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The impact of modes of entry and resource fit on modes of exit by multibusiness firms
Abstract
This study examines the choices of modes of entry and exit in the process of new business exploration. We find that exit mode choices are determined by a different set of factors from those that are important for the entry mode decision and the exit decision per se. Our study indicates that when the resource profiles of a parent firm and the business unit are more dissimilar, and there has been less development of firm-specific idiosyncratic assets, firms are more likely to sell businesses than dissolve them. Further, the study reports a strong relationship between the mode of exit from a line of business (sell-off vs. dissolution) and the original mode of entry (acquisition versus internal development). Copyright © 1999 John Wiley & Sons, Ltd.
... Bourgeois and Singh (1983) classified slack into three types based on the degree of accessibility: (1) available slack is a resource with high discretionary power that can be used flexibly and is not committed to a specific area of consumption in a firm, (2) recoverable slack is a cost greater than the cost required for firm operations which can be recovered from a firm's reorganization although it has already been absorbed as a cost, (3) potential slack refers to future resources generated through debt borrowing. Most studies use the current ratio (Agusti-Perez et al. 2020;Ahuja 2000;Bergh 1997;Bromiley 1991;Chang and Singh 1999;B.-N. Kim et al. 2017;Martinez and Artz 2006) and quick ratio (Combs and Ketchen 1999;Davis and Stout 1992;Geiger and Cashen 2002;Palmer and Wiseman 1999) as measurements for available slack; the ratio of R&D investment to sales, the advertising expense to sales or human resources as the proxies for recoverable slack (B.-N. ...
... Kim et al. 2017;Martinez and Artz 2006) and quick ratio (Combs and Ketchen 1999;Davis and Stout 1992;Geiger and Cashen 2002;Palmer and Wiseman 1999) as measurements for available slack; the ratio of R&D investment to sales, the advertising expense to sales or human resources as the proxies for recoverable slack (B.-N. Kim et al. 2017;Kiss et al. 2017); and the debt/equity, debt/sales and debt/assets ratios as the measurement for potential slack (Bergh 1997;Chang and Singh 1999;Graves and Waddock 1994;Zahra 1996). ...
... Examples of high-discretion slack include cash (George 2005), the sum of cash and marketable securities (J. V. Singh 1986), current ratio (Agusti-Perez et al. 2020;Ahuja 2000;Bergh 1997;Bromiley 1991;Chang and Singh 1999;B.-N. Kim et al. 2017;Martinez and Artz 2006;Lin et al. 2009), and quick ratio (Combs and Ketchen 1999;Davis and Stout 1992;Geiger and Cashen 2002;Palmer and Wiseman 1999). ...
The paper explored the effects of financial and human resource slacks on firms’ export intensity. Using longitudinal data of Vietnamese firms with a random effect model, the study found that financial slack had an inverted-U shaped effect; meanwhile, human resource slack had no consistently significant effect on firms’ export intensity. The empirical findings could have managerial practice implications at the firm level. Too few—or too many—slack resources are bad for export intensity. Therefore, firm managers need to consider the necessary level of redundancy for slack resources to avoid prodigality while doing business. This study contributed new insights to international business and slack literatures. First, our findings contributed to the international business literature. In classic internalization studies, it has generally been believed that firms with access to greater resources are more likely to exploit foreign markets. However, our research showed that, when there were too many slack resources, business activities in firms’ foreign markets, such as exports, could be reduced due to complacency among firm managers. Second, the research results contributed to literature on slack resources, providing a new insight on their effects on firms’ export intensity. Aside from linear or U-shaped effects, slack resources could have inverse U-shaped relationships with firms’ export intensity.
... Financial resources are often approximated using company size, based on revenues, full-time employees, or assets (Shepherd and Rudd 2014). In general, there is strong consent that firm size is significantly and positively related to the decision to acquire vis-à-vis internal development (Yip 1982;Andersson and Svensson 1994;Hoffmann and Schaper-Rinkel 2001;Chang and Singh 1999) or alliances (Hennart and Reddy 1997;Zhou et al. 2009). The underlying assumption is that larger organizations are likely to possess greater financial resources and thus, have a greater capacity to finance capital-intensive acquisitions and absorb risks (Agarwal 1994;Drogendijk and Slangen 2006). ...
... A higher cash flow, in contrast, supports a greater reliance on internal development (Lee and Lieberman 2009), as it can be much more easily applied than stock market capital. Last, findings related to a firm's degree of leverage are mixed or insignificant, which researchers attribute to endogenous effects related to institutional circumstances (Hennart and Park 1993;Chang and Singh 1999). ...
... Hall (2002) argues that, in build vs. buy decisions, funding plays a decisive role in the relative cost and thus, the choice between both modes; while acquisitions can be financed by various mechanisms (e.g., exchange of stock, accumulated cash reserves, debt, or some combination), internal development is mostly funded by current cash flow. However, evidence is rather weak, as other studies fail to find any significant relationship between profitability and growth mode preference (e.g., Ingham and Thompson 1994;Moatti 2009;Tong and Li 2011), or even points in the opposite direction (Chang and Singh 1999). Other studies consider competitive positions or sales growth as other types of performance measures. ...
When pursuing growth opportunities, organizations can, most fundamentally, choose between three different modes: internal development, mergers and acquisitions, and partnerships. Strategic management research investigates the decision of whether to “build, buy, or partner” and its determining factors from various theoretical perspectives, which led to the emergence of related, but largely independent, research streams. As such, this review consolidates the scattered literature landscape and provides a comprehensive understanding of the antecedents associated with the choice of corporate growth modes. To do so, an integrative research framework is proposed that encompasses internal, external, and decision-related factors. Based on this framework, the review provides a synthesized overview and critical assessment of 74 past empirical contributions and develops a detailed roadmap to guide future research.
... However, in the context of subsidiary exit, divestment was used as independent variable. Furthermore, at least ten studies on divestment/ subsidiary exit neglect divestment or subsidiary exit and are focused on performance/profitability/ROA (Kaul, Nary and Singh, 2018;Meschi and Métais, 2015;Song, 2015;Elfenbein and Knott, 2014;Berry ,2013;Cui and Kumar, 2012;Fisch and Zschoche, 2012;Chang and Singh, 1999;Bergh, 1997;and Markides, 1995). As the literatuure on divestment is rather limited, one can not limit the possibility the parent firm performance to be only independent factor explaining subsidiary divestment but also a dependent variable explained by the antecedent factors of divestment. ...
... Among the above 52 studies, 30 studies examine parent performance/profitability ( Peruffo et al., 2018;Kaul et al., 2018;Mohr et al., 2018;Tan and Sousa, 2017;Dai et al., 2017;Zschoche, 2016;Damaraju et al., 2015;Song, 2015;Soule et al., 2014;Durand and Vergne, 2014;Elfenbein and Knott, 2014;Chung et al., 2013;Dai et al., 2013;Xia and Li, 2013;Cui and Kumar, 2012;Fisch and Zschoche, 2012;Kim et al., 2012;Brauer and Wiersema, 2012;Polidoro et al., 2011;Wu et al., 2011;Brauer and Schimmer, 2010;Anand et al., 2009;Lu and Hébert, 2005;Shimizu and Hitt, 2005;Delios and Beamish, 2001;Shaver et al., 1997;Markides, 1995;and Baden-Fuller, 1989). Meschi and Métais, 2015; Li and Liu, 2015;Farah, 2014;Pathak et al., 2014;Peng and Beamish, 2014;Berry, 2013;Kim et al., 2010;Delios et al., 2008;Moliterno andWiersema, 2007;Hayward and Shimizu, 2006;Berry, 2004;Chang and Singh, 1999;Bergh, 1997;Hoskisson et al., 1994) and three studies relate to subsidiary ROA ( Song and Lee, 2017;Kang et al., 2017;and Chung et al., 2013a). ...
... Another factor of production productivity in construction industries is financial assets. Oftentimes, it was linked to the proportion of fixed capital to workforce input that further characterized the efficiency of a company in occupying its assets to produce goods or offer services (Chang & Singh, 1999;Sen & Farzin, 2000). In the construction sector, tools and supplies were frequently characterized as the capital of their production. ...
The focus of this study is the demand for foreign labor in the construction industry. While labor productivity contributes significantly to the economic growth of the country but the trend has decreased over recent years. Hence, this paper aims to identify whether the increase in the labor force or other factor inputs contributes significantly to the labor capacity of construction projects in Malaysia. Results show the relationship between labor and other factors related to employment productivity in the construction industry of Malaysia from the year of 1986 to 2020. Factor inputs consist of variables such as capital, local labor, and foreign labor. The research objective is to identify the effects of labor force and other factor inputs on labor productivity. This study employs the Cobb-Douglas production function. The findings show that there is a significant relationship whereby the financial assets have a significant relationship, whilst the local and foreign workforce has a negative relationship in terms of their impact on labor productivity. These findings provide some scientific evidence for improving the project performance of the construction industry in Malaysia. It will be useful in identifying which factor inputs have a huge impact on construction labor productivity.
... Another factor of production productivity in the manufacturing industry is capital. It is frequently associated with the ratio of total assets or fixed assets to labour inputs which further defined a company's efficacy in utilising its resources to generate materials or services (Chang & Singh, 1999;Sen & Farzin, 2000). The instrument and equipment were commonly described as the capital in production. ...
The manufacturing industry is the focus of this study, in which the proportion of its contribution to economic growth is experiencing a decreasing trend recently. Does it involve factors such as the input of capital, health, or workers that give significant impacts on labor productivity in the Malaysian manufacturing industry? This paper discovered the relationship between capital, health, and workers that consist of foreign and local labor with the labor productivity in the Malaysian manufacturing industry from 1986 to 2020. The Cobb-Douglas production function was used to derive the model specification in this study. The results showed that all variables are significant, in which capital and health have a positive relationship, whilst the factor of labor including local and foreign labor has a negative relationship with labor productivity. These findings may provide some insights into the improvement of manufacturing industries’ performance in Malaysia. It would be useful in determining which input factors significantly affected the productivity of manufacturing labor.
... Second, we focus on failure divestments. Distinguishing between closure and selloff of subsidiaries, previous literature has found that only closures can be traced back to cases of extremely poor performance (e.g., Chang and Singh, 1999;Ushijima and Iriyama, 2015). Accordingly, we proxy failure divestments as those that occurred through the shutdown of the foreign subsidiary. ...
... Liu and Li (2020) find firms operating in violent conflict zones are more likely to divest as the cost of sustaining business operations in such an environment is very high. In addition, Chang and Singh (1999) find that divestment is higher in industries with greater concentration because fewer opportunities for collusion make it difficult for firms to survive in periods of low demand. ...
Multinationals from India and China courted the economies of both the North and the South and they had different advantages in doing so. After more than two decades of successful internationalization, can the survival of Indian and Chinese investments reveal the factors that are associated with the success of EMNC investments in the North and the South? This is the main question we explore in this paper. We find that there is a North-South divide in the survival of Indian and Chinese outward investments. Investments in the North are subject to more intense competitive pressure due to the stronger technological and managerial abilities of domestic firms and survival is markedly weaker there. In Southern locations, where Indian and Chinese firms enjoy competitive advantages and industrial leadership in several areas, they also have better rates of survival. Apart from highlighting the role of relative (to host country firms) firm-specific advantages in explaining survival in the North and South, we also find that a larger diaspora in Southern locations is associated with greater survival.
... An affiliate can engage in fairly similar, or even the same activities as its sibling affiliates, and in which they often have a high level of similarities in terms of not only physical resources, human resource profiles and technological capabilities (Chang & Singh, 1999;Wan, Chen & Yiu, 2015), but also the market environments such as customer needs and competitions in which they operate (Capron, Mitchell & Swaminathan, 2001). A high degree of similarity in tangible and intangible assets reduces the costs associated with knowledge transfer and improves the effectiveness of knowledge transfer (Andersson, Buckley & Dellestrand, 2015). ...
This paper explores lateral knowledge transfer within the multinational enterprise, i.e. knowledge flow between an affiliate and its sibling affiliates, and we consider how the relationship between the affiliate and its siblings influences lateral knowledge transfer. Drawing on more than 6000 foreign affiliates in over 60 host countries, we evidence a positive and significant impact on affiliate performance from its siblings' intangible assets. We group sibling affiliates' roles into horizontal, upstream, downstream and unrelated categories accordingly to a sibling's activities in relation to its respective affiliate's value chain. Specifically, we find that the effect of lateral knowledge transfer on affiliate performance is bigger (1) when siblings are in related sectors, rather than unrelated sectors; (2) when the affiliate and siblings are in horizontal relationship, rather than vertical relationship; and (3) when siblings are upstream, rather than downstream, in the affiliate's value chain.
... Due to high resource commitment, acquisitions are more prone than alliances to suffer noticeable consequences from inimical resources. For example, acquisition research has identified the concept of negative synergy (Krüger & Müller-Stewens, 1994) or acquisition combinations that are expected to destroy value (Campbell, Sirmon, & Schijven, 2015) and contribute to divestment (e.g., Brauer, 2006;Campbell et al., 2015;Chang & Singh, 1999). However, problems following an acquisition can be avoided by abandoning an acquisition before it completes (Iii & DeCastro, 2001;Sirmon et al., 2010). ...
The potential for resource combinations to have adverse consequences for acquiring firms is often overlooked in research. However, considering potential inimical resources can explain target and acquiring firm actions across the phases (evaluation, completion, and integration) of an acquisition. We outline how managers deal with inimical resources in acquisitions. Specifically, during evaluation, due diligence offers managers from acquiring firms the opportunity to avoid potential inimical resources by abandoning an acquisition. During integration, inimical resources can be dealt with either by limiting integration, or with planned or unplanned divestment. As a result, inimical resources explain observed actions, and provide a context for making and improving corporate restructuring decisions.
... One of the approaches in the literature is to measure relatedness using resource-based indicators, such as patents (Breschi et al., 2003;EC Engelsman, 1991;Jaffe, 1989), commodities (Fan and Lang, 2000), or human capital, through occupational profiles (Chang and Harbir, 1999;Chang, 1996;Farjoun, 1994). Yet if we consider the Knowledge Based Theory (KBT) of the firm, which asserts that knowledge is a firm's most strategic and significant resource (Grant, 1996;Spender and Grant, 1996), the best resource-based indicator should capture employees' skills. ...
This paper analyzes extractive industries in Colombia and their connections to other economic activities in the country. We use detailed social security data on all formal employees to create an industry-relatedness measure using labor flows between industries. Drawing on the vast network analysis literature, we exploit centrality measures to reveal the importance of the extractive sector among Colombian industries. Our results show that extractive industries are well connected within the Colombian industrial network, and that they are central overall and within their clusters. We also find that extractive industries have stronger linkages with manufacturing and agriculture than with other sectors. Finally, a higher relatedness to extractive activities is correlated with lower levels of employment, specially of female workers.
... A parallel consideration of diversification is the level that different business units of a firm are related, and this influences divestment. In general, research shows that firms are less likely to divest related businesses (Brauer, 2006;Chang, 1996;Chang & Singh, 1999 1984; Moschieri & Mair, 2008;Xia & Li, 2013;Zuckerman, 2000). However, it has different implications for different theories. ...
Divestment represents an important corporate strategic tool; however, research on divestment is eclipsed by acquisition research, and divestment is often incorrectly considered the opposite of an acquisition. Our review provides a more complete picture of the stages of divestment with a focus on summarizing literature on divestment antecedents, processes, and outcomes. The result shows a need to integrate theoretical perspectives and look at divestment more holistically. Additionally, divestment capabilities may be limited to specific divestments modes (e.g., sell-off). Additional implications for management research and practice are identified.
... One stream of literature has focused on multi-plant closure organization (e.g. Arthur, 1994;Becker and Huselid, 1998;Chang and Singh, 1999;Datta et al., 2003;Kirkham et al.,1999;Koch and McGrath, 1996;Youndt et al.,1996). Another stream of literature has focused on sector-and industry-level effects (e.g. ...
Previous studies with empirical evidence on social responsible driven closedowns have identified aproductivity increase effect that occurs during the process of organizational closedowns, known as the closedown effect. Our proposition is that this effect can be anticipated as ac onsequence of ac losedown decision. Encountering four different non social responsible closedown cases, of various durations, we statistically test this proposition. Further, we identify aneed for an analytical distinction of the phases of the closedown process, in terms of the primary 'advanced notice period' and the secondary 'countdown period'. Based on the analysis, and with this distinction, we are able to conclude that the productivity increase effect can be anticipated during the countdown period. The comparably longer time frame in the Studding case provides the strongest support for our proposition. From the analysis we suggest hypotheses for further research.
... For instance, acquisitions allow a firm to obtain access to assets and capabilities that it may not be able to develop in a timely manner with its current resources, including those needed for growth (Lee and Lieberman 2010). Similarly, the sale of business assets facilitates the redeployment of resources within a firm and provide an avenue for poorly performing firms to re-focus or exit the market (Chang and Singh 1999;Lieberman, Lee, and Folta 2017). For entrants, acquisitions not only offer a possible mode of entry, but more importantly, potential gains from selling their business in the future can be an important motivator for entry (David 2017;Hollenbeck 2019). ...
Firm size distributions and firm dynamics have important implications for macroeconomic outcomes, particularly aggregate productivity through effects on allocation of human and physical capital. This dissertation evaluates the mediating role of firm size distribution on the allocation of human capital over the business cycle, and identifies the drivers behind firm dynamics across regions. Over eight million jobs were lost in the Great Recession, creating widespread economic hardship. The first chapter documents a novel and robust empirical regularity, that highly concentrated local labor markets experienced larger employment declines during the Great Recession. I provide an explanation using a model with heterogeneous firms where recessions arise as an aggregate consequence of idiosyncratic firm shocks. My model predicts a larger decline in expected employment when the market has a higher initial concentration level. The key idea is that relatively small firms are unable to absorb the large number of workers that get displaced when relatively big firms are hit by idiosyncratic shocks, as the absorption is limited by decreasing returns to scale (at the firm) and an upward-sloping labor supply (in the local labor market). I undertake a series of empirical tests to rule out alternative explanations, and show that large employment losses in concentrated labor markets are not driven by highly concentrated industry-locations being hit harder during the Great Recession, having thinner labor markets, having more large firms, or having high firm leverage ratios. In the second chapter, I explore the drivers of new-firm creation, focusing on unintended consequences of unemployment insurance on the propensity of unemployed individuals to form new businesses. Exploiting staggered changes in benefit generosity across states and over time, I find that higher unemployment insurance (UI) benefits lower the probability that an unemployed person will become self-employed and delay such a transition. These effects are concentrated in the formation of unincorporated business. The negative effects are smaller in states offering a self-employment assistance program that allows the unemployed to collect benefits while starting their own business. The last chapter studies how the adoption of product line exception (PLE) to successor non-liability, a plausibly exogenous mechanism that introduces a friction into the corporate transactions market, affects firm acquisitions and growth. We find that adoption of PLE has a negative effect on the propensity of being acquired, and a positive effect on closure rate, especially among manufacturing establishments. In line with the predictions of our theoretical model, we find stark differences in effects across young vs older firms. In particular, the probability of acquisition, as well as closure, increases for young manufacturing establishments after PLE is adopted. In contrast, the impact on older establishments is more in line with the overall effects (lower acquisition and higher closure propensity), albeit statistically insignificant. Firm level regressions show slower growth, greater exit and lower entry rates following adoption of PLE for manufacturing firms. Together, these results suggest that the friction from adoption of PLE has material effects in the manufacturing sector including reduction in reallocation of assets through acquisitions, shift in the focus of corporate transactions to younger incumbents, and reduction in firm growth, entry and survival.
... Subsidiaries unrelated to the firm's core business activities are more likely to be divested (e.g. Chang and Singh, 1999;Doukas and Lang, 2003;Li, 1995;Berry, 2013;Benito, 1997) as the firm's core intangible resources cannot be shared or are not directly transferable to the subsidiary (Tan and Sousa, 2018;Berry, 2013). Other empirical research has found a positive relationship between the size of the foreign subsidiary and its survival, as large sunk cost investments deter firms from exiting the market (Belderbos and Zou, 2009;Chen and Wu, 1996;Li, 1995;Mata and Portugal, 2000). ...
Differences in global market integration across industries have important repercussions for MNC strategy and the drivers of manufacturing subsidiary divestment decisions. Global industry integration and the associated competitive pressures lead MNCs to adopt cost efficiency strategies for their subsidiary networks, and subsidiary divestment decisions are strongly driven by labor cost considerations. In non-integrated industries, host country demand conditions are the prime driver of divestments. These patterns are the most salient for MNCs that have aligned their strategy with the global industry environment. Analysis of the divestment hazards of 3827 Japanese manufacturing subsidiaries in 57 countries provides support for these conjectures.
... Because internally developed business units tend to possess firm-specific resources and capabilities, they are more likely to be dissolved than sold off, in comparison to acquired business units, whose resources and capabilities may preserve more value in the market and attract external buyers. Similarly, the resource fit between the parent and the business unit, sharing common resource bases, increases the probability of dissolving rather than selling the unit (Chang & Singh, 1999). In family firms, identity considerations are likely to motivate the choice of shutting down a satellite business as a preferred option to selling the business to others (Akhter et al., 2016). ...
We investigate the corpus of literature on firm exit by means of a systematic literature review (SLR) which yields a final sample of 142 journal articles for the period 1991–2020. The phenomenon of firm exit is explored from a variety of perspectives: business exit; exit at the individual entrepreneur level; exit from specific markets; exit from foreign markets; and the role of exit for industrial dynamics conceived more broadly. Special attention is given to the various exit routes, including voluntary liquidation, mergers and acquisitions (M&A), initial public offerings (IPO), and of course bankruptcy. The SLR sets the scene for the Special Issue papers that are presented towards the end, and we conclude with some suggestions for future research.
The Plain English Summary This article develops a systematic literature review around three decades of firm exit research, patterns, developments, and intriguing gaps. In this paper, we systematically review 142 studies on firm exit from various perspectives, identify major patterns, and outline the debate around firm exit. We propose reflections useful for scholars willing to engage in firm exit research in the future and set the scene for the special issue papers. Overall, this work shows the remarkable progress made in the area of firm exit that has evolved from the view of exit as a homogenous event signaling failure to a vision of exit as a heterogenous event. Exploring the sources of heterogeneity of exits from various perspectives could offer promising paths for future research.
... The third hypothesis focuses on the degree of relatedness between the parent and the affiliate, or, alternatively, the lack of relatedness as would be apparent in parents and affiliates operating in distinct and unconnected industrial sectors, on the relationship between parent performance and affiliate divestment. The knowledge-based view of the firm draws attention to the knowledge and strategic resources and capabilities shared between affiliates and their parents, such as physical facilities, capital structure, human resource profiles (Harrigan, 1981;Chang, 1996;Wan, Chen & Yiu, 2015), technological capabilities and marketing intensity (Duhaime & Grant, 1984;Chang & Singh, 1999;Capron, Mitchell & Swaminathan, 2001). However, affiliates operating in unrelated sectors may find it difficult to absorb incoming knowledge and best practice from their parents (Szulanski, 1996;Szulanski, Ringov & Jensen, 2016), due to their unfamiliarity with parent knowledge, especially if it is complex, tacit and path-dependent (Cohen & Levinthal, 1990;Bresman, Birkinshaw & Nobel, 1999 financial difficulties are likely to be under pressure from their shareholders and creditors to restructure their portfolios and focus attention on their core businesses (Hamilton & Chow, 1993;Zuckerman, 2000;Haynes, Thompson & Wright, 2003;Chen & Guo, 2005), and to divert unattractive or unrelated assets to better opportunities (Hamilton & Chow, 1993;Chen & Guo, 2005;Berry, 2010;2013). ...
Divestments by multinational enterprises (MNEs) of their foreign affiliates are an increasingly important phenomenon in the contemporary global economy. We investigate what determines the likelihood that a foreign affiliate will be divested emphasising, in particular, the strategic roles played by the affiliates within their parent MNEs’ global value chains, and hence the degree of relatedness between the affiliate and the parent firm. We find that poor parent performance and poor affiliate performance are key determinants of affiliate divestment, but that the magnitude of these effects varies significantly depending upon whether the affiliates are in related or unrelated sectors, are horizontal or vertical affiliates, and are located upstream or downstream in the global value chain of their parent MNE.
... We employ a set of criteria to derive data from the database. First, we drop firms in abnormal operation (i.e., those that went bankrupt, dissolved, acquired or had an age less than zero) because they might have different R&D patterns and performance outcomes (e.g., Chang & Singh, 1999). Second, due to our focus on services R&D, we restrict our sample to firms with the two-digit Standard Industrial Code (SIC) code 70-89 1 . ...
... A parallel consideration of diversification is the level that different business units of a firm are related, and this influences divestment. In general, research shows that firms are less likely to divest related businesses (Brauer, 2006;Chang, 1996;Chang & Singh, 1999 1984; Moschieri & Mair, 2008;Xia & Li, 2013;Zuckerman, 2000). However, it has different implications for different theories. ...
... It is a standard measure of slacks in the literature. It measures specifically available slacks, the firm's excess of liquidity ready to allocate (e.g., Ahuja, 2000;Chang & Singh, 1999;Zahra, 1996). ...
Corporate scandals happen not only when firms and managers deliberately commit fraud and harm the environment but also when firms have to recall malfunctioning products. Corporate scandals are more frequent than ever. Since information can be accessed easily and spread instantly, local issues quickly become global corporate scandals, which increases their strength and decreases the time for firms to implement a recovery plan. Corporate scandals bring uncertainty to the future of the firm’s financial health. Thus, they decrease expectations for returns and increase volatility of future cash-flows. Organizational slacks are resources detained by a firm to face an unexpected event. We believe they serve as a buffer in a situation of corporate scandal. Our study aims to determine the buffering role of organizational slacks can generate, when a corporate scandal hits a firm. To measure it, we use the event study methodology. We perform both short-term and long-term event study analyses. The former is based on a sample of 362 North American listed firms regarding 1,940 corporate scandals, from 2007 to 2018, and it measures the difference between the normal stock returns of the firms and the stock returns happening on the days surrounding the corporate scandal. The latter is based on 333 North American listed firms regarding 1,719 corporate scandals, from 2007 to 2018, and it determines the fluctuations of the idiosyncratic risk in a period of 252 days following the corporate scandal. Our findings reveal key insights into the role of organizational slacks in a corporate scandal situation. Moreover, we analyze the buffering effect of organizational slacks in an unstable environment by introducing the moderating role of market turbulence. Results show that: (1) a corporate scandal has a negative impact on the firm value and firm volatility; (2) organizational slacks have a positive impact on the scandal’s negative effect on the firm value and firm volatility; (3) and, detaining organizational slacks increases the negative effect of the corporate scandal on the firm value in a turbulent market environment, but mitigates firm volatility in the same environmental conditions. Our primary contribution is to the management-finance literature, in the way that we integrate research on organizational slacks and corporate scandal literature with frequent changes in fit between market and management decisions. Our second contribution is to managers, as we bring novel insights into the ways of mitigating the negative effect of a corporate scandal with organizational slacks.
... However, in the context of subsidiary exit, divestment was used as an independent variable. Furthermore, at least ten studies on divestment/subsidiary exit exclude either divestment or subsidiary exit and are focused on performance/profitability/return on assets (ROA) (Kaul, Nary, & Singh, 2018;Meschi & Métais, 2015;Song, 2015;Elfenbein & Knott, 2014;Berry, 2013;Cui & Kumar, 2012;Fisch & Zschoche, 2012;Chang & Singh, 1999;Bergh, 1997;Markides, 1995). As the literature on divestment is rather limited, one cannot limit the possibility of the parent firm performance being not only an independent factor explaining subsidiary divestment, but also a dependent variable explained by the antecedent factors of divestment. ...
... Содержание понятия, мотивы, формы. Дивестирование в целом представляет собой сокращение капитала компании, а зарубежное дивестирование (foreign divestment) 1 означает, что компания лишается части подконтрольных ей активов за рубежом -отделения, целого подразделения или филиала [Duhaime, Grant, 1984;Chang, Singh, 1999]. Компании могут продавать, закрывать или отделять (spin-off) стратегическое подразделение, операционное подразделение или линию продукции. ...
... However, in the context of subsidiary exit, divestment was used as an independent variable. Furthermore, at least ten studies on divestment/subsidiary exit exclude either divestment or subsidiary exit and are focused on performance/profitability/return on assets (ROA) (Kaul, Nary, & Singh, 2018;Meschi & Métais, 2015;Song, 2015;Elfenbein & Knott, 2014;Berry, 2013;Cui & Kumar, 2012;Fisch & Zschoche, 2012;Chang & Singh, 1999;Bergh, 1997;Markides, 1995). As the literature on divestment is rather limited, one cannot limit the possibility of the parent firm performance being not only an independent factor explaining subsidiary divestment, but also a dependent variable explained by the antecedent factors of divestment. ...
... Therefore, we include a dummy variable to capture whether the subsidiary applied for patents over the last three years and the percentage of sales derived from innovative products and services introduced over the last three years. Because of indications that the risk of foreign divestment varies with a subsidiary's age (e.g., Chang & Singh, 1999), we control for the age of the subsidiary when matching sold businesses with non-sold businesses. Because of the potential effects of adverse economic changes on divestments (Hamilton & Chow, 1993;Johnson, 1996), we include a dummy variable that takes the value of 1 for years 2007, 2008 and 2009 to reflect the peak of the financial crisis. ...
We examine the post-divestment performance of subsidiaries that have been divested by their foreign owners and have subsequently been acquired by domestic owners. Drawing on Hymer’s classic explanation of firm internationalization and on the resource-based view dimension of internalization theory, we suggest that the differences in terms of the degree to which FSAs are independent from the linkages to the parent firm will be reflected in the variation in the performance effect of a foreign-to-domestic sale of the business. We argue that the negative performance effect of a foreign-to-domestic sale of a subsidiary is lower (1) for older subsidiaries, (2) for subsidiaries oriented toward the domestic, and (3) when the foreign parent firm is located outside the subsidiary’s geographic region. By using propensity score matching and difference-in-differences estimations, we examine the proposed effects and provide novel insights on the performance implications of the foreign-to-local ownership changes.
... Such operations are executed with the utmost secrecy and confidentiality (Hamilton and Chow, 1993), thus hindering the study of these cases. The decrease of assets can be made through alienation (Mitchell, 1994;Chang and Singh, 1999) or by restructuring (Bergh and Lawless, 1998). The divestment would thus be associated with the dismantling of a relationship of ownership (Vale, 2001). ...
Until a few years ago, internationalization was seen as a self-feeding process, resulting from decisions based on accumulated knowledge. De-internationalization is not an option. However, the reality shows us that enterprises have done international divestment. To this date, the research on de-internationalization remains somehow scarce and needs additional research. The authors want to understand the causes of de-internationalization. They use the grounded theory methodology, studying six Portuguese cases that already have a process of de-internationalization. Five firms cooperate with, presenting six cases. The authors distinguish causes that occur before/after the internationalization process begin and causes related to firm or external to firm. One of the main causes of de-internationalization is the incorrect internationalization process. The Misfit Micro-Location (the wrong choice of place inside a determined country) is a very important cause, which means that, after choosing the country, it is necessary to choose the best place to be located.
... We measured industry capital intensity as the average ratio of fixed assets to sales in each industry based on four-digit SIC codes (Chang and Singh, 1999;Datta et al., 2005;Katila et al., 2008). We used data from COMPUSTAT to compute this measure and lagged this variable by one year in the analyses (Katila et al., 2008). ...
This study offers a theoretical perspective from which to examine entrepreneurial ventures' linguistic strategies. Drawing on the framing perspective, we introduce two concepts—novelty frames and familiarity frames—and examine how the use of these linguistic frames may influence entrepreneurial ventures' ability to obtain funding from venture capitalists (VCs) in different industry contexts. Based on a sample of 2883 U.S. information technology (IT) ventures and 5849 investment events from 2003 to 2014, we show that novelty and familiarity frames individually and interactively shape the amount of funding. We also found that industry capital intensity enhances the positive effects of familiarity frames. These findings highlight the role of entrepreneurial ventures' linguistic frames in shaping their funding opportunities.
... Engelsman-Raan [1991], valamint Breschi és szerzőtársai [2003] a különböző iparágak szabadalmi adatait használják, Fan-Lang [2000] az értékteremtési láncban felhasznált materiális erőforrások hasonlóságaira támaszkodik, amit az input-output mátrixokból vezetnek le. Farjoun [1994], Chang [1996], Farjoun [1998] és Chang-Singh [1999]) a termelési folyamatokban alkalmazott emberi tőke hasonlóságaira épít, amit az egyes iparágak foglalkozásprofiljainak összehasonlításával elemeznek. az inputalapú megközelítések közé tartozik továbbá a szakértelemi közelség módszere is (Neffke-Henning [2013], Boschma és szerzőtársai [2014], Neffke és szerzőtársai [2016]), mivel ez is egy input -az iparágban alkalmazott szakértelmek -hasonlóságát méri, azonban indirekt módon: munkaerő-mobilitási adatok alapján, összehasonlítva a munkaerő iparágak közötti mobilitását azzal, hogy milyen lenne ez a mobilitás, ha a munkaerő véletlenszerűen áramlana. ...
Az iparágak között könnyebb a tanulás, illetve erősebbek az externális hatások a technológiai és az emberi erőforrások hasonlósága esetében. Emiatt az országok és régiók gazdasági növekedése függ az iparágak hasonlósági rendszerétől, ami befolyásolja az új iparágak régiókban, országokban való megjelenését és sikerességét is. Az iparágak hasonlóságának mérésére ezért számos próbálkozás történt, amelyek közül a kinyilvánított technológiai közelség és a szakértelmi közelség tekinthető a leginkább elfogadottnak. Tanulmányunkban a magyarországi iparágak hasonlósági rendszerét vizsgáljuk a két hálózati módszer segítségével. Bemutatjuk a kinyilvánított technológiai közelség és a szakértelmi közelség fogalmait és az ezekhez kapcsolódó empirikus módszertant, majd szemléltetjük a hazai iparágak hasonlósági hálózatát a két módszer segítségével. Elemezzük ezek egymással és a hagyományos ágazati besorolással való viszonyait. Végül a Közép-Dunántúl régió adatait használva illusztráljuk a regionális fejlesztéspolitika felhasználási lehetőségeit. A cikk online mellékleteként publikáljuk a közelségmutatók adatait, hozzáférhetővé téve ezeket jövőbeli regionális fejlesztéspolitikai, illetve empirikus közgazdasági kutatások számára.
... As Mickelson and Worley (2003: 252) explained, "complex family dynamics can lead to the perception that selling the business means selling out the family." Chang and Singh (1999) offered indirect evidence that being or feeling attached to a firm induces its owners to liquidate rather than to sell the business. Second, given that family owners include a SEW component in firm value, they are likely to overprice their firm when attempting to sell it as an ongoing concern. ...
We take the perspective that considering the affective motives of dominant owners is essential to understanding business exit. Drawing on a refinement of behavioral agency theory, we argue that family-controlled firms are less likely than non-family-controlled firms to exit and tend to endure increased financial distress to avoid losses to the family’s socioemotional wealth (SEW) embodied in the firm. Yet, when confronted with different exit options and performance heuristics suggest that exit is unavoidable family firms are more likely to exit via merger, which we argue saves some SEW, although it is less satisfactory financially. In contrast, non-family firms are more likely to exit via sale or dissolution, options that are more prone to offer higher financial returns than mergers. Family and non-family firms thus show different orders of exit options. We find support for these arguments in a longitudinal matched sample of privately held firms.
... As Mickelson and Worley (2003: 252) explained, "complex family dynamics can lead to the perception that selling the business means selling out the family." Chang and Singh (1999) offered indirect evidence that being or feeling attached to a firm induces its owners to liquidate rather than to sell the business. Second, given that family owners include a SEW component in firm value, they are likely to overprice their firm when attempting to sell it as an ongoing concern. ...
We take the perspective that considering the affective motives of dominant owners is essential to understanding business exit. Drawing on a refinement of behavioral agency theory, we argue that family-controlled firms are less likely than non-family-controlled firms to exit and tend to endure increased financial distress to avoid losses to the family’s socioemotional wealth (SEW) embodied in the firm. Yet, when confronted with different exit options and performance heuristics suggest that exit is unavoidable family firms are more likely to exit via merger, which we argue saves some SEW, although it is less satisfactory financially. In contrast, non-family firms are more likely to exit via sale or dissolution, options that are more prone to offer higher financial returns than mergers. Family and non-family firms thus show different orders of exit options. We find support for these arguments in a longitudinal matched sample of privately held firms.
... Existing research on firm factors influencing foreign divestment decisions has focused on the effects of firm characteristics, such as performance (Hoskisson, Johnson, & Moesel, 1994;Montgomery & Thomas, 1988), degree of diversification (Benito, 1997;Chang & Singh, 1999), size (Sembenelli & Vannoni, 2000), age (Hannan, 1998;Shimizu & Hitt, 2005), and international experience (Benito, 1997). 2 However, we know very little about possible triggers of foreign divestment activity that emerge from firms' access to opportunities for using their resources, especially when such opportunities arise domestically, i.e., in firms' home country. Existing studies on the topic are limited to the role of tangible options in other foreign locations, such as the possibility to relocate operations to countries with lower production costs (Belderbos & Zou, 2006;Berry, 2010), thus overlooking how firms' access to information about new business opportunities at home may trigger their foreign divestment decisions. ...
We investigate the role of domestic interfirm networks for the foreign divestment decisions of firms. We argue that firms’ foreign operations risk being divested when a firm becomes more central in its domestic network. Positive changes in firm centrality at home facilitate access to information about new business opportunities, but they may also lead firms to consider reconfiguring their value chain activities and resources across locations. The resulting opportunity costs of maintaining foreign operations could subsequently lead to their divestment. Moreover, we argue that the positive association between an increase in firm centrality in the domestic network and foreign divestment is stronger under higher uncertainty, as pursuing new business opportunities at home becomes more appealing. We distinguish between firm-specific uncertainty and domestic market uncertainty. We test and get support for our hypotheses using foreign subsidiary data from U.S. firms in the ICT industry.
... As Mickelson and Worley (2003: 252) explained, "complex family dynamics can lead to the perception that selling the business means selling out the family." Chang and Singh (1999) offered indirect evidence that being or feeling attached to a firm induces its owners to liquidate rather than to sell the business. Second, given that family owners include an SEW component in firm value, they are likely to overprice their firm when attempting to sell it as an ongoing concern. ...
... Scholars quantify inter-industry relatedness by using both output-based approaches and input-based approaches. The input-based approaches assume industries are related if they use the same inputs in their production process, such as patents (Engelsman and van Raan 1991;Breschi et al. 2003) value-chain linkages retrieved from input-output tables (Fan and Lang 2000), or similarities of human capital by looking at the occupational profiles of industries (Farjoun 1994(Farjoun , 1999Chang 1996;Chang and Singh 1999). A specific case among the input-based measures is the skill-relatedness measure (Neffke and Henning 2013), as it measures similarities between inputs: skills applied in industries-but indirectly: from labor mobility, by comparing the extent of moving workers across industries to expected values in case of random movements. ...
Labor flows are important channels for knowledge spillovers between firms; yet competing arguments provide different explanations for this mechanism. Firstly, productivity differences between the source and recipient firms have been found to drive these spillovers; secondly, previous evidence suggests that labor flows from multinational enterprises provide productivity gains for firms; and thirdly, industry relatedness across firms have been found important, because industry-specific skills have an impact on organizational learning and production. In this paper, we aim to disentangle the effects of productivity gap, multinational experience and industry relatedness in a common framework. Hungarian employee–employer linked panel data from 2003–2011 imply that the incoming labor from more productive firms is associated with increasing future productivity. The impact of multinational spillovers cannot be confirmed, once productivity differences between the firms are taken into account. Furthermore, we find that flows from related industries outperform the effect of flows from same and unrelated industries even if we control for the effects of productivity gap and multinational spillovers.
Purpose
This study aims to examine the role of returnee managers that can affect the strategic-divestment decision of emerging-market firms (EM firms). Drawing on arguments from the upper echelons theory and international human resource mobility perspectives, this study aims to propose that returnee managers influence corporate divestitures when the business outlook is negative. In addition, this study aims to examine the interplay between returnee managers and CEOs, whose characteristics can foster or undermine the efforts of returnee managers to engage in corporate divestments.
Design/methodology/approach
This study examines 278 firms from nine emerging economies. The negative binomial regression was employed to estimate the model. In the robustness checks, the logistic regression was adopted to confirm the earlier findings.
Findings
The empirical results support the notion that returnee managers strengthen the relationship between firm performance and divestments. Because of the limited liabilities of foreignness and outsidership, returnee managers can gain social trust and credibility through communication and social interaction. Furthermore, the results provide mixed support for the moderating effect of CEO characteristics on the performance–divestment relationship.
Practical implications
This study reveals that returnee managers are a great asset for EM firms that aim to find synergies and upgrade their capabilities through asset reconfiguration, which is an essential activity of emerging market firms to integrate themselves into the global competition. Meanwhile, CEO characteristics can foster (through their education level) or hinder (due to their age) divestment attempts, influenced by returnee managers.
Originality/value
This study explores an understudied phenomenon in international business (IB): strategic divestment of EM firms. The literature that examines strategic divestment and corporate refocusing in emerging markets is extremely limited. Furthermore, this study explores the novel topic that intersects the international business (IB) and international human resource management (IHRM) research areas. Specifically, this study investigates the impact of returnee managers on strategic divestments.
Foreign divestment has been discussed for more than four decades. Previous studies confirm the negative consequences of foreign divestment on key stakeholders. However, there is scant attention on how local workers are involved in foreign divestment decisions and importantly, how these decisions affect them. In this study, we aim at synthesizing previous knowledge about the links between local workers and foreign divestment. Precisely, among 270 primary studies published during 1979–2021, there are only 23 studies discussing local workers. In addition, most studies discuss how local workers influence divestment propensities, while the impact of foreign divestment on local workers has seldom been reported. Elaborating on the synthesis, we propose future research avenues to upgrade our knowledge about the interrelationship between local employees and divestment.KeywordsLocal employeesInequalityForeign divestmentImplications of foreign divestment
This study focuses on a unique business phenomenon, legacy divestitures, which refers to the sale or spinoff of a firm's original business. I argue that firms may be prevented from engaging in legacy divestiture by organizational inertia, which become increasingly stronger as the legacy business gets older. I also examine factors that help firms overcome the constraints of inertial forces on firms' legacy divestitures. Hypotheses are tested using a sample of 108 diversified American companies, 27 of which divested legacy businesses between 1980 and 2017. Firms are less likely to divest their legacy businesses as the legacy units get older. The negative relationship is weakened by two factors, performance–aspiration gaps and R&D intensity. Cette étude porte principalement sur un phénomène propre aux entreprises à savoir le désinvestissement patrimonial, c'est‐à‐dire la vente ou l'essaimage de l'entreprise d'origine. Je soutiens la thèse selon laquelle l'inertie organisationnelle, qui devient de plus en plus forte au fur et à mesure que l'activité héritée prend de l’âge, peut empêcher les entreprises de s'engager dans des cessions héritées. J'examine également les facteurs qui permettent aux entreprises de surmonter les contraintes exercées par les forces d'inertie sur les cessions d'activités patrimoniales des entreprises. Les hypothèses sont testées à l'aide d'un échantillon de 108 entreprises américaines diversifiées, dont 27 ont cédé des activités héritées entre 1980 et 2017. Les résultats montrent qu'il est moins probable que les entreprises cèdent leurs activités patrimoniales à mesure que les unités patrimoniales vieillissent. La relation négative est affaiblie par deux facteurs, les écarts de performance‐aspiration et l'intensité de la recherche et développement.
This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)
The extant literature has examined the effect of resource asymmetry on IJV acquisition intention, but presents mixed evidence of the effect. Furthermore, prior studies have paid little attention to the mechanism underlying and conditions moderating the effect of resource asymmetry on IJV acquisition intention. Based on transaction cost economics, we argue that resource asymmetry increases IJV acquisition intention through learning race because learning race increases costs of cooperation. Further, we contend that the mediating role of learning race depends on resource complementarity and total resource investment. Using data from 124 IJVs in China and the process conditional modeling, we find evidence supporting our hypothesized moderated mediation. That is, learning race mediates the effect of resource asymmetry on IJV acquisition intention when resource complementarity is at a low level or when total resource investment is at a high level. This study takes the initiative to open the black box of the effect of resource asymmetry on IJV acquisition intention.
The important role financial advisors play in corporate divestiture is widely recognized. However, their influence on firm performance is underexplored. Our study examines three aspects (the number, task relevance, and exclusivity) of firm-advisor ties in explaining firms’ post-divestiture performance. We find that more prior firm-advisor ties and higher task relevance in those ties improve post-divestiture performance (ROA as well as market measures). These positive effects are amplified in divesting firms facing financial decline as compared to firms that are maintaining their historical accounting performance. We find that the exclusivity of firm-advisor ties can be a double-edged sword, revealed by its nonmonotonic effect on post-divestiture performance. This study demonstrates that divesting firms may benefit from hiring familiar advisors when prior ties with the focal advisor are contextually relevant, but not necessarily exclusive. Firms’ pre-restructuring financial conditions can strengthen those relationships.
This thesis present three essays on organizational closedowns, where productivity effects under uncertainty and threat on the single-firm level is in focus. On a broad level, this thesis aims to develop better explanations of the process of organizational closedowns. More specific, this thesis aims to outline a theoretical foundation for studies of organizational closedowns, unfold a closedown process and extend the explanations of productivity effects during closedowns, in different contexts. This is done in three essays on organizational closedowns.
These three essays have different methodological settings and it is argued that it is through the application of a variety of methods, that strength is obtained and supportive to the explorative endeavor that was carried out. The first essay is based on a critical review approach of the classical Hawthorne experiments. The second essay is based on a single case-study and the third on a multiple case-study in combination with a statistical analysis of the productivity development during the closedown processes.
In the first essay of this thesis a theoretical foundation is outlined from a recontextualization of the Hawthorne experiments that serve as a base for the following essays. By applying a closedown perspective, it is possible to view the Hawthorne experiments from a new perspective, where it is claimed that there are several similarities to these experiments and situations where a threat of or decision to closedown is present. The Hawthorne experiments were initially seen as a closed system, laboratory experiments instead of action experiments of daily operations. Analyzing the prevalent threat, in both the Hawthorne experiments and the settings where the Horndal as well as the Closedown effect have been observed it has been evident that productivity has increased. Threat can act as both a motivator and demotivator, and as shown in research on the Closedown effect, employees become sensitive to the managerial setting and information provided, why productivity tend to fluctuate. It is argued that the Closedown effect is a productivity increase effect that occurs, considering the entire closedown period.
In the second essay a single case study of a single-plant closure is unfolded. By following the closedown process of the firm critical events are tracked in order to explain the fluctuations in productivity. Throughout the closedown process productivity continued to increase as well as an all-time high was recorded. It was evident from this case study that the workers are highly sensitive to the management’s actions and way of providing information. The retrenchment program that was offered to the workers was of high importance in the initial phase of the closedown process, whereas it became diminishing in the latter phases. Supporting findings of previous research uncovered changes in psychological responses, structural settings, changes in cognitive and motivational manifestations as well as behavioral consequences. Increases in the operative space of the workers, innovative skills, workers autonomy, efforts and productivity were distinct behavioral consequences of closedown decision and develop during the closedown process. From this study both an empirical and a theoretical model for further research is suggested.
In the third essay of this thesis a multiple case-study is presented. Contrary to the case study presented in the second essay these cases are characterized by a Non-Social responsible managerial setting. That is, the management did not provide any supportive activities for the workers in the closedown process. The Closedown effect is statistically significant in all the cases. There is a need for an analytical distinction of the phases of the closedown process, in terms of the primary advanced notice period and the secondary countdown period. Based on the analysis, and with this distinction, we are able to conclude that the productivity increase effect can be anticipated during the countdown period. From this article a theoretical elaboration on both the Closedown effect as well as distinctions on certain terms valid for a detailed analysis of the closedown process is provided.
From the three essays the results are distilled as they are discussed respectively according to the theoretical and the empirical conclusions. From this the interrelationship between the results of the essays are discusses divided according to the managerial behavior, individual behavior and productivity development. In addition, a separate section presents the normative and practical implications from this research. At end and in line with a methodological triangulation the discussion on suggestions for further research provide a range of potent alternatives on future research on organizational closedowns.
Productivity effects under uncertainty and threat is the topic of this thesis. It comprises a synthesis and four papers on closedown – focusing a phenomenon where there is an overall productivity increase during the closedown process. Productivity effects are the primary focus of this work’s case closedown studies, and uncertainty and threat the common denominator of the cases. This thesis contributes a theoretical foundation for analysis of closedowns. It identifies explanatory contributing factors and patterns which enable a better understanding of the Closedown effect.
The theoretical foundation for this thesis is outlined in the first paper. It recontextualizes the Hawthorne experiments by applying a closedown perspective to them. This new perspective identifies several similarities between the Hawthorne experiments and situations where closedown is threatened or decided. Originally the Hawthorne experiments were viewed as a closed system, laboratory experiments instead of actions on daily operations. The new perspective analyzed the prevalent threat implicit in the context that the Hawthorne experiments were conducted in. Such threat was identified in other earlier work on the Horndal and Closedown effect, situations where productivity also increased. Threat can act as a motivator or de-motivator. With the recontextualized perspective, it was found that employees become sensitive to their managerial and informational context, and so productivity patterns fluctuate. A productivity increase is observed overall when closedown is threatened. It is this phenomenon we term the Closedown effect.
In the second paper, a case study of the closure of a plant tracks productivity fluctuations and fine-tunes analysis of critical events that occur during a closedown process. It builds on the previous papers theoretical foundations and outlines a theoretical model for explaining the Closedown effect. Productivity development depends on workers’ interpretations of management information, and actions and reactions to the prevalent closedown. The dialectics between management and workers change during the closedown period – there were fewer conflicts, speeder conflict resolution, increased formal and informal worker autonomy, and more workers’ work design initiatives. A HRM-program initially had a positive effect on workers, but its importance diminished during the closedown period. The closedown decision generated structural changes: management control over daily operations diminished, informal leadership evolved and individualization grew stronger as the importance of informal groups deteriorated.
In the third paper a multiple case-study is presented. Lack of social responsibility characterizes the managerial setting in these cases, in contrast to the case study presented in the second paper. That is, here there was a lack of management support for worker activities in this particular closedown process. The Closedown effect was found to be statistically significant in three of the four cases. This paper also contributes a theoretical elaboration of the Closedown effect, including distinguishing the key aspects needed in a detailed analysis of the closedown process.
In the fourth paper the productivity paradox is examined with a holistic approach, which draws on Buckley’s (1967) modern systems theory. This holistic perspective considers changes in the initial economic and institutional structure, and assesses the dynamics that are triggered by the closedown decision. A closedown decision evidently reorders the equilibrium between management and the workers. The main holistic pattern that emerges is a new order, where worker self management replaces management control at plant level and workplace psychology is based on the apprehension of unfairness.
An empirically-close analysis approach is a recognized method for highlighting puzzling phenomenon and developing explanatory patterns. This empirically-close analysis of the empirical data generated in this thesis enabled identification of key factors to explain the appearance of the Closedown effect. Moreover, it was a means for generating a more rigorous theoretical understanding of the Closedown effect, and developing a pattern of explanations to this productivity increase effect.
A key theoretical contribution of this thesis is the identification of a range of concepts that form antecedent explanations to the Closedown effect’s occurrence. These antecedents are aggregated in themes: managerial actions, counter-institutional actions, conflict context, worker autonomy, perceived threat of job loss, collective action, economic and institutional reordering, and institutional restrictions. The following describes the influence of these aggregates and their temporal dynamics, in relationship to the Closedown effect.
The identification above factors and the generation of a theoretical framework to assess closedowns is the contribution this thesis makes. The significance of these for future research is also critically assessed.
Key words: Closedown, Closedown effect, Downsizing, Productivity
How does technological relatedness influence the portfolio of multi-product firms hit by external shocks? To answer this question, we look at the effect of product-specific demand shocks on product portfolios of Hungarian firms in the 2005-2012 period. We find that production have become more cohesive in terms of technological relatedness if firms were exposed to demand shocks. Evidence suggests that firms in crisis drop or downsize additional products not related to their core product and concentrate resources on related products. JEL: C23, D22, D24, L25
Network methods for measuring industry relatedness and their relevance in regional policy
Foreign divestment (FD) decisions are not purely based on the profitability of a business but also on a company's investing and divesting experience and the degree of uncertainty in markets. The FD procedure is grounded by the level of uncertainty, experience in divesting, and experience in investing. Both internal and external factors are catalysts for the firms’ foreign divestments. The constructs of real options theory, prospect theory and the theory of bounded rationality are three key moderators in the firms’ FD decision‐making.
This article analyzes how a licensor's market value varies at the time that it announces a licensing agreement. It posits that licensors’ appropriation capacity is a function of their bargaining power (determined by their financial situation and information asymmetries when signing the contract) and the potential cost of imitation that the licensors face (determined by their position in the sector). As bargaining power in each situation should determine licensors’ success, it also should enhance their appropriation capacity in terms of market value. However, the cost of imitation should have a negative effect on licensors’ appropriation capacity. This study shows that companies with cash constraints appropriate fewer benefits from licensing than do companies that have a ready cash flow (0.87% vs. 2.84%). If companies license out under low information asymmetries (same sector), they also appropriate more benefits from licensing than do companies facing high information asymmetries (different sector) (7.27% vs. 1.53%). Finally, licensors that are leaders appropriate fewer benefits than those that are followers (0.61% vs. 3.86%).
Purpose
The purpose of this paper is to use the theoretical perspective of structural inertia as a unique lens to study foreign sequential entry mode choices of multinational firms.
Design/methodology/approach
It adopts quantitative analysis of a sample of 121 Chinese publicly listed firms with 564 foreign entry incidents in the 2001-2012 period to test the hypotheses.
Findings
The empirical results show that multinational firms have a tendency to adopt the same mode in the subsequent entry as the number of prior entry mode choice of a given type (joint venture (JV) in this study) increases. The results support the theoretical prediction that organizations repeat their past activities due to structural inertia. Moreover, such an inertia effect in foreign sequential entry mode choices becomes stronger for older multinational firms, larger multinational firms and state-owned multinational firms.
Research limitations/implications
Consistent with existing research, this study focuses on the entry mode choice between JV and wholly owned subsidiaries. However, it is better to examine the relationship identified in the study for different types of entry mode choices to assess result generalizability.
Practical implications
It reminds managers of multinational firms that they should be cautious to the influence of structural inertia that can be a barrier to strategic flexibility when they make entry mode choices.
Originality/value
The main contribution of this study resides in introducing structural inertia perspective to help understand the determinants of foreign sequential entry mode choices of multinational firms.
This study explores the role of knowledge interdependencies on the termination of patented inventions. Termination refers to the abandonment of inventive efforts that are no longer deemed promising. We argue that high interdependencies between an inventive effort and the other inventions in the same research program will increase the cognitive burden on managers and decrease the likelihood of termination. Further, in the presence of interdependencies, managers are likely to rely on heuristics for termination decisions. We focus on two such heuristics: interdependencies of an invention with those in other research programs and the level of external competition in the research program. We test our hypotheses with longitudinal data on patent terminations through non‐payment of renewal fees in the pharmaceutical industry.
Managerial summary
Effective management of innovation portfolios requires termination of opportunities that are no longer promising. Most current tools on termination assume that opportunities to be evaluated are independent from one another. This assumption may limit their usefulness in increasingly complex research domains, such as pharmaceutical R&D. In this study, we investigate how interdependencies among inventions influence firms’ tendency to terminate those inventions. Our results on patent terminations show that a patent that is more interdependent with other patents in the same research program is less likely to be terminated. This suggests that managers may have difficulty in evaluating the inherent value of interdependent opportunities. This result is stronger when the patent is less interdependent with those in other research programs or in a more competitive area.
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This study examines the impact of localized competition on rates of failure in the Manhattan hotel industry from 1898 to 1990. The study investigates whether the organizations in a population with more similar resource requirements compete more intensely. This approach builds on existing density-based models of interorganizational competition by including variation at the organizational level directly in both the model and measures of competition. A dynamic analysis shows that hotels located in densely populated regions of the distributions of organizational size, geographic location, and price experienced significantly higher failure rates. The findings show how an ecological approach to competition that incorporates intrapopulation variation can provide a more detailed understanding of the competitive dynamics and evolution of organizational populations.
In this paper we theoretically and empirically investigate the idea that firms diversify in part to utilize productive resources which are surplus to current operations. Knowledge of these resources allows us to make predictions about the direction of a firm's expansion. In particular, we suggest that excess physical resources, most knowledge-based resources, and external financial resources are associated with more related diversification, while internal financial resources are associated with more unrelated diversification.
This paper is concerned with revealing and explaining patterns in the ways firms diversify into new products and industries. Shifting the focus from the observable similarity of products provided by the firm, to the less observable underlying resources required in different industries, can be a useful and interesting way of looking at patterns of diversification. The theory outlined in the paper suggests that firms diversify within groups of industries that are related to one another in the types of human skills and expertise required in each industry. Within these resource-related industry groups, firms can more efficiently utilize their resources by sharing and transferring them across similar products. The theory was tested with a sample of 12,781 diversified firms operating in all sections of the U.S. economy. Across the firms studied, much of a firm's diversification was found to be on average within resource-related industry groups and was consistent with the efficiency arguments developed. The study demonstrates the utility of looking at human expertise similarity to reveal and explain patterns in diversification. It suggests new ways of examining the concept of resources. It also suggests that the industry group, rather than the single industry, needs to be used to analyze the context where diversified firms operate. By looking at resource-related industry groups, the study encourages strategic thinking that views demand, competition, and relatedness of industries more broadly.
Both inadequate governance and inappropriate strategy have been proposed as antecedents of the divestment activity of restructuring firms in the 1980s. We combined both views in a structural equation model in which divestment intensity is directly related to firm performance and strategy, which are in turn preceded by weak governance. Some supportive results indicate that blockholder equity, a governance antecedent, and relative product diversification (strategy) have important indirect effects on divestment activity and that relative product diversification and relative debt have important direct effects. Unpredicted findings concerning board outsider equity and components of divestment intensity emerged. Also, market performance mediates the relationship between accounting performance and divestiture intensity.
Data from seven American medical sector product markets established between the 1950s and the 1980s are used to investigate how business sales and age in evolving industries affect the likelihood that start-up firms and existing firms entering the market (diversifying entrants) will shut down or sell their businesses. The study shows that the influences of business sales and age differ systematically by type of entrant and type of exit. The dissolution rate declined with greater sales and age for start-up firms. While the dissolution rate of diversifying entrants also declined with greater sales, the rate was not affected by business age when the level of sales was controlled. By contrast, start-up firms and diversifying entrants became more likely to sell their businesses over time, while sales levels had no effect on the divestiture rate. When age, sales, and other business and corporate characteristics were controlled, there was little difference in the business dissolution rate of start-up firms and diversifying entrants, but diversifying entrants were more likely than start-up firms to sell their businesses. The paper explores the interrelationship of economic, ecological, and evolutionary explanations for business survival. The results help us understand the processes by which organizational capabilities are retained in a product market as businesses age and grow, suggesting that start-up firms play a moderating role in the almost Darwinian process by which larger businesses are selected for survival.
This paper investigates organizational mortality in the early American telephone industry, in which thousands of companies proliferated and failed under conditions of technological change. Drawing on the theory of community ecology, it is predicted that when technologies are systemic, technological change does not necessarily favor advanced organizations. Instead, mutualism is predicted among both advanced and primitive firms, as long as they are technologically standardized and differentiated. Competition is expected when organizations are technologically incompatible or noncomplementary. The hypotheses are supported by dynamic models of organizational mortality, estimated using archival data describing the life histories of all telephone companies that operated in Pennsylvania up to 1934 and in southeast Iowa from 1900 to 1930.
Links between theoretically determined preentry conditions and the postentry performance of diversifying entries made by large industrial firms are examined. Industry, firm, and relatedness variables explained up to 26 percent of the variance in performance, which was measured as the survival, sales growth, and market share growth of entrant businesses. Selling and advertising intensity in an entered industry, scale of entry, and the interaction of scale and seller concentration have strong influences on postentry performance. Other variables show moderate associations. Overall, industry factors appear to have stronger effects than firm-level or relatedness variables.
This book discusses the development of a theory on the growth of the firm. It is shown that the resources with which a particular firm is accustomed to working will shape the productive services its management is capable of rendering. The experience of management will affect the productive services that all its other resources are capable of rendering. As management tries to make the best use of the resources available, a ‘dynamic’ interacting process occurs which encourages growth but limits the rate of growth.
Age dependence in organizational death rates is studied using data on three populations of organizations: national labor unions, semiconductor electronics manufacturers, and newspaper publishing companies. There is a liability of newness in each of these populations but it differs depending on whether death occurs through dissolution or by absorption through merger. Liabilities of smallness and bigness are also identified but controlling for them does not eliminate age dependence.
Attempting to resolve the impasse in research on performance differences among strategic groups of firms, we propose the use of ideas and models from organizational ecology. We demonstrate the potential of such and approach by applying ecological models to study the three organizational forms found in the modern American brewing industry-the mass producer, the microbrewery and the brewpub. The analysis covers the period from 1975 to 1990 and examines the life histories of 253 breweries. The findings support the use of an ecological model of resource-partitioning and of organization form-specific models of density. Specifically, we find that: (1) founding rates of microbreweries and brewpubs increase with density and then decline; (2) mortality rates of brewpubs decline with density; (3) mortality rates of microbreweries decline with industry concentration: and (4) mortality rates of mass production breweries are highest for intermediate size firms. In general, the analysis yields new insight into the dynamics of the rapidly changing American brewing industry and its strategic groups.
The thirteen papers in "Structural Analysis of Discrete Data" are previously unpublished major research contributions solicited by the editors. They have been specifically prepared to fulfill the two-fold purpose of the volume, first to provide the econometrics student with an overview of the present extent of the subject and to delineate the boundaries of current research, both in terms of methodology and applications. "Coordinated publication of important findings" should, as the editors state, "lower the cost of entry into the field and speed dissemination of recent research into the graduate econometrics classroom."A second purpose of the volume is to communicate results largely reported in the econometrics literature to a wider community of researchers to whom they are directly relevant, including applied econometricians, statisticians in the area of discrete multivariate analysis, specialists in biometrics, psychometrics, and sociometrics, and analysts in various applied fields such as finance, marketing, and transportation.The papers are grouped into four sections: "Statistical Analysis of Discrete Probability Models, " with papers by the editors and by Steven Cosslett; "Dynamic Discrete Probability Models, " consisting of two contributions by James Heckman; "Structural Discrete Probability Models Derived from Theories of Choice, " with papers by Daniel McFadden, Gregory Fischer and Daniel Nagin, Steven Lerman and Charles Manski, and Moshe Ben-Akiva and Thawat Watanatada; and "Simultaneous Systems Models with Discrete Endogenous Variables, " with contributions by Lung-Fei Lee, Jerry Hausman and David Wise, Dale Poirier, Peter Schmidt, and Robert Avery.Among the applications treated are income maintenance experiments, physician behavior, consumer credit, and intra-urban location and transportation.
It has been widely argued that the purpose of corporate restructuring during the 1980s was to produce a population of more industry-specialized, competitive firms in response to intensifying global competition. A number of studies show that corporate restructuring resulted in increased corporate focus during the 1980s. However, no study has yet examined whether corporate restructuring resulted in increased specialization at the industry level during the 1980s. This study examines this issue. First, we examine whether or not aggregate industry specialization increased during the 1980s. That is, we ask: did the average firm in any given U.S. industry become more or less specialized to that industry during the 1980s? Second, we examine whether corporate restructuring was a significant determinant of change in aggregate industry specialization during the 1980s. Using a sample of 686 four-digit SIC industries and 64 two-digit industry groups, this study finds that aggregate industry specialization declined very slightly at both the four-digit and two-digit level between 1981 and 1989. This study also finds that sell-offs of establishments through corporate control transactions or interfirm asset sales had no significant effect on aggregate industry specialization.
The economic theory of barriers to entry is integrated with the corporate strategy concept of relatedness, to develop a model of the choice between internal development and acquisition in diversification entry into new markets. The model is tested on original data collected for this study from PIMS Program participants. These original data cover the parent company characteristics, entry strategy and entry outcome for 59 entrants into 31 markets. These entry-related data are merged with existing PIMS data on the structure of the entered markets and their incumbents. Results of binary regression analysis show that the choice between the two entry modes is well explained by measures of barriers and relatedness. Higher barriers are more likely to be associated with acquisition entry. Greater relatedness is more likely to be associated with direct entry.
For a sample of roughly 450 companies, hazard function estimation is used to determine the environmental and organizational variables precipitating the ‘sell-off’ of divisional units. The sample focuses on 285 ‘lines of business’ fully divested between 1975 and 1981, comparing them to 2157 retained lines. The most powerful sell-off predictor was prior profitability at the line of business level; the lower profits, the higher the sell-off probability. Also, divestiture was more likely, the lower company-wide profitability, the lower a line's market share, the lower the line's R&D/sales ratio, and in the aftermath of a company chief executive officer change. Units previously acquired in conglomerate mergers were more likely to be sold off than original units. On the buyer's side of the sell-off market, large companies acquiring other firms' divested units tended to improve the units' profit performance, but not enough, on average, to realize a normal return on their investments.
The 1980s acquisitions are widely believed to have unwound the conglomerate boom of the 1960s through horizontal mergers, yet alternative forms of unwinding have not been examined. This study tests the explanation that changes in the opportunity to share resources and activities among businesses of the firm may have contributed to post-acquisition performance improvements in the recent acquisition wave. After estimating the sources of competitive performance that are due to these changes within each of 356 manufacturing industries, the study calculates predictions of changes in competitive performance for each acquired business between 1980 and 1984. The predictions are positive and in turn are positively associated with change in competitive performance between 1984 and 1986. This finding highlights the importance of resource sharing and activity sharing in these acquisitions, and leads to the reexamination of theories for the second acquisition wave that are supported by the finding of horizontal acquisitions.
This study proposes a theoretical perspective that firms engage in continuous search and selection activities in order to improve their knowledge base and thereby improve their performance. This general framework is applied to the context of corporate evolution. Entry and exit activities are understood as search and selection undertaken by the firm to improve their performance. One of the compelling features of this framework is that firms learn from their past entry experience and approach the next entry in a more focused and directed manner over time. Also, firms acquire additional knowledge from each entry event while applying their existing knowledge base. With a longitudinal (1981–89) data base on entry and exit activities of all publicly traded manufacturing firms in the United States, this study shows that applicability of the firm's knowledge base plays an important role in predicting which businesses a firm enters or exits. Firms sequentially enter businesses of similar human resource profiles and firms are more likely to divest lines of business of different profiles. Corporate-level analysis shows that such well-directed entry and exit contribute to the improvement of a firm's profitability.
This research investigates factors which influenced the corporate-level divestment decisions of large, diversified firms. Field research, including interviews with corporate executives of 40 large diversified firms, provided the data to test propositions developed from various literature sources. In general, thefindings from this research indicate that a business unit's strength, its relationship to other units in its firm and its parent firm's financial position compared to its competitors are important divestment influences, whereas other factors such as general economic conditions are not. Some of the findings are consistent with conventional management wisdom, but others are counterintuitive.
The paper explores the usefulness of analysing firms from the resource side rather than from the product side. In analogy to entry barriers and growth-share matrices, the concepts of resource position barrier and resource-product matrices are suggested. These tools are then used to highlight the new strategic options which naturally emerge from the resource perspective.
Much of the current thinking about competitive strategy focuses on ways that firms can create imperfectly competitive product markets in order to obtain greater than normal economic performance. However, the economic performance of firms does not depend simply on whether or not its strategies create such markets, but also on the cost of implementing those strategies. Clearly, if the cost of strategy implementation is greater than returns obtained from creating an imperfectly competitive product market, then firms will not obtain above normal economic performance from their strategizing efforts. To help analyze the cost of implementing strategies, we introduce the concept of a strategic factor market, i.e., a market where the resources necessary to implement a strategy are acquired. If strategic factor markets are perfect, then the cost of acquiring strategic resources will approximately equal the economic value of those resources once they are used to implement product market strategies. Even if such strategies create imperfectly competitive product markets, they will not generate above normal economic performance for a firm, for their full value would have been anticipated when the resources necessary for implementation were acquired. However, strategic factor markets will be imperfectly competitive when different firms have different expectations about the future value of a strategic resource. In these settings, firms may obtain above normal economic performance from acquiring strategic resources and implementing strategies. We show that other apparent strategic factor market imperfections, including when a firm already controls all the resources needed to implement a strategy, when a firm controls unique resources, when only a small number of firms attempt to implement a strategy, and when some firms have access to lower cost capital than others, and so on, are all special cases of differences in expectations held by firms about the future value of a strategic resource. Firms can attempt to develop better expectations about the future value of strategic resources by analyzing their competitive environments or by analyzing skills and capabilities they already control. Environmental analysis cannot be expected to improve the expectations of some firms better than others, and thus cannot be a source of more accurate expectations about the future value of a strategic resource. However, analyzing a firm's skills and capabilities can be a source of more accurate expectations. Thus, from the point of view of firms seeking greater than normal economic performance, our analysis suggests that strategic choices should flow mainly from the analysis of its unique skills and capabilities, rather than from the analysis of its competitive environment.
Corporate strategy, the overall plan for a diversified company, is both the darling and the stepchild of contemporary management practice — the darling because CEOs have been obsessed with diversification since the early 1960s, the stepchild because almost no consensus exists about what corporate strategy is, much less about how a company should formulate it.
This paper examines the argument that growth and diversification in large established firms result from a process of matching a firm's lumpy and ever-changing resources with dynamic market opportunities. The analysis shows that rapidly growing firms with broad resource bases are the most likely to pursue diversified expansion. In doing so, these firms tend to enter markets where the (often high) resource requirements are similar to their own resource capabilities. These results are consistent with some of Penrose's observations on the growth of fims, but challenge some precepts of traditional entry barrier theory.
This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific simulation models consistent with that theory. The analysis outlines the differences between an evolutionary theory of organizational and industrial change and a neoclassical microeconomic theory. The antecedents to the former are studies by economists like Schumpeter (1934) and Alchian (1950). It is contrasted with the orthodox theory in the following aspects: while the evolutionary theory views firms as motivated by profit, their actions are not assumed to be profit maximizing, as in orthodox theory; the evolutionary theory stresses the tendency of most profitable firms to drive other firms out of business, but, in contrast to orthodox theory, does not concentrate on the state of industry equilibrium; and evolutionary theory is related to behavioral theory: it views firms, at any given time, as having certain capabilities and decision rules, as well as engaging in various ‘search' operations, which determines their behavior; while orthodox theory views firm behavior as relying on the use of the usual calculus maximization techniques. The theory is then made operational by the use of simulation methods. These models use Markov processes and analyze selection equilibrium, responses to changing factor prices, economic growth with endogenous technical change, Schumpeterian competition, and Schumpeterian tradeoff between static Pareto-efficiency and innovation. The study's discussion of search behavior complicates the evolutionary theory. With search, the decision making process in a firm relies as much on past experience as on innovative alternatives to past behavior. This view combines Darwinian and Lamarkian views on evolution; firms are seen as both passive with regard to their environment, and actively seeking alternatives that affect their environment. The simulation techniques used to model Schumpeterian competition reveal that there are usually winners and losers in industries, and that the high productivity and profitability of winners confer advantages that make further success more likely, while decline breeds further decline. This process creates a tendency for concentration to develop even in an industry initially composed of many equal-sized firms. However, the experiments conducted reveal that the growth of concentration is not inevitable; for example, it tends to be smaller when firms focus their searches on imitating rather than innovating. At the same time, industries with rapid technological change tend to grow more concentrated than those with slower progress. The abstract model of Schumpeterian competition presented in the study also allows to see more clearly the public policy issues concerning the relationship between technical progress and market structure. The analysis addresses the pervasive question of whether industry concentration, with its associated monopoly profits and reduced social welfare, is a necessary cost if societies are to obtain the benefits of technological innovation. (AT)
The firm is viewed as a collection of particular resources, that is, resources worth more to the firm than their market value because of specialized experience within the firm. Such resources can be used either for producing output or for training new resources. This assumption is incorporated into a programming model of the firm. This model is then used to derive predictive statements about the rate and direction of growth of the firm.
This paper is a brief survey of recent empirical work on entry. It is organized as a series of stylized facts and a series of stylized results which together summarize much of what is generally understood - or believed - about what drives entry, and about the effects that entry has on markets.
This study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics. It finds that firm growth, the variability of firm growth, and the probability that a firm will fail decrease with firm age. It also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow-growing firms from the sample. Gibrat's Law therefore fails, although the severity of the failure decreases with firm size. Copyright 1987 by Blackwell Publishing Ltd.
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