explaining post‐IPO venture performance through a knowledge‐based view typology.
    Richard J. Arend, Pankaj C. Patel, Haemin Dennis Park.
    Strategic Management Journal. April 29, 2013
    We extend the knowledge‐based view with a new typology and its application to post‐IPO firm performance. The typology categorizes knowledge development activity along the dimensions of familiarity (whether the firm has experience with the knowledge or it is new) and source (whether the firm creates it independently or with partners). We use this typology to determine direct and interaction effects of knowledge development activity on survival, RoA, and Tobin's q of newly public firms. Using a sample of 1,056 high‐technology manufacturing IPOs in 1990–2005, we find that focused, internal knowledge development correlates with higher performance. We also find a positive interaction effect in combining focused, internal and diversifying, alliance‐based knowledge development, and a negative interaction effect in combining diversifying, internal and alliance‐based knowledge development. Copyright © 2013 John Wiley & Sons, Ltd.
    April 29, 2013   doi: 10.1002/smj.2095   open full text
  • Make, buy, organize: The interplay between research, external knowledge, and firm structure.
    Ashish Arora, Sharon Belenzon, Luis A. Rios.
    Strategic Management Journal. April 29, 2013
    We bridge current streams of innovation research to explore the interplay between R&D, external knowledge, and organizational structure—three elements of a firm's innovation strategy, which we argue should logically be studied together. Using within‐firm patent assignment patterns, we develop a novel measure of structure for a large sample of American firms. We find that centralized firms invest more in research, and patent more per R&D dollar, than decentralized firms. Both types access technology via mergers and acquisitions, but their acquisitions differ in terms of frequency, size, and integration. Consistent with our framework, their sources of value creation differ: while centralized firms derive more value from internal R&D, decentralized firms rely more on external knowledge. We discuss how these findings should stimulate more integrative work on theories of innovation. Copyright © 2013 John Wiley & Sons, Ltd.
    April 29, 2013   doi: 10.1002/smj.2098   open full text
  • Rewarding value‐creating ideas in organizations: The power of low‐powered incentives.
    Oliver Baumann, Nils Stieglitz.
    Strategic Management Journal. April 29, 2013
    Ideas from employees are a major source of value creation in firms, yet the merits of rewards for incentivizing the generation of ideas are highly contested. Using a computational model, we show that firms can improve performance by offering low‐powered rewards for the selection and implementation of employee ideas. Low‐powered incentives provide a sufficient stream of good ideas, but few exceptional ones. Higher‐powered incentives, in contrast, do not systematically translate into exceptional ideas either, but generate an excessive number of good ideas. Performance‐based rewards thus appear to be a blunt tool to harness the long tail of innovation. We develop propositions to guide empirical research and discuss their implications for strategy and organizational design. Copyright © 2013 John Wiley & Sons, Ltd.
    April 29, 2013   doi: 10.1002/smj.2093   open full text
  • Corporate social responsibility and access to finance.
    Beiting Cheng, Ioannis Ioannou, George Serafeim.
    Strategic Management Journal. April 29, 2013
    We investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to (1) reduced agency costs due to enhanced stakeholder engagement and (2) reduced informational asymmetry due to increased transparency. Using a large cross‐section of firms, we find that firms with better CSR performance face significantly lower capital constraints. We provide evidence that both better stakeholder engagement and transparency around CSR performance are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables approach, and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and environmental dimension of CSR. Copyright © 2013 John Wiley & Sons, Ltd.
    April 29, 2013   doi: 10.1002/smj.2131   open full text
  • Learning and product entry: How diversification patterns differ over firm age and knowledge domains in U.S. generic drug industry.
    Xuanli Xie, Hugh M. O'Neill.
    Strategic Management Journal. April 29, 2013
    This study uses learning theory to show how knowledge domains affect product extension decisions and how these product decisions change as firms age. Faced with the choice of new product‐markets, a firm might decide to introduce a similar product, by leveraging existing firm knowledge, or to experiment with a less familiar product, which requires new knowledge. Using data on new drug introductions in the US generic pharmaceutical industry, the analyses showed clear support for heterogeneous product‐market entry patterns across knowledge domains as the firm ages. Across time, the form of learning shifts from exploration to exploitation. Copyright © 2013 John Wiley & Sons, Ltd.
    April 29, 2013   doi: 10.1002/smj.2101   open full text
  • Technological overlap, technological capabilities, and resource recombination in technological acquisitions.
    Joshua Sears, Glenn Hoetker.
    Strategic Management Journal. April 26, 2013
    The performance of technological acquisitions depends heavily on the overlap between the knowledge bases of the target and acquirer. We argue that overlap is best viewed as two distinct constructs: target overlap, the proportion of the target's knowledge base that the acquirer already possesses, and acquirer overlap, the proportion of the acquirer's knowledge base duplicated by the target. Each affects the value created from the firms' technological capabilities differently due to absorptive capacity, knowledge redundancy, and organizational disruption. Further, the low quantity of innovations observed in acquisitions with low target overlap may conceal an offsetting increase in their novelty. Copyright © 2013 John Wiley & Sons, Ltd.
    April 26, 2013   doi: 10.1002/smj.2083   open full text
  • Microfoundations for stakeholder theory: Managing stakeholders with heterogeneous motives.
    Flore Bridoux, J. W. Stoelhorst.
    Strategic Management Journal. April 26, 2013
    Instrumental stakeholder theory proposes a positive relationship between fairness toward stakeholders and firm performance. Yet, some firms are successful with an arms‐length approach to stakeholder management, based on bargaining power rather than fairness. We address this puzzle by relaxing the assumption that all stakeholders care about fairness. Empirical evidence from behavioral economics and social psychology suggests that firms face a population of potential stakeholders that consists not only of so‐called ‘reciprocators,’ who do care about fairness, but also of self‐regarding stakeholders, who do not. We propose that a fairness approach is more effective in attracting, retaining, and motivating reciprocal stakeholders to create value, while an arms‐length approach is more effective in motivating self‐regarding stakeholders and in attracting and retaining self‐regarding stakeholders with high bargaining power. Copyright © 2013 John Wiley & Sons, Ltd.
    April 26, 2013   doi: 10.1002/smj.2089   open full text
  • Where do firms' recombinant capabilities come from? Intraorganizational networks, knowledge, and firms' ability to innovate through technological recombination.
    Gianluca Carnabuci, Elisa Operti.
    Strategic Management Journal. April 26, 2013
    A firm's innovativeness is driven by its ability to recombine existing technologies. Elaborating on this argument, we contend that there exist two distinct types of recombinant capabilities. First, firms may innovate through recombinant creation, i.e., by creating technological combinations new to the firm. Second, they may innovate through recombinant reuse; i.e., by reconfiguring combinations already known to the firm. We study what drives each type of capability by examining two factors: the degree of integration of a firm's intraorganizational network and the diversity of its knowledge base. We test our theoretical predictions using data on 126 semiconductor firms between 1984 and 2003. Our analyses indicate that factors that favor recombinant creation generally hinder recombinant reuse and vice versa; however, combining an integrated collaboration network and a diverse knowledge base may concurrently enhance both recombinant capabilities. Copyright © 2013 John Wiley & Sons, Ltd.
    April 26, 2013   doi: 10.1002/smj.2084   open full text
  • Inside the black box of the corporate staff: Social networks and the implementation of corporate strategy.
    Adam M. Kleinbaum, Toby E. Stuart.
    Strategic Management Journal. April 26, 2013
    In multidivisional firms, the corporate staff is central to the implementation of corporate‐level strategy, but empirical evidence on its function is limited. We examine one corporate staff through e‐mail analysis. We find sharp cross‐sectional differences in communication patterns: staff members have networks that are larger, more integrative, and richer in structural holes. However, much of this difference is attributed to sorting processes, rather than being caused by employment in the corporate staff per se. Further, once people receive the ‘corporate imprimatur,’ they retain aspects of it even when they move back to the line organization. These results imply that the literature's emphasis on structure as a means to achieve coordination undervalues a selection process in which individuals with broad networks match to coordination‐focused jobs in the corporate staff. Copyright © 2013 John Wiley & Sons, Ltd.
    April 26, 2013   doi: 10.1002/smj.2090   open full text
  • Antecedents of M&A success: The role of strategic complementarity, cultural fit, and degree and speed of integration.
    Florian Bauer, Kurt Matzler.
    Strategic Management Journal. April 26, 2013
    In this paper, we develop a comprehensive model of M&A success. We integrate fundamental constructs of different schools and discuss their interdependencies with M&A success. Our theoretical framework was tested empirically across a sample of 106 SME transactions in the machinery, electronic, and logistic industries in the German‐speaking part of Central Europe. The results of our study support the demand for an integrative perspective and theory on M&A. M&A success is a function of strategic complementarity, cultural fit, and the degree of integration. Strategic complementarity also positively influences cultural fit and the degree of integration. Cultural fit positively influences M&A success, but surprisingly has a negative impact on the speed and degree of integration. The degree of integration is positively related to speed of integration. Copyright © 2013 John Wiley & Sons, Ltd.
    April 26, 2013   doi: 10.1002/smj.2091   open full text
  • Whose experience matters in the boardroom? The effects of experiential and vicarious learning on emerging market entry.
    Anja Tuschke, WM. Gerard Sanders, Exequiel Hernandez.
    Strategic Management Journal. April 24, 2013
    Using an organizational learning perspective, we develop arguments about vicarious learning through board interlocks and its relation to experiential learning. Although it is well established that firms learn from board interlocks, little attention has focused on which types of interlocks are most consequential and why. We distinguish between the relative advantages of various tie attributes such as experience, authority, and credibility and argue that these distinctions lead to measureable differences in learning outcomes. We further demonstrate that whether vicarious learning substitutes or complements focal firm experiential learning depends upon the type of interlock involved. After accounting for the endogeneity of ties, we find support for our framework in a longitudinal analysis of foreign investments by German firms in emerging economies between 1990 and 2003. Copyright © 2013 John Wiley & Sons, Ltd.
    April 24, 2013   doi: 10.1002/smj.2100   open full text
  • Executive preferences for governance modes and exchange partners: An information economics perspective.
    Jeffrey J. Reuer, Tony W. Tong, Beverly B. Tyler, Africa Ariño.
    Strategic Management Journal. April 23, 2013
    This study investigates how executives address information asymmetry and adverse selection surrounding international joint ventures (IJVs) and acquisitions. We argue that executives can address such exchange hazards not only through their governance decisions, as prior research indicates, but also through their selection of exchange partners. Our experimental design complements prior research on firms' governance choices in three ways: (1) by incorporating multiple potential exchange partners rather than taking a single partner as given for a realized transaction; (2) by accommodating multiple potential entry modes to address interdependencies across governance structures; and (3) by providing direct evidence on executives' assessments of IJVs and acquisitions. We join together organizational governance research and decision‐making research on IJV partner selection, two literatures that have largely developed separately. Copyright © 2013 John Wiley & Sons, Ltd.
    April 23, 2013   doi: 10.1002/smj.2064   open full text
  • Are collective political actions and private political actions substitutes or complements? Empirical evidence from China's private sector.
    Nan Jia.
    Strategic Management Journal. April 19, 2013
    This paper examines the circumstances under which collective and private corporate political actions are more likely to be substitutes or complements. Using data based on a series of nationwide surveys conducted on privately owned firms in China, I find that firms that are engaged in collective political actions are more likely to pursue private political actions. This positive relationship is stronger in less economically developed provinces and when there are greater opportunities for the state to redistribute economic resources in product and capital markets. Meanwhile, this relationship is weaker in the presence of heavier regulatory burdens and for firms in which the state has some equity or owned by individuals who had prior political careers. These findings contribute to the corporate political action literature. Copyright © 2013 John Wiley & Sons, Ltd.
    April 19, 2013   doi: 10.1002/smj.2092   open full text
  • Competing technologies and industry evolution: The benefits of making mistakes in the flat panel display industry.
    J. P. Eggers.
    Strategic Management Journal. April 19, 2013
    This article investigates the post‐entry implications of pre‐entry technological choices made during the uncertain period before a dominant design. Building on work on technological dynamics and organizational inertia, I argue that too early commitments to the winning technology may impede the ability to bring the best product to market, but delaying investment too long limits the ability to accumulate useful knowledge. Using data from the evolution of the flat panel display industry from 1965 to 2005, the study shows empirical support for the two theoretical mechanisms and offers the surprising result that firms starting in the losing technology before switching outperform other firms in terms of product value. Switching, while difficult behaviorally in recovering from failure, both delays difficult‐to‐reverse technological commitments and develops market knowledge. Copyright © 2013 John Wiley & Sons, Ltd.
    April 19, 2013   doi: 10.1002/smj.2129   open full text
  • Chicken, or the egg, or both? The interrelationship between a firm's inventor specialization and scope of technologies.
    Puay Khoon Toh.
    Strategic Management Journal. April 19, 2013
    Firms with different scope of technologies experience different firm growth. Understanding such heterogeneity requires knowing not only what drives technologies' scope but also why these drivers remain different across firms. I propose inventor specialization as a driver of technologies' scope: firms with more specialized inventors create narrower scope technologies. I also propose that these narrower scope technologies themselves in turn induce these firms' inventors to remain more specialized. I empirically demonstrate this two‐way interrelationship in the U.S. communication equipment industry using policy shocks as natural experiments and a new measure of scope. This interrelationship has important implications for why resources and organization appear isomorphic within a firm but heterogeneous across firms. t © 2013 John Wiley & Sons, Ltd.
    April 19, 2013   doi: 10.1002/smj.2128   open full text
  • How symmetrical assumptions advance strategic management research.
    Nicolai J. Foss, Niklas L. Hallberg.
    Strategic Management Journal. April 19, 2013
    We develop the case for symmetrical assumptions in strategic management theory. Assumptional symmetry obtains when assumptions made about certain actors and their interactions in one of the application domains of a theory are also made about this set of actors and their interactions in other application domains of the theory. We argue that assumptional symmetry leads to theoretical advancement by promoting the development of theory with greater falsifiability and stronger ontological grounding. Thus, strategic management theory may be advanced by systematically searching for asymmetrical assumptions in existing theory in order to identify the instances where new and useful insights can be derived from adopting symmetrical assumptions. Copyright © 2013 John Wiley & Sons, Ltd.
    April 19, 2013   doi: 10.1002/smj.2130   open full text
  • Deregulation and differentiation: Incumbent investment in green technologies.
    Eun‐Hee Kim.
    Strategic Management Journal. April 15, 2013
    Integrating elements from industrial organization economics and the resource‐based view—coupled with path dependence as firm resources evolve over time, this paper suggests that deregulation may not always provide greater opportunities for incumbents, and the extent to which incumbents differentiate on the green dimension may be constrained by their prior resources, in particular, capabilities with respect to brown technologies and experiences with green technologies. Using data on U.S. investor‐owned electric utilities from 1992 to 2008, this paper finds that deregulation is associated with lower entry into the renewable generation market by incumbents compared to regulation. More capable firms using brown technologies, for example, coal‐based generation, are less likely to enter the renewable generation market. Also, incumbents are responsive to actual, not latent, demand for renewable energy. Copyright © 2013 John Wiley & Sons, Ltd.
    April 15, 2013   doi: 10.1002/smj.2067   open full text
  • Strength in numbers or guilt by association? Intragroup effects of female chief executive announcements.
    Heather R. Dixon‐Fowler, Alan E. Ellstrand, Jonathan L. Johnson.
    Strategic Management Journal. April 10, 2013
    We predict that the media reports on female CEOs as a coherent group, whereas male CEOs are treated as individuals by the media. We also suggest that the resulting investors' perceptions of group entitativity of female‐led firms may not only influence the succession event–performance relationship at the focal firm, but may also have a significant effect on the value of other female‐led companies. Results of a text analysis and an event study of appointments of female CEOs to Fortune 1000 firms provide support for these predictions. Copyright © 2013 John Wiley & Sons, Ltd.
    April 10, 2013   doi: 10.1002/smj.2076   open full text
  • Transactional hazards, institutional change, and capabilities: Integrating the theories of the firm.
    Francisco Brahm, Jorge Tarziján.
    Strategic Management Journal. April 10, 2013
    Using a detailed dataset from the Chilean construction industry, we explore how the predictions of the transaction cost and capabilities theories interact to explain building contractors' decisions to ‘make or buy’ the specialty trade activities needed to complete a construction project. We show that the contractor's productive capabilities strongly mediate the relationship between transaction hazards that originate from either temporal specificity or an exogenous change in the subcontracting law and the vertical integration decision. The inclusion of differential capabilities and its interaction with transactional hazards infuse contractors' boundary choices with systematic patterns of heterogeneity and contribute to the integration of these theoretical perspectives. Our analysis corrects for the endogeneity of the capabilities variable and provides a detailed assessment of the marginal effects in logit models. Copyright © 2013 John Wiley & Sons, Ltd.
    April 10, 2013   doi: 10.1002/smj.2094   open full text
  • External coo/presidents as expert directors: A new look at the service role of boards.
    Ryan Krause, Matthew Semadeni, Albert A. Cannella.
    Strategic Management Journal. April 10, 2013
    Much of the scholarship on boards of directors has examined either the control (i.e., monitoring) role or the resource dependence role that boards fill. Relatively little has examined the service role, wherein directors provide advice and guidance to management. This study builds on recent work exploring director expertise by asking how operational expertise on boards impacts firm performance. We find that having external COO/presidents on a board of directors positively impacts firm performance when the firm's operational efficiency is declining, but negatively impacts performance when the firm's operational efficiency is improving. We also find that other types of external executives serving as directors exhibit the opposite relationship, suggesting that the value of director expertise is context‐dependent. We discuss the implications of these findings for director selection. Copyright © 2013 John Wiley & Sons, Ltd.
    April 10, 2013   doi: 10.1002/smj.2081   open full text
  • Multinationality and downside risk: The roles of option portfolio and organization.
    René Belderbos, Tony W. Tong, Shubin Wu.
    Strategic Management Journal. April 08, 2013
    Multinational operations confer firms a portfolio of switching options that offer potential operating flexibility in the context of input cost variability, helping firms reduce downside risk. We suggest that two conditions may shape the relationship between multinationality and downside risk. When subadditivity is present in a firm's option portfolio, such as when the firm operates affiliates in host countries with similar labor cost developments, multinationality is less likely to reduce downside risk since less valuable opportunities exist for shifting operations. Multinationality is more likely to reduce downside risk if a firm's organization facilitates the coordination of cross‐border activities, enabling the exploitation of the shifting opportunities. Analysis of a comprehensive panel dataset of Japanese manufacturing firms and their foreign manufacturing affiliates provides support for these conjectures. Copyright © 2013 John Wiley & Sons, Ltd.
    April 08, 2013   doi: 10.1002/smj.2087   open full text
  • Beyond boundary spanners: The ‘collective bridge’ as an efficient interunit structure for transferring collective knowledge.
    Zheng Jane Zhao, Jaideep Anand.
    Strategic Management Journal. April 04, 2013
    This research introduces a framework for selecting efficient interunit structures in facilitating the transfer of knowledge with different levels of complexity. We argue that while the boundary spanner structure is efficient for transferring discrete knowledge, it is inadequate for transferring collectively held complex knowledge. We propose that the transfer of such knowledge requires a more decentralized interunit structure—collective bridge, which is a set of direct interunit ties connecting the members of the source and the recipient units, with the configuration of the interunit ties matching the complexity of knowledge to be transferred. We suggest that while a collective bridge is inefficient in transferring discrete knowledge relative to a boundary spanner structure, it is more efficient for transferring collective knowledge. Copyright © 2013 John Wiley & Sons, Ltd.
    April 04, 2013   doi: 10.1002/smj.2080   open full text
  • The elephant in the room of dynamic capabilities: Bringing two diverging conversations together.
    Margaret Peteraf, Giada Di Stefano, Gianmario Verona.
    Strategic Management Journal. April 03, 2013
    A critical issue has been absent from the conversation on dynamic capabilities: the two seminal papers represent not only different but contradictory understandings of the construct's core elements. Here, we explore the reasons for this, using author cocitation analysis to inform our analysis. Our findings suggest that the field is being socially constructed on the basis of two separate domains of knowledge and that underlying structural impediments have impeded dialog across the domains. In light of this evidence, then, we take up the challenge to find a solution to this dilemma. By employing a contingency‐based approach, we show that there are ways to unify the field that rely, paradoxically, on integrating the two contradictory views, while still preserving the assumptions that led to their differences. Copyright © 2013 John Wiley & Sons, Ltd.
    April 03, 2013   doi: 10.1002/smj.2078   open full text
  • How much to make and how much to buy? An analysis of optimal plural sourcing strategies.
    Phanish Puranam, Ranjay Gulati, Sourav Bhattacharya.
    Strategic Management Journal. April 02, 2013
    While many theories of the firm seek to explain when firms make rather than buy, in practice firms often make and buy the same input—they engage in plural sourcing. We argue that explaining the mix of external procurement and internal sourcing for the same input requires a consideration of complementarities across and constraints within modes of procurement. We create analytical foundations for making empirical predictions about when plural sourcing is likely to be optimal and why the optimal mix of internal and external sourcing may vary across situations. Our framework also proves useful for assessing the possible estimation biases in transaction level make‐or‐buy studies arising from ignoring complementarities and constraints. Copyright © 2013 John Wiley & Sons, Ltd.
    April 02, 2013   doi: 10.1002/smj.2063   open full text
  • Performance impact of middle managers' adaptive strategy implementation: The role of social capital.
    Michael Ahearne, Son K. Lam, Florian Kraus.
    Strategic Management Journal. April 02, 2013
    This article reconciles mixed findings about the performance impact of middle managers' strategy involvement. We propose that the relationship between middle managers' adaptive strategy implementation—through upward and downward influence—and objective business performance can be curvilinear and contingent on formal and informal structures. Applying a multilevel perspective to social networks, we empirically show that reputational social capital enhances the performance impact of middle managers' upward influence while informational social capital elevates the performance impact of their downward influence. The size of a business unit or region has differential moderating effects. The curvilinear effects of middle managers' upward influence and reputational and informational social capital on business unit performance reflect paradoxes. We discuss the implications of these findings for strategy implementation research and practice. Copyright © 2013 John Wiley & Sons, Ltd.
    April 02, 2013   doi: 10.1002/smj.2086   open full text
  • Product proliferation strategies and firm performance: The moderating role of product space complexity.
    Alicia Barroso, Marco S. Giarratana.
    Strategic Management Journal. April 02, 2013
    In the Spanish automobile market between 1990 and 2000, significant reductions in tariff and nontariff protections increased the complexity of the product space, through the penetration of new car brands and models. Acknowledging these environmental dynamics, this study details conditions in which across‐niche (product breadth or intraindustry diversification) and within‐niche (product depth or versioning) product proliferation exerts a positive relationship on firm performance, as well as how key relationships change according to the complexity of the product space in the industry. Copyright © 2013 John Wiley & Sons, Ltd.
    April 02, 2013   doi: 10.1002/smj.2079   open full text
  • Opportunity costs, industry dynamics, and corporate diversification: Evidence from the cardiovascular medical device industry, 1976–2004.
    Brian Wu.
    Strategic Management Journal. April 02, 2013
    This paper examines how demand conditions across alternative markets impact diversification decisions and firm performance by influencing the opportunity costs of deploying non‐scale free capabilities. Using data within the cardiovascular medical device industry, this study shows that: (1) firms with a larger stock of pre‐entry innovation experience are more likely to diversify; (2) firms in a current market with greater relative demand maturity are more likely to diversify; (3) diversification is associated with a performance decrease in the current market; and (4) diversification is associated with a performance increase at the corporate level. These findings shed new light on the self‐selection process of corporate scope, the conceptualization of firm capabilities, and the connection between industry dynamics and resource deployment. Copyright © 2013 John Wiley & Sons, Ltd.
    April 02, 2013   doi: 10.1002/smj.2069   open full text
  • A theoretical and empirical investigation of property rights sharing in outsourced research, development, and engineering relationships.
    Stephen J. Carson, George John.
    Strategic Management Journal. March 29, 2013
    This article considers the use of property rights to structure ex post bargaining positions in client‐sponsored RD&E. By focusing on the positive externality created by uses of the technology not targeted by the client, the theory produces a novel set of predictions that diverge from standard transaction cost and property rights reasoning; that is, greater contractor property rights are associated with more transaction‐specific investments by the client. Contractor property rights are also predicted to increase as environmental uncertainty increases and as more applications of the technology fall outside the client's intended fields of use. Contract‐level data from 147 RD&E agreements in technology‐intensive settings provide support for these predictions. A secondary examination shows that clients who share property rights with their contractors face reduced opportunism during project execution. Copyright © 2013 John Wiley & Sons, Ltd.
    March 29, 2013   doi: 10.1002/smj.2053   open full text
  • Exploration or exploitation? Small firms' alliance strategies with large firms.
    Haibin Yang, Yanfeng Zheng, Xia Zhao.
    Strategic Management Journal. March 29, 2013
    How do small firms manage their alliance strategies with large firms? This study compares the relative impacts of exploration and exploitation alliances with large firms on small firms' valuation. Integrating the literatures on the exploration/exploitation paradigm and alliance governance, we argue that exploitation alliances with large firms will on average generate higher values for small firms than exploration alliances with large firms due to a heightened risk of appropriation in exploration alliances. However, if small firms can manage their alliances with large firms via proper alliance governance, they will increase their valuations from exploration alliances with large firms. Analyses of the U.S. biopharmaceutical industry from 1984 to 2006 largely support our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.
    March 29, 2013   doi: 10.1002/smj.2082   open full text
  • Social network contingency, symbolic management, and boundary stretching.
    Lívia Markóczy, Sunny Li Sun, Mike W. Peng, Weilei (Stone) Shi, Bing Ren.
    Strategic Management Journal. March 28, 2013
    A firm's structural position within corporate networks may affect the extent to which it engages in boundary stretching practices. Since social norms support low CEO compensation, offering high CEO compensation in China can be seen as a boundary stretching practice. Setting up a compensation committee (CC) may be viewed as a form of symbolic management in China. We argue that firms operating within central corporate network positions opt to pay higher CEO compensation without engaging in symbolic management. On the other hand, firms operating in structural hole positions tend to either pay lower CEO compensation or use CCs as a symbolic management tool in order to pay higher CEO compensation. Our hypotheses are largely supported based on 7,618 firm‐year observations in China. Copyright © 2013 John Wiley & Sons, Ltd.
    March 28, 2013   doi: 10.1002/smj.2072   open full text
  • Does bribery in the home country promote or dampen firm exports?
    Seung‐Hyun Lee, David H. Weng.
    Strategic Management Journal. March 28, 2013
    This study examines the impact of bribery within the home country on firm exports by developing two contrasting hypotheses. On the one hand, preferential treatment resulting from government officials in exchange for bribes may promote exports by enhancing efficiency and enabling bribing firms to better compete in foreign markets. On the other hand, preferential treatment resulting from bribes may decrease exports by providing firms with more established positions within the domestic market diminishing the incentive to explore foreign markets. Adopting the three‐stage least squares method, we test these competing arguments using a sample of firms operating within transition economies. We find that bribery within the home country decreases rather than increases firm exports. The implications of our findings are discussed. Copyright © 2013 John Wiley & Sons, Ltd.
    March 28, 2013   doi: 10.1002/smj.2075   open full text
  • Creating incentives for innovation? The relationship between pay dispersion in R&D groups and firm innovation performance.
    Yoshio Yanadori, Victor Cui.
    Strategic Management Journal. March 28, 2013
    Innovation is a critical organizational outcome for its potential to generate competitive advantage. While the contribution of knowledge workers to the generation of innovation is widely recognized, little is known about how organizational incentive mechanisms stimulate or inhibit these workers' behaviors that promote innovation. This study examines the relationship between pay dispersion in R&D groups and firm innovation using employee‐level compensation data in US high‐technology firms. The results show that (1) pay dispersion in R&D groups is negatively related to firm innovation and (2) this negative relationship is alleviated in firms with greater financial slack. This study contributes to the innovation literature by illuminating the implications of organizational incentive systems for successful innovation. Copyright © 2013 John Wiley & Sons, Ltd.
    March 28, 2013   doi: 10.1002/smj.2071   open full text
  • Parenting advantage in the MNC: An embeddedness perspective on the value added by headquarters.
    Phillip C. Nell, Björn Ambos.
    Strategic Management Journal. March 25, 2013
    What determines the value an MNC's headquarters adds to its own affiliates? In this paper, we shed light on this question by linking the embeddedness view of the multinational corporation to the literature on parenting advantage. We test our hypotheses on an original dataset of 124 manufacturing subsidiaries located in Europe. Our results indicate that the external embeddedness of the MNC is an antecedent to headquarters' value creation. We find that headquarters' investments into their own relationships with the subsidiaries' contexts are positively related to the value added by headquarters. Furthermore, this relationship is stronger when the subsidiary itself is strongly embedded. We discuss implications for the MNC literature, embeddedness research, and the literature on parenting and headquarters' roles. Copyright © 2013 John Wiley & Sons, Ltd.
    March 25, 2013   doi: 10.1002/smj.2058   open full text
  • Fast‐mover advantages: Speed capabilities and entry into the emerging submarket of atlantic basin LNG.
    Ashton Hawk, Gonçalo Pacheco‐De‐Almeida, Bernard Yeung.
    Strategic Management Journal. March 25, 2013
    Entry timing benefits and costs typically vary with firms' capabilities. In this study, we empirically examine the entry timing implications of firms' intrinsic speed capabilities, which refer to the ability to execute investment projects faster than competitors. We hypothesize that firms with intrinsic speed capabilities face low preemption risks and, thus, can afford to wait longer for uncertainty resolution before deciding to enter new markets. This hypothesis is more applicable when investment is associated with higher levels of commitment and, thus, greater option value of waiting. A direct implication is that late entrants with intrinsic speed capabilities should have greater expected post‐entry performance. We find support for these hypotheses in the Atlantic Basin liquefied natural gas (LNG) industry from 1996 to 2007. Copyright © 2013 John Wiley & Sons, Ltd.
    March 25, 2013   doi: 10.1002/smj.2085   open full text
  • How firms respond to mandatory information disclosure.
    Anil R. Doshi, Glen W. S. Dowell, Michael W. Toffel.
    Strategic Management Journal. March 25, 2013
    Mandatory information disclosure regulations seek to create institutional pressure to spur performance improvement. By examining how organizational characteristics moderate establishments' responses to a prominent environmental information disclosure program, we provide among the first empirical evidence characterizing heterogeneous responses by those mandated to disclose information. We find particularly rapid improvement among establishments located close to their headquarters and among establishments with proximate siblings, especially when the proximate siblings are in the same industry. Large establishments improve more slowly than small establishments in sparse regions, but both groups perform similarly in dense regions, suggesting that density mitigates the power of large establishments to resist institutional pressures. Finally, establishments owned by private firms outperform those owned by public firms. We highlight implications for institutional theory, managers, and policymakers. Copyright © 2013 John Wiley & Sons, Ltd.
    March 25, 2013   doi: 10.1002/smj.2055   open full text
  • Financial resource availability and corporate social responsibility expenditures in a sub‐saharan economy: The institutional difference hypothesis.
    Scott D. Julian, Joseph C. Ofori‐dankwa.
    Strategic Management Journal. March 25, 2013
    Studies done in developed economies have demonstrated a positive relationship between financial resource availability and CSR. Arguments that we term the Institutional Difference Hypothesis (IDH) drawn from the institutional literature, however, suggest that institutional differences between developed and developing economies are likely to result in different CSR implications. Integrating the logic of IDH with insights from slack resources theory, we argue that there exists a negative relationship between financial resource availability and CSR expenditures for firms in Ghana, a sub‐Saharan African emerging economy. We use lagged data from the Ghana Investment Promotion Centre and find that Return on Sales, Return on Equity, and Net Profitability were consistently associated with lower CSR expenditures. We highlight the implications of our findings for research and managers. Copyright © 2013 John Wiley & Sons, Ltd.
    March 25, 2013   doi: 10.1002/smj.2070   open full text
  • Product and environmental social performance: Varying effect on firm performance.
    Satish Jayachandran, Kartik Kalaignanam, Meike Eilert.
    Strategic Management Journal. March 25, 2013
    Corporate social performance (CSP) consists of actions in different domains that vary in the information they provide stakeholders, and hence, in their effect on firm performance. To demonstrate this, the authors examine the impact of CSP on firm performance in two areas—the product and the environment, referred to as product social performance (PSP) and environmental social performance (ESP), respectively. PSP has a stronger positive impact on firm performance compared to ESP. The findings using disaggregated measures of PSP and ESP indicate negativity bias in that PSP weakness has a stronger negative impact on firm performance compared to PSP strength. Copyright © 2013 John Wiley & Sons, Ltd.
    March 25, 2013   doi: 10.1002/smj.2054   open full text
  • Family firms and internationalization‐governance relationships: Evidence of secondary agency issues.
    Chitra Singla, Rajaram Veliyath, Rejie George.
    Strategic Management Journal. March 25, 2013
    This article documents that blockholders with both ownership and management control in family firms have different goals compared to blockholders with only ownership (but no management) control. We theorize and find evidence that family controlled and family managed (FCFM) firms negatively moderate the relationships between internationalization and governance mechanisms, while family controlled and nonfamily managed (FCNFM) firms do not. The findings indicate that family owners in FCFM firms have greater opportunities to reap private benefits of control indicating the presence of secondary (principal‐principal) agency problems, while these problems are mitigated in FCNFM firms. In emerging economies like India where family firms are ubiquitous, they highlight the need to recognize differing blockholder influences on internationalization‐governance relationships and to develop more nuanced theorizing for understanding them. Copyright © 2013 John Wiley & Sons, Ltd.
    March 25, 2013   doi: 10.1002/smj.2111   open full text
  • A competition‐based explanation of collaborative invention within the firm.
    Puay Khoon Toh, Francisco Polidoro.
    Strategic Management Journal. March 22, 2013
    Existing literature shows that collaborative invention within the firm enhances innovativeness by facilitating knowledge recombination. Despite such benefit, firms vary in their use of collaborative invention when drawing on their individual inventors' knowledge. In addressing this puzzle, we argue that competition from rival products building on similar knowledge compels firms to favor search depth over exploratory search and respond expeditiously, thus reducing a firm's inclination toward collaborative invention. In contrast with prior research's focus on how upstream resources influence a firm's position in downstream markets, this study shows that downstream competition drives heterogeneity across firms in their utilization of upstream resources. Copyright © 2013 John Wiley & Sons, Ltd.
    March 22, 2013   doi: 10.1002/smj.2059   open full text
  • Competition, governance, and relationship‐specific investments: Theory and implications for strategy.
    Nan Jia.
    Strategic Management Journal. March 22, 2013
    This paper uses biform games to examine the endogenous decision to invest in relationship‐specific assets. It addresses the questions of how competition affects suppliers' decisions to produce a general‐purpose product or a relationship‐specific product for a buyer and under what circumstances a governance arrangement designed to share investment costs between the transacting parties increases the investment in relationship‐specific assets. We offer a balanced perspective that emphasizes both the superior transaction value of relationship‐specific products and their high transaction costs while considering the competition effects generated by alternative investment plans. The model and its extensions generate new insights into investment decisions regarding relationship‐specific assets. Copyright © 2013 John Wiley & Sons, Ltd.
    March 22, 2013   doi: 10.1002/smj.2077   open full text
  • How does CEO tenure matter? The mediating role of firm‐employee and firm‐customer relationships.
    Xueming Luo, Vamsi K. Kanuri, Michelle Andrews.
    Strategic Management Journal. March 21, 2013
    While the direct influence of CEO tenure on firm performance has been examined in the strategy literature, the underlying channels of influence have remained largely unexplored. This article draws upon the career seasons paradigm, learning perspectives, and marketing literature to examine whether firm‐employee and firm‐customer relationships are the pathways through which CEO tenure influences firm performance. Results from the analysis of a large data set reveal that: (1) CEO tenure has a positive and linear association with firm‐employee relationship strength but an inverted U‐shaped association with firm‐customer relationship strength; (2) industry uncertainty intensifies these associations; and (3) firm‐employee and firm‐customer relationship strength mediate the effects of CEO tenure on firm performance. These findings have implications for a more balanced and nuanced view of CEO tenure. Copyright © 2013 John Wiley & Sons, Ltd.
    March 21, 2013   doi: 10.1002/smj.2112   open full text
  • Unraveling the mechanisms of reputation and alliance formation: A study of venture capital syndication in china.
    Qian Gu, Xiaohui Lu.
    Strategic Management Journal. March 21, 2013
    Extant research shows that resources are significant to a firm's choice of alliance formation. We focus on an important form of intangible resource—firm reputation—and examine how it affects a firm's propensity to form alliances. We propose an inverted U‐shaped relationship between a firm's reputation and its likelihood of alliance formation, resulting from the opposing mechanisms of opportunity and need. We also examine how this relationship may vary across two contingencies: (1) foreign and domestic firms; and (2) different levels of institutional development. Empirical analyses of China's venture capital (VC) industry provide support for our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.
    March 21, 2013   doi: 10.1002/smj.2117   open full text
  • From core to periphery and back: A study on the deliberate shaping of knowledge flows in interfirm dyads and networks.
    Andrea Lipparini, Gianni Lorenzoni, Simone Ferriani.
    Strategic Management Journal. March 21, 2013
    We study 892 Italian motorcycle industry projects carried out via 184 different buyer–supplier and supplier‐supplier relationships to provide evidence on the knowledge dynamics occurring in dyads and networks and to understand the underexplored but important (perhaps even dominant) leading role that some firms play in the evolution of networks and interfirm learning processes. We develop a multiphase model which, from a multilevel perspective addressing different relational subsets, suggests how firms can best organize to generate and exchange knowledge efficiently. We argue that extant theoretical perspectives can profitably draw on our findings to strengthen their dynamic components and help them explain the widely diffused ‘exploring through partner’ strategies more effectively. Copyright © 2013 John Wiley & Sons, Ltd.
    March 21, 2013   doi: 10.1002/smj.2110   open full text
  • Clear and present danger: Planning and new venture survival amid political and civil violence.
    Shon R. Hiatt, Wesley D. Sine.
    Strategic Management Journal. March 14, 2013
    Many entrepreneurs in developing economies face unstable environments due to violence and civil unrest. Yet, we know very little about how environments characterized by high levels of political and civil violence affect new venture processes and survival. Moreover, it is unclear whether standard theories about organizational strategy, such as planning, hold true in such environments. We explore these issues using a sample of 730 new ventures in Colombia from 1997 to 2001. We find that political and civil violence decreases firm survival, increases the benefits of incremental (operational) planning, and decreases the benefits of comprehensive (strategic) planning. Copyright © 2013 John Wiley & Sons, Ltd.
    March 14, 2013   doi: 10.1002/smj.2113   open full text
  • Market frictions as building blocks of an organizational economics approach to strategic management.
    Joseph T. Mahoney, Lihong Qian.
    Strategic Management Journal. March 13, 2013
    This paper shows that market frictions are fundamental building blocks for an organizational economics approach to strategic management. Various organizational economic approaches (transaction costs, property rights, real options, and resource‐based) have distinctive focal problems and emphasize different combinations of market frictions. A wider recognition of the role of market frictions is useful for three main objectives. First, it helps identify an evolving market‐frictions paradigm in strategic management. Second, it shows how two primary questions in strategy of why firms exist and why some firms outperform others and the three primary strategic goals of cost minimization, value creation, and value capture can be better joined and evaluated. Third, different combinations of market frictions can generate new research questions and advance theory development in the strategic management field. Copyright © 2013 John Wiley & Sons, Ltd.
    March 13, 2013   doi: 10.1002/smj.2056   open full text
  • Why pure strategies may be wrong for transition economy firms.
    George A. Shinkle, Aldas P. Kriauciunas, Greg Hundley.
    Strategic Management Journal. March 13, 2013
    The strategy purity hypothesis argues firms will have better results pursuing a single, business‐level strategy of either cost leadership or differentiation rather than a mix of both. Since this claim implicitly assumes a developed‐economy context, we examine the efficacy of business strategies in transition economies. We find the benefits of a pure strategy are diminished when the institutional environment has a low degree of market orientation but are increased when the institutional environment is more market oriented. Our results indicate a boundary condition for the strategy purity hypothesis and support arguments for an institution‐based view of business strategy. Copyright © 2013 John Wiley & Sons, Ltd.
    March 13, 2013   doi: 10.1002/smj.2060   open full text
  • Reconceptualizing plural sourcing.
    Anna Krzeminska, Glenn Hoetker, Thomas Mellewigt.
    Strategic Management Journal. March 08, 2013
    Firms often procure the same input via multiple means, e.g., making and buying. Recent papers have yielded rich, but inconsistent, theoretical and empirical insights. Resolving these inconsistencies requires reconceptualizing two aspects of plural sourcing: what and how. We reconceptualize plural sourcing as a set of combined governance modes—make‐and‐buy, make‐and‐ally, and buy‐and‐ally—which differ in their capabilities and limitations. We demonstrate our reconceptualization's potential with propositions predicting the choice of specific plural sourcing modes. Copyright © 2013 John Wiley & Sons, Ltd.
    March 08, 2013   doi: 10.1002/smj.2062   open full text
  • How constraints and knowledge impact open innovation.
    Helena Garriga, Georg von Krogh, Sebastian Spaeth.
    Strategic Management Journal. March 06, 2013
    Laursen and Salter (2006) examined the impact of a firm's search strategy for external knowledge on innovative performance. Based on organizational learning and open innovation literature, we extend the model hypothesizing that the search strategy itself is impacted by firm context. That is, both ‘constraints on the application of firm resources’ and the ‘abundance of external knowledge’ have a direct impact on innovative performance and a firm's search strategy in terms of breadth and depth. Based on a survey of Swiss‐based firms, we find that constraints decrease and external knowledge increases innovative performance. Although constraints lead to a broader but shallower search, external knowledge is associated with the breadth and the depth of the search in a U‐shaped relationship. Copyright © 2013 John Wiley & Sons, Ltd.
    March 06, 2013   doi: 10.1002/smj.2049   open full text
  • Software firm turnarounds in the 1990s: An analysis of reversing decline in a growing, dynamic industry.
    Hermann Achidi Ndofor, Jeff Vanevenhoven, Vincent L. Barker.
    Strategic Management Journal. March 01, 2013
    Investigations into management actions that reverse organizational decline have produced inconsistent findings. Prior studies have focused on the value of retrenchment actions versus strategic actions to engineer a performance turnaround. These studies, however, have generally not controlled for the cause of firm decline, overlooking a major theoretical contingency. Examining prepackaged software firms in the 1990s, we test the association of strategic and retrenchment actions in facilitating turnarounds in a munificent industry. The results show that measures of strategic actions—new product introductions, strategic alliances, and acquisitions—were positively associated with turnarounds. Conversely, measures of retrenchment actions—layoffs, asset reductions, and product withdrawals—were negatively associated with performance recovery. Our results suggest declining firms in munificent industries cannot retrench their way back to prosperity. Copyright © 2013 John Wiley & Sons, Ltd.
    March 01, 2013   doi: 10.1002/smj.2050   open full text
  • Are there always synergies between productive resources and resource deployment capabilities?
    Marco D. Huesch.
    Strategic Management Journal. February 28, 2013
    While the independent impacts of particular firm resources and deployment capabilities on firm performance are unambiguous cornerstones of the strategy field, it is commonly assumed that their joint impacts are synergistic. This article seeks to understand whether this common misconception of resource‐based theory can be refuted empirically. Using data from hospitals conducting specialist surgery, I find hospital performance improves independently through better surgical resource quality and from more use of a streamlined form of resource management in which overall patient team leadership and operating team leadership are held by the same physician. Generally the interaction of these two firm activities had no impact on performance. These results contribute to the strategy field's understanding of whether and when internal fit affects performance, clarifying an incorrect inference commonly made about resource‐based theory. Copyright © 2013 John Wiley & Sons, Ltd.
    February 28, 2013   doi: 10.1002/smj.2068   open full text
  • Implications of internal organization structure for firm boundaries.
    Carmen Weigelt, Douglas J. Miller.
    Strategic Management Journal. February 13, 2013
    Knowledge issues are central to governance choice. Organization structure influences knowledge flows and costs of knowledge creation and exchange inside the firm. Yet the question of how a firm's internal structure affects its governance choice for new activities has received scant empirical attention. We examine the role of internal structure, specifically unit autonomy and lateral coordination, in a firm's governance decision for new, knowledge‐intensive activities. The findings show that internal structure is a ‘shift parameter’ that affects governance choice by moderating the relationship between task complexity and degree of integration. The empirical setting is the U.S. banking industry and its adoption of Internet banking. Copyright © 2013 John Wiley & Sons, Ltd.
    February 13, 2013   doi: 10.1002/smj.2074   open full text
  • Venture capitalists' decision to withdraw: The role of portfolio configuration from a real options lens.
    Yong Li, Tailan Chi.
    Strategic Management Journal. February 12, 2013
    When does a venture capital firm withdraw from an investment project prior to its completion? This study offers a real options view on this decision by examining the contingent effects of portfolio configuration. We explore how project withdrawal can be influenced by two distinct dimensions of portfolio configuration, portfolio focus in a strategic domain and portfolio diversity across multiple domains. The empirical analysis shows that while portfolio focus weakens the negative effect of industry‐level uncertainty on a venture capitalist's propensity to withdraw from a project, portfolio diversity strengthens the effect of uncertainty. This study informs current research on the boundary of real options theory and sheds light on the behavior of venture capitalists in financing entrepreneurship. Copyright © 2013 John Wiley & Sons, Ltd.
    February 12, 2013   doi: 10.1002/smj.2073   open full text
  • Platform competition: Strategic trade‐offs in platform markets.
    Carmelo Cennamo, Juan Santalo.
    Strategic Management Journal. February 08, 2013
    Because the literature on platform competition emphasizes the role of network effects, it prescribes rapidly expanding a network of platform users and complementary applications to capture entire markets. We challenge the unconditional logic of a winner‐take‐all (WTA) approach by empirically analyzing the dominant strategies used to build and position platform systems in the U.S. video game industry. We show that when platform firms pursue two popular WTA strategies concurrently and with equal intensity (growing the number and variety of applications while also securing a larger fraction of those applications with exclusivity agreements), it diminishes the benefits of each strategy to the point that it lowers platform performance. We also show that a differentiation strategy based on distinctive positioning improves a platform's performance only when a platform system is highly distinctive relative to its rivals. Our results suggest that platform competition is shaped by important strategic trade‐offs and that the WTA approach will not be universally successful.
    February 08, 2013   doi: 10.1002/smj.2066   open full text