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Multinational Performance and Risk Management Effects: Capital Structure Contingencies
Abstract
Multinational enterprise provides access to a diverse resource base that may support options related business initiatives and operational flexibilities with a potential to improve performance and risk management capabilities. Hence, multinationality should be associated with strategic responsiveness as real option structures allow the corporation to exploit new initiatives and pursue alternative actions. This, in turn should improve economic performance and risk management capabilities as corporate activities are adapted and new initiatives introduced in response to changing global conditions. The analyses of a cross-sectional sample comprising 1357 multinational firms during 1996-2000 partially support the proposed performance and risk management effects but also raise issues for further study.
... Although many studies have examined the positive relationship between international diversification and performance, the results were inconsistent (Andersen, 2008;Gomes and Ramaswamy, 1999;Hitt et al., 1997;Qian, 1996). The inconsistency in the findings of the impact of the MNCs' performance when diversifying into international markets is due to several factors. ...
... The results that show a positive relationship between Tobin's Q and international diversification measurements which imply that the more Malaysian MNCs diversified internationally, the more the financial performance of the firms improved. This result is consistent with the study done by Andersen (2008), Gomes and Ramaswamy (1999), Hitt et al. (1997) and Qian (1996) who proposed that international diversification is positively related to better financial performance. This suggests that the firms may have enjoyed economic benefits such as cost savings, access to technical and other resources, tax deferment or reduction, sales expansion and the extension of product life cycles as proposed by Clark (2002) and Thomsen (2000). ...
Purpose
The paper evaluates the impact of international diversification, through the investment abroad activities of the Malaysian multinational corporations, on their financial performance.
Design/methodology/approach
The paper applies the panel generalized method of moments (GMM) estimation technique that gives better results.
Findings
Findings – The empirical findings show the move to invest abroad has brought positive impact on Malaysian multinational corporations' financial performance. However, in terms of firm’s risk, the results contradict the general internationalization-risk hypothesis.
Research limitations/implications
The study focuses on top 100 multinational firms, future researchers may extend the time period and use the entire sample of all the multinational firms.
Practical implications
Foreign investments offer rewarding returns due to cheaper labour and raw materials, competitive edge in terms of technological advancement, and larger market opportunities.
Originality/value
The paper contributes to the literature using the panel generalized method of moment’s estimation that effectively control for reverse causality and serial correlation problem. The paper also contributes to the international diversification and performance relationship, in fast-growing Malaysia.
... If the volatility of the firm's cash flows is reduced and firm maintains a certain financial cushion in the form of liquid financial assets and simultaneously commit credit facilities, it will always enjoy the availability of funds for positive NPV projects. Lower performance volatility will reduce the firm's average cost of capital (Torben, 2008). ...
This study explores the impact of size and risk management ability on economic performance of multinational corporations. Economic performance is observed under different level of Size, Financial Leverage, and Risk Management ability of multinational corporations. Economic performance is determined on the basis of three elements Return on Assets, Return on Equity and Return on Investment. By examining twenty multinational firms, we found that economic performance is positively related with the size of the firm, risk management abilities and negatively related with the level of financial leverage. This paper shows how the risk management process influences the economic performance of organizations. Keywords: Multinationals, economic performance, risk management ability, returns on assets, return on equity, return on investment, and size of an organization.
... dy of work which proposes that the pecking order theory might explain gearing within a certain range whilst the trade-off theory explains gearing when it moves outside of this range and therefore requires correction. Authors such as Beattie et al. (2006) argue that models combining elements of both theories may improve our understanding of gearing. Andersen (2008) argues that multinationals have available more strategic opportunities which, for exploitation in a dynamic environment, require a real option value-induced financial slackness, associated with lower gearing levels. He appropriately finds that gearing is negatively related to return on assets (ROA), despite a low correlation. Although h ...
Purpose – The purpose of this study is to investigate the incidence of target gearing behaviour in firms as well as the drivers of such behaviour. Design/methodology/approach – The paper employs a triangulation approach across three methodological phases: a questionnaire survey, logistic regression modelling of firm data, and interviews with finance directors. The results are then discussed under the key themes of gearing optimality, valuation issues, external drivers, the finance life-cycle, the impact of risk, and the relationship between gearing and corporate strategy. Findings – The results reveal that the majority of firms engage in targeting, though targets are subject to fairly frequent revision as both external and internal drivers evolve. Important external drivers include macroeconomic variables and analysts' views, whereas important internal drivers include income gearing and profitability. Practical implications – Given the range and variety of drivers, target gearing evidently represents a complex strategic decision for finance directors. The paper provides a benchmark perspective for finance directors when determining their firm's gearing strategy. Originality/value – The innovation of the paper is the study of target gearing across three methods, the results of which are then triangulated to provide a deeper understanding of both the quantifiable and qualitative drivers of gearing. This provides a far broader insight into the real-world determination of gearing strategy than a conventional empirical approach.
Knowledge governance is characterised as a distinctive research subject, the understanding of which cuts across diverse fields in management. In particular, it represents an intersection of knowledge management, strategic management, and theories of the firm. Knowledge governance considers how deployment of governance mechanisms influences knowledge processes: sharing, retaining and creating knowledge. We survey the papers in this volume of the special issue, and discuss the remaining research challenges.
Question/Issue: Institutional and transaction costs theories highlight the idea that group affiliated firms outperform unaffiliated firms in emerging economies. The persistence of superior performance for group affiliated firms is, however, questioned by the fast and recent development of markets and institutions in these countries. In this article, we explore this link between firm performance and the evolution of institutional environment. Research Findings/Insights: The setting of the empirical investigation is India in the post-reform era (post 1990). We test for effects of business group affiliation on firm performance over a 17 year time period from 1990 to 2006. Our findings show that (i) the performance benefits of group affiliation erode with the evolution of the institutional environment; (ii) older affiliated firms are better able to cope with institutional transition than younger affiliated firms; (iii) service-sector affiliated firms are better able to cope with institutional transition than manufacturing-sector affiliated firms. Theoretical/Academic Implications: Our findings both support the institution - and transaction costs-based theory of business groups, and extends it by incorporating a dynamic and longitudinal component. They also demonstrate - in line with recent works - that the benefits of group membership differ for different types of member firms. Practitioner/Policy Implications: The article has implications for both managers and policy makers. Managers of business groups should timely adapt their strategy to the evolution of the institutional environment. Policy makers should, instead, devote attention to the consequences of their policies because they may undermine the efficiency of large national companies.
An enduring characteristic of extant literature on foreign operation modes is its discrete choice approach, where companies are assumed to choose one among a small number of distinctive alternatives.
In this paper, detailed information about the operations of six Norwegian companies in three key markets (China, UK and USA) is used as the basis for an exploration of the extent to which, and how and why, companies combine clearly different foreign operation modes. We examine their use of foreign operation mode combinations within given value activities as well as within given countries.
The study reveals that companies tend to combine modes of operation; thereby producing unique foreign operation mode “packages” for given activities and/or countries, and that the packages are liable to be modified over time—providing a potentially important optional path for international expansion.
The data show considerable variation across cases; ranging from extensive use of mode combinations to a singular focus on a specific mode of operation. The study contributes to a refinement of our understanding of the path of internationalisation, and throws up a number of awkward theoretical questions about the process.
Agency theory studies the problems and solutions linked to delegation of tasks from principals to agents in the context of conflicting interests between the parties. Beginning from clear assumptions about rationality, contracting and informational conditions, the theory addresses problems of ex ante (“hidden characteristics”) as well as ex post information asymmetry (“hidden action”), and examines conditions under which various kinds of incentive instruments and monitoring arrangements can be deployed to minimize the welfare loss. Its clear predictions and broad applicability have allowed agency theory to enjoy considerable scientific impact on social science; however, it has also attracted considerable criticism.
I present an analysis of a survey in which the effect of entrepreneurship education and project-based education on students at lower secondary level is investigated. The results are based on a random sample of 2000 Danish students. The analysis indicates that entrepreneurship education has a positive effect on students’ personal development, and that its effect on entrepreneurial intentions is fully mediated by its effect on students’ self-conception. A finding with important policy implications is that there is a negative interaction effect between entrepreneurship education and project-based education regarding impact on students’ self-conception. The implication of the results is that we should replace project-based education with entrepreneurship education rather than having them run in parallel.
The literature suggests that important strategic initiatives can derive from employees within the organization as they respond to needs and opportunities observed in daily operations. This seems to indicate that employees have a good sense of the firm’s operational capabilities observed through direct interactions with colleagues, customers and partners. Executives make their own judgments about the corporate capabilities from discussions with various managers, other executives and industry specialists. But, the information gathered by executives may be qualitatively different from the conditions sensed by the employees. So, we arranged a contest between operational capabilities assessed by employees and executives and the relationship to subsequent firm performance. Based on more than 400 individual data points collected from two medium-sized organizations over a period of eighteen months, advanced distributed lag time-series analyses show that the sensing of front-line employees (surprisingly) is a better medium-term predictor of organizational performance than executive judgments. These results have implications for the way organizations set up their management information and communication structure.
Three varieties of institutionalism currently dominate international business studies: new institutional economics, new organizational institutionalism, and comparative historical institutionalism. Yet corresponding measures of institutional country distance are only available for the first two strands of institutionalism. This paper addresses the under-representation of comparative historical institutional thought in currently available measures of institutional distance. Building on Whitley's business systems framework, a measure of institutional distance is developed and validated which captures intrinsic, substantive institutional differences in economic organization, rather than differences in institutional effectiveness. The results of the two-stage cluster analysis used to validate the selected indicators closely approximate the business systems typology, which is both indicative of the validity of this measure and of the distinctiveness of the business system types that make up the business system framework.
The emerging knowledge governance approach asserts the need to build micro-foundations grounded in individual action. Towards this goal, using the theory of planned behaviour, we aim to explain individual knowledge-sharing behaviour as being determined by the intention to share knowledge and its antecedents: attitude towards knowledge sharing, subjective norms and perceived behavioural control. In addition, we consider managerial interventions (governance mechanisms) that managers can employ to influence the identified antecedents and thereby govern individual knowledge-sharing behaviour. We test the model arrived at on a dataset collected among individuals engaged in knowledge sharing in two competing firms. Results of the LISREL analysis show that the use of rewards affects attitudes towards knowledge sharing negatively, while the use of reciprocal schemes and communication mechanisms have a positive effect on subjective norms and perceived behavioural control, respectively.
The role of knowledge, organizational learning and innovation as levers of competitive advantage is now a commonly acknowledged insight in research in international management, specifically in the emerging ‘knowledge-based view’. However, this view has not yet developed into a unifying framework and there are significant holes in the understanding of how knowledge may be turned into a source of competitive advantage for MNCs. In order to advance the knowledge-based view of the MNC – and particularly of the metanational company – we develop the notion of the MNC as a global knowledge system that links local knowledge structures and combines local knowledge elements that are complementary in order to achieve strategic advantage. These ideas are used to frame the changing environments, strategic intents and learning stances that characterize MNCs, and to derive a set of research challenges for MNC research.
Absorptive capacity is frequently highlighted as a key determinant of knowledge transfer within multinational enterprises. But how individual behaviour translates into absorptive capacity at the subsidiary level, and how this is contingent on subsidiaries' social context, remains under‐addressed. This not only limits our understanding of the relationship between individual‐ and organizational‐level absorptive capacity, but also hampers further research on potentially relevant managerial and organizational antecedents, and limits the implications we can draw for practitioners who seek to increase their organization's capacity to put new knowledge to use. To address this shortcoming we conduct an in‐depth comparative case study of a headquarters‐initiated knowledge transfer at two subsidiaries of the same multinational enterprise. The findings demonstrate that social interaction is a prerequisite for subsidiary absorptive capacity as it enables employees to participate in the transformation of new knowledge to the local context and the development of local applications. The findings also illustrate how organizational conditions at the subsidiary level can impact subsidiary absorptive capacity by enabling or constraining local interaction patterns. These insights contribute to the absorptive capacity literature by demonstrating the scale and scope of social interaction as a key link between individual‐ and organizational‐level absorptive capacity.
We discuss the behaviorist and empiricist foundations of the organizational routines and capabilities literature, specifically the extant emphasis placed on experience, repetition and observation as the key inputs and mechanisms of behavior, learning and change in organizations. Based on this discussion we highlight several concerns associated with specifying experience and repetition as antecedents of routines and capabilities, namely, (1) the problem of origins and causation, (2) the problem of extremes, (3) the problem of intentionality, (4) the problem of new knowledge, and (5) the problem of the environment. We highlight the “poverty of stimulus” argument and more generally discuss how internalist or rationalist, choice-based approach might provide a more fruitful (though preliminary) foundation for extant research on organizational routines and capabilities.
The knowledge-based view has recently been criticized for overlooking individual-level action and interaction in favor of an over-emphasis on the firm-level capabilities. This paper seeks to respond to that criticism by providing some individual-level explanations for a collective-level phenomenon – intraorganizational knowledge transfer. We suggest that variations in individual ability, motivation and the use of interaction opportunities provided by the organization explain part of the variation found in individuallevel knowledge acquisition and use, and that this has an influence on organizational level knowledge transfer within a firm. More specifically, we find that ability and intrinsic motivation are important drivers of individual level knowledge acquisition and use, while extrinsic motivation has no impact. Furthermore, the extent to which an individual uses interaction opportunities provided by the organization influences knowledge transfer both directly and through a moderator effect with ability and person-to-person interaction.
Entrepreneurs in a competitive economy face three fundamental problems. They need to search for and discover a business opportunity (Kirzner, 1973), evaluate it (Knight, 1921), and then seize the opportunity to reap entrepreneurial profits (Schumpeter, 1911) (Langlois, 2007). The problem that we address is how the ability to exploit business opportunities is influenced by entrepreneurial search and the economic organization of entrepreneurship (Arrow, 1962; Lippman & Rumelt, 2003; Aghion et al., 2005; Foss et al., 2007). In many cases, the discovery for a new business opportunity needs to be motivated by expected gains, since the search and evaluation of business opportunities is a costly, resource-consuming process (Denrell, Fang & Winter, 2003; Nickerson & Zenger, 2004; Foss & Klein, 2005; Teece, 2007; Foss & Foss, 2008). We show the critical role of expectations for understanding of the economic organization of entrepreneurship, and argue that transaction cost economics, with its insistence on bounded rationality, but far-sighted contracting offers useful insights and presents rich opportunities for further theoretical and empirical research (cf. also Furubotn, 2002).
Interest in entrepreneurship education is growing over the world, especially in innovation based economies, such as Denmark (GEM, 2010). However, we know rather little about the outcomes of entrepreneurship education, in particular with respect to which type of course content produces the best results (i.e. most high performing entrepreneurs) and how this affects different types of students. There is a great variety of different views in the field of research concerning the content and structure of entrepreneurship courses, but no comprehensive study has yet been done in which these competing views are clearly articulated as rivals and tested against each other. There is also a lack of programme evaluations that use control groups and have a longitudinal design (Gorman, Hanlon & King, 1997; Karlsson & Moberg, 2011; Matlay, 2008). Those that have this setup often experience methodological problems due to their conceptual framework (Krueger, 2009), or they have a view of entrepreneurship that does not take into account the advancements within research that have been made during the last decade (Sarasvathy, 2008). Thus, we clearly need to dig deeper into this field in order to create methods and models that allow us to evaluate the outcomes of different types of entrepreneurship courses.In the beginning of 2011, the Danish Foundation for Entrepreneurship – Young Enterprise initiated a research project with the aim to further our understanding of the type of impact entrepreneurship education and different educational designs have on different types of students. Two longitudinal surveys, one with a focus on elementary- and secondary-level education and one with focus on tertiary-level education, will be performed and databases with students from all levels of the Danish educational system will be created. The surveys will use entrepreneurial self-efficacy (Mauer, Neergaard & Kirketerp, 2009) as a performance indicator, but in order to generate robust results the development of new measurement tools is needed. In this paper the initial phases of this project and the research design of these two surveys will be presented. The development of a new ESE scale and the results from the pilot surveys will also be presented.
Israel Kirzner's concept of entrepreneurship as alertness to profit opportunities is one of the most influential modern interpretations of the entrepreneurial function. Shane and Venkataraman's (2000: 218) influential assessment defines entrepreneurship research as "the scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated, and exploited." As such, "the field involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them." Shane's General Theory of Entrepreneurship (2003) cites Kirzner and "Kirznerian opportunities" more than any writer other than Joseph Schumpeter. More generally, the entrepreneurial opportunity, rather than the individual entrepreneur, the startup company, or the new product, has become the centerpiece of the academic study of entrepreneurship. In Kirzner's framework, profit opportunities result from prices, quantities, and qualities that diverge from their equilibrium values. Some individuals tend to notice, or be alert to, these opportunities, and their actions bring about changes in prices, quantities, and qualities. The simplest case of alertness is that of the arbitrageur, who discovers a discrepancy in present prices that can be exploited for financial gain. In a more typical case, the entrepreneur is alert to a new product or a superior production process and steps in to fill this market gap before others. Success, in this view, comes not from following a well-specified maximization problem, such as a search algorithm (High, 1980), but from having some insight that no one else has, a process that cannot be modeled as an optimization problem. Entrepreneurship, in other words, is the act of grasping and responding to profit opportunities that exist in an imperfect world. Unlike other approaches in modern economics, the imperfections in question are not seen as temporary "frictions" resulting from ill-defined property rights, transaction costs, or asymmetric information. While those imperfections can be cast in an equilibrium mold - as in the modern economics of information-Kirzner has in mind a market in permanent and ineradicable disequilibrium. Kirzner's approach, like that of Knight, Schumpeter, and other key contributors to the economic theory of entrepreneurship, sees entrepreneurship as an economic function, not an employment category (i.e., self-employment) or type of firm (i.e., a startup company). The main effect of the entrepreneurial function is market equilibration: by closing pockets of ignorance in the market, entrepreneurship always stimulates a tendency towards equilibrium (Selgin, 1987). While Kirzner's "pure entrepreneur," an ideal type, performs only this function, and does not supply labor or own capital, real-world business people may be partly entrepreneurs in this sense, partly laborers, partly capitalists, and so on. The relationship between entrepreneurial discovery and capital investment distinguishes Kirzner's approach sharply from Knight's (and, arguably, from Kirzner's mentor Ludwig von Mises's). Because Kirzner's (pure) entrepreneurs perform only a discovery function, rather than an investment function, they do not own capital; they need only be alert to profit opportunities. Kirznerian entrepreneurs need not be charismatic leaders, do not innovate, and are not necessarily creative or in possession of sound business judgment. They do not necessarily start firms, raise capital, or manage an enterprise. They perform the discovery function, and nothing else. Kirzner's work is routinely invoked in references to the classics of the economics of entrepreneurship, alongside Knight's (1921) and Schumpeter's (1911) contributions. Kirzner's framework builds on the market-process approach associated with the Austrian school of economics and can trace its roots further back to Richard Cantillon, J. B. Clark, Frank A. Fetter, and other writers. Kirzner himself sees his contribution as primarily an extension of the work of Mises and F. A. Hayek, in effect bridging Mises's (1949) emphasis on the entrepreneur with Hayek's (1946, 1968) conceptualization of market competition as an unfolding process of discovery and learning. Among mainstream economists, Kirzner has been cited in the literature on occupational choice, and there have been a few attempts to formalize his model of the market process (Littlechild, 1979; Yates, 2000) and a few experimental investigations (Demmert and Klein, 2003; Kitzmann and Schiereck, 2005). Kirzner has explained the Austrian model of the entrepreneurial market process to readers of the prestigious Journal of Economic Literature (Kirzner, 1997). Still, his work has been more influential among management scholars than among economists. Thus, his approach underlies much of the opportunity-discovery or opportunity-recognition branch of the modern entrepreneurship literature (Shane and Venkataraman, 2000; Gaglio and Katz, 2001; Shane, 2003) which makes opportunities, and their discovery and (potential) exploitation, the unit of analysis for entrepreneurship research. This has given rise to a large theoretical, empirical, and experimental literature looking into the various antecedents of such opportunity discovery. As we shall argue, this literature goes much beyond Kirzner's work, making opportunity discovery and its determinants the key feature of the theory, whereas Kirzner's real interest lies in explaining market equilibration, a higher-level phenomenon. This chapter traces the origin and development of the concept of entrepreneurial alertness. In particular, we place Kirzner's contribution within the broader context of the Austrian school of economics, comparing and contrasting it with other Austrian conceptions of entrepreneurship. We argue that while Kirzner's contribution is often thought of as the Austrian conception of the entrepreneur, there is in fact an alternative Austrian tradition that emphasizes the entrepreneur as an uncertainty-bearing, asset-owning individual and that this tradition offers some advantages over the discovery approach (whether in the Kirznerian or modern-management incarnations). We also critically discuss the way Kirzner's work has been interpreted and used in the opportunity discovery approach in recent management research on entrepreneurship.
This paper offers a critical perspective on Israel Kirzner’s basic analytical framework. Specifically, we characterize Kirzner’s emphasis on processes of equilibration as a departure from the causal-realist price theory developed by Menger and his nineteenth- and twentieth-century followers. In this context, we contrast Kirzner’s interpretation of entrepreneurship as discovery with a more realistic, and operationally meaningful, idea of entrepreneurship as action. Finally, we discuss an inconsistency in Kirzner’s treatment of the antecedents of entrepreneurial behavior.
This chapter discusses entrepreneurship in the context of the RBV. What does the RBV have to say that the study of entrepreneurship may usefully draw on? And, conversely, how can entrepreneurship research further the RBV? I begin by sketching the RBV. I then discuss the relation between the RBV and entrepreneurship research, before I characterize a new research stream that has emerged over the last decade or so in the intersection of the RBV and entrepreneurship research, namely “strategic entrepreneurship.”
The field of strategic entrepreneurship is a fairly recent one. Its central idea is that opportunity-seeking and advantage-seeking — the former the central subject of the entrepreneurship field, the latter the central subject of the strategic management field — are processes that need to be considered jointly. The purpose of this brief chapter is to explain the emergence of SE theory field in terms of a response to research gaps in the neighboring fields of entrepreneurship and strategic management; describe the main tenets of SE theory; discuss its relations to neighboring fields; and finally describe some research gaps in extant theory, mainly focusing on the need to provide clear microfoundations for SE theory and link it to organizational design theory.
The study of entrepreneurship and the study of economic organizing lack contact. In fact, the modern theory of the firm virtually ignores entrepreneurship, while the literature on entrepreneurship often sees little value in the economic theory of the firm. In contrast, we argue in this chapter that entrepreneurship theory and the theory of the firm can be usefully integrated, and that doing so would improve both bodies of theory. Adding the entrepreneur to the theory of the firm provides a dynamic view that the overly static analysis of firm organizing cannot support. Moreover, adding the firm to the study of the entrepreneur provides important clues to how we can understand entrepreneurship.
As the editors of this volume note in their introductory chapter, collaboration is inherent in any operating market economy, and collaboration is, of course, sought because of the advantages it yields relative to non-collaboration. At the most abstract level, “collaboration” simply means “non-autarcic”; thus, Austrian economist Ludwig von Mises (1936) saw the division of labor as organized under capitalist institutions as a primary example of peaceful collaboration. Less abstractly, collaborative advantage may be related to notions of social capital and generalized trust. Still, such understandings capture a very large part of extant social science research. A more narrow understanding of collaborative advantage is required, lest we merely engage in an unproductive relabeling game. In fact, starting with important contributions by, for example, Hirschman (1970) and Richardson (1972), modern writers associate collaborative advantage with (typically) long-lasting and stable relations between actors, supported by informal trust relations, relations based on formal contracts or property rights, or some combination thereof (Lazzarini, Miller & Zenger, 2004). The relevant actors may exist at different analytical levels (e.g., individuals, firms, dyads, industries, clusters, regions, nations) and may in turn be embedded in various formal and informal institutions (North, 1990), as well as in certain geographical contexts. However, even this conceptual narrowing of the notion of collaborative advantage still implies that we are making reference to very large and still expanding literatures in (fields in) economics (e.g., economic geography, urban economics, trade theory) and sociology, as well as management fields, such as strategic management, international business, and innovation studies. In various field and discipline-specific ways, these examine the morphology of collaboration and collaborative advantage, and seek to identify their antecedents and consequences. Methods differ, ranging from longitudinal single case studies to multi-level panel data studies using state of the art econometrics. Not surprisingly, it is far from clear that what is effectively a jumble of contributions actually adds up to robust generalizations and insights. Parts of extant work on collaboration and collaborative advantage is nicely summarized in the editors’ introductory chapter. In this chapter we argue that because there are so few obvious constraints on the meaning of collaboration on the social domain, and because it is mixed up with fundamental multi-level issues, both with respect to conceptualization, antecedents and consequences, clarity and rigor with respect to construct definition, location of constructs at various analytical levels, and methods is absolutely essential. For example, while collaborative advantage may be well-defined at the level of firm dyads (Richardson, 1972; Williamson, 1985; Dyer & Wilkins, 1993), it may be (in fact, is) less well defined at higher levels of analysis, such as industries or industrial districts. Or, collaborative advantage at these latter levels may actually mean something different from collaborative advantage at the dyadic level, and have different antecedents and consequences. For example, as the notion of collaborative advantage traverses levels of analysis, antecedents likely differ (Nielsen, 2010). As these examples suggest, many of the difficulties of researching collaboration and collaborative advantage stem from the multi-level nature of these constructs themselves, as well as from the fact that their antecedents and consequences may be located at multiple different levels. For instance, with respect to antecedents, dyad-level collaborative advantage (e.g., superior innovation resulting from pooling innovation capabilities in specific projects) may arise from particularly skilled R&D personnel or alliance managers; the firms’ endowments of innovation capabilities or their experiences from previous R&D collaboration; advantages accruing to the specific region they are located in; governmental support programs; broad societal institutions; etc. Thus, collaborative advantage may have antecedents on lower (”micro”) as well as higher (”macro”) analytical levels (Knudsen & Nielsen, 2010). In fact, one of our key points in the following is that researching collaborative advantage inherently requires a multi-level approach. Theoretically, account must be made of antecedents and consequences at different levels, as well as potential cross-level effects. In extant research, this is often not done; for example, research on national systems of innovation (e.g., Lundvall, 1992) often makes no reference to firms whatsoever (which logically must be part of the micro-foundations of such systems). By the same token, little effort has been devoted to defining the level at which constructs operate and little theory development within the strategic alliance field explicitly addresses the role played by variables at different levels (Nielsen, 2010). Proper — multilevel — empirical research methods must be adopted; otherwise, relevant causes are not identified and/or estimated parameters become biased. Accordingly, this chapter offers a condensed primer on multi-level conceptual and methodological issues pertaining to collaborative advantage in order to guide future research. Rather than striving to be all-encompassing, we focus our discussion on a particular type of collaboration—strategic alliances among independent business firms—as this area of research continues to play a central role in strategic management, international business and organizational science. Despite this focus, most of the ensuing discussion applies equally well to other kinds of collaborations and we draw parallels to these where relevant. A further limitation is that we restrict our inquiry to variable-centered theoretical and empirical inquiry, and as such do not touch upon collaborative advantage in the context of small-N research, such as narrative approaches or approaches relying on comparative case method.
We survey the resource-based view in strategic management, focusing on its roots in economics. We organize our discussion in terms of the Gavetti and Levinthal distinction between a “high church” and a “low church” resource-based view, and argue that these hitherto rather separate streams are increasingly overlapping.
In his seminal 1945 essay Hayek argued that the dispersed nature of much commercially relevant knowledge places strong constraints on the feasibility of centralized allocation and coordination mechanisms, but that there remains a problem of making efficient use of such knowledge (the first Hayekian knowledge problem). He realized that firms, because they make use of authority, are also challenged by dispersed knowledge, and his emphasis on delegation as a response to dispersed knowledge may lead to the prediction that (large) firms shouldn't exist. Yet (large) firms obviously do exist (the second Hayekian knowledge problem). Recently, many management and organizational scholars have echoed Hayek's argument that centralized coordination mechanisms, such as authority, may fail in the presence of dispersed knowledge. We examine these modern arguments and argue that they rest on shaky foundations: dispersed knowledge is a less strong constraint on authority than is often thought. We examine the wider implications of this for knowledge-based arguments in management and organizational theory, and call for more research into the micro-foundations of such arguments.
Nationality diversity and international experience constitute two related yet distinct sources of competence among upper echelons. While both TMT international experience and nationality diversity increases the likelihood of firms expanding outside their home region, our results show that TMTs with international experience are more likely to expand abroad via greenfield investments, whereas nationally diverse TMTs are more likely to engage in international acquisitions and joint ventures. This highlights the need to treat TMT nationality diversity and international experience as two different characteristics influencing foreign entry mode decision.
SHRM increasingly emphasizes HRM practices as means to build strategic knowledge resources such as superior capabilities. While the knowledge-based view increasingly pays attention to micro-foundations, the SHRM field neglects these and emphasizes collective constructs such as "human capital pools," "HRM architectures", etc. As a result, causal links between HRM practices, knowledge and organizational performance are black-boxed. We propose a program for research and identify some of the key issues that future research must deal with.
In Europe, in particular, the number of foreigners appointed to top management teams has increased significantly over the past decade. However, the question of why some firms elect to employ foreign nationals on their top management teams remains unclear. This study utilizes a multi-level methodology to test the degree to which employment of a foreigner on the top management team is driven by individual level human capital characteristics versus firm level strategic considerations. Results from empirical tests on a sample of Swiss publicly listed companies suggest that degree of international diversification is positively associated with the likelihood of having a foreign executive, whereas human capital characteristics do not explain the propensity to employ a foreigner on the top management team. Further analyses indicate that nationality diversity at the board level, as well as the international experience of the top management team, are possible predictors of the probability of having a foreigner on the top management team.
Collaborative capability has predominantly been conceptualized and analyzed from a firm-level perspective, paying inadequate attention to the individual level mechanisms that enable this ability to develop and flourish. Utilizing the dynamic capabilities perspective, we suggest that antecedents of collaborative capabilities can be found at the organizational and individual level. Hence, this study examines the role of collaborative capability in R&D alliances with particular focus on the interplay between organizational and individual level mechanisms. We explore the development of Novozymes' Partnering Project and show how individual level factors work in concert with organizational level mechanisms in creating collaborative capability. Based on the in-depth case study and a review of the extant literature, we propose a framework for explaining the multi-dimensional nature of collaborative capabilities in R&D alliances and show how firms can benefit from increased attention to the interaction between individual and organizational level issues when designing R&D alliances.
As multinational corporations operate in multiple countries, headquarters must take into account differences in local settings when seeking the means to coordinate and control subsidiaries. The local system of industrial relations sets the framework for what kind of human resource management a multinational corporation can implement. Yet another question is whether the still stronger multinationals can change the existing systems of industrial relations, directly or indirectly. The paper analyzes four Danish enterprises over a ten-year period. This longitudinal study shows that none of the multinationals directly try to interfere in local industrial relations. However, by exercising their management prerogative in a way that differs from the Northern European tradition of industrial relations, they do influence the cooperation between employers and employees. In particular, the results show that a shift from a stakeholder to a shareholder management style and the increased degree of HQ control have an effect on the whole cooperative atmosphere in each of the companies. In the long run, they may affect the collective bargaining system as such.
This paper is the Introductory chapter to my forthcoming book, Knowledge, Organization, and Property Rights: Selected Essays of Nicolai J Foss, to be published by Edward Elgar in 2008. It provides a brief bio-statement and then discusses and places in context the various papers in the collection. The papers in the book are listed in the Appendix.
This paper explores theoretical and empirical ambiguities in the literature concerning the impact of foreign subsidiary autonomy on intra-MNE knowledge transfer. We argue that understanding the interdependences between subsidiary autonomy and the use of different communication systems - e.g. person-based and electronic-based communication systems - is crucial to putting forward new insights in the debate. Based on the recent literature on strategic management, we hypothesize that the two communication systems call for different degrees of subsidiary autonomy and vice versa. Using a data set consisting of 307 dyads between foreign subsidiaries and their parent companies, we find that two distinctive configurations positively affect the extent of knowledge transfer from foreign subsidiaries to their parent companies. The first is the combination of a high degree of subsidiary autonomy and the use of person-based mechanisms, and the second is the combination of low subsidiary autonomy and the use of electronic-based mechanisms.
Studies of multinational performance have moved from linear, to quadratic and to cubic relationships but despite this seeming increase in sophistication, the empirical evidence has remained contradictory. The hypothesized performance relationships of multinationality have typically been driven by assumed trade-offs between underlying cost/benefit functions. However, this paper argues that cost/benefit trade-offs associated with international expansion are shaped by industry specific conditions that systematically confound the performance outcomes of multinationality. Whereas prior studies often have been confined to a focus on manufacturing and smaller cross-sectional samples, this study analyses the multinational performance outcomes across a comprehensive industry-wide dataset during 1996-2000. The analyses show positive multinational performance relationships in manufacturing and knowledge-based service industries whereas capital-based service industries have negative performance relationships. These results support the proposed heterogeneity in multinational performance effects across industry contexts.
Manuscript Type: Empirical
Research Question/Issue: Institutional and transaction cost theories highlight the idea that group‐affiliated firms outperform unaffiliated firms in emerging economies. However, the persistence of superior performance among group‐affiliated firms could be challenged by the recent, quick development of markets and institutions in these countries. This article explores the link between firm performance and the evolution of the institutional environment.
Research Findings/Insights: We analyze how business group affiliation affected firm performance in India in the post‐reform era, i.e., from 1990 to 2006. Our findings show that: (1) the performance benefits of group affiliation are evident in the early phase of institutional transition, but level out in the late phase; (2) older group‐affiliated firms are better able to cope with institutional transition than younger group‐affiliated firms; and (3) group‐affiliated service firms are better able to cope with institutional transition than group‐affiliated manufacturing firms.
Theoretical/Academic Implications: Our findings support institutional and transaction cost theories, as they show that: (1) when labor, capital, and products markets are characterized by large imperfections and weak supporting institutions business groups outperform independent companies; (2) when markets become more efficient and institutions grow stronger group‐affiliated firms fail to show continued superior performance; and (3) heterogeneity among member firms may influence the appropriation of the benefits arising from group affiliation. These findings expand the traditional understanding of the relationship between firm performance and the institutional context in emerging economies, and provide further support for the idea that the relative performance of group‐affiliated firms is contingent upon the characteristics of the institutional context and their particular features.
Practitioner/Policy Implications: The article has implications for managers and policy makers. Managers of business groups should adapt the timing of strategies to the evolution of the institutional environment. Policy makers should focus on the consequences of their policies, as they may undermine the efficiency of large national companies.
To add insight in new value creation, opportunity discovery should be integrated with strategic management theory. Based on the resource-based view and the economics of property rights, we build a framework that accomplishes this. Our key argument is that property rights and transaction costs are important antecedents of opportunity discovery. We identify two mechanisms that establish this influence and examine alternative ways in which knowledge, transaction costs, and property rights influence opportunity discovery and sustainable advantage. Copyright © 2008 Strategic Management Society.
This paper explores why and how human resource management (HRM) matters for knowledge transfer within multinational corporations. It is built on the premise that there are certain HRM practices influencing extrinsic and intrinsic motivation of knowledge receivers. It is found that complementarity among HRM practices exists but does not always have a positive effect on knowledge transfer. Three hypotheses derived from these arguments are tested on data from 92 subsidiaries of Danish multinational corporations located in 11 countries.
In this study we discuss and empirically test the assertion that over the last two decades multinational enterprises' (MNEs') configuration of value-adding activities has shifted from a sparse and simple (host–home) international division of labor among the foreign affiliates to a more specialized and ‘advanced’ global value chain configuration in which MNEs locate fine-sliced parts of the value chain at the most efficient locations. Using data on trade flows of U.S. affiliates in 56 host countries between 1983 and 2003 we find some indications of a trend in the direction of global value chain specialization. In particular among US affiliates in developing countries the proportion of host–host, intra-firm trade has increased significantly during the observed period of time. Conversely, the proportion of host–home and inter-firm trade has diminished. We interpret this as indicating both value chain disaggregation (vertical specialization) and MNEs' systematic exploitation of factor cost differentials across countries. We also find that the absolute levels of all types of trade flows have increased. Hence, it is the relative, and not the absolute, changes in the trade flow patterns of US affiliates that gives credibility to the global value chain assertion.
Organizational scholars have recently argued that economic theories and assumptions have adversely shaped management practice and human behavior, leading not only to the incorporation of trust-eroding market-mechanisms into organizations but also unnecessarily creating self-interested behavior. A number of highly influential papers have argued that the self-fulfilling nature of (even false) theories provides the underlying mechanism through which economics has adversely shaped not just social science but also management practice and individual behavior. We question these arguments, and argue that there are important boundary conditions to theories falsely fulfilling themselves, boundary conditions that have hitherto been unexplored in organizational research, and boundary conditions which question the underlying premises used by organizational scholars and social scientists to attack economics. We specifically build on highly relevant findings from social psychology, philosophy and organizational economics to show how (1) objective reality and (2) human nature provide two important boundary conditions for theories (falsely or otherwise) fulfilling themselves. We also defend organizational economics, specifically the use of high-powered incentives in organizations, and argue that self-interest (rightly understood) facilitates in creating beneficial individual and collective and societal outcomes.
The purpose of this Perspective Paper is to advance understanding of absorptive capacity, its underlying dimensions, its multi-level antecedents, its impact on firm performance and the contextual factors that affect absorptive capacity. Nineteen years after the Cohen and Levinthal 1990 paper, the field is characterized by a wide array of theoretical perspectives and a wealth of empirical evidence. In this paper, we first review these underlying theories and empirical studies of absorptive capacity. Given the size and diversity of the absorptive capacity literature, we subsequently map the existing terrain of research through a bibliometric analysis. The resulting bibliometric cartography shows the major discrepancies in the organization field, namely that (1) most attention so far has been focused on the tangible outcomes of absorptive capacity; (2) organizational design and individual level antecedents have been relatively neglected in the absorptive capacity literature; and (3) the emergence of absorptive ccapacity from the actions and interactions of individual, organizational and inter-organizational antecedents remains unclear. Building on the bibliometric analysis, we develop an integrative model that identifies the multi-level antecedents, process dimensions, and outcomes of absorptive capacity as well as the contextual factors that affect absorptive capacity. We argue that realizing the potential of the absorptive capacity concept requires more research that shows how “micro antecedents” and “macroantecedents” influence future outcomes such as competitive advantage, innovation, and firm performance. In particular, we identify conceptual gaps that may guide future research to fully exploit the absorptive capacity concept in the organization field and to explore future fruitful extensions of the concept.
The economics of growth has shown that countries not only grow by deploying higher levels of inputs to production, but also by better allocating whatever resources are at their disposal and by introducing productivity-enhancing innovations. We proffer arguments as to why and how entrepreneurship as well institutions of liberty (i.e., economic freedom, including the rule of law, easy regulations, low taxes and limited government interference in the economy) positively impact total factor productivity (TFP): These institutions allow entrepreneurial experimentation with the combination of factors to take place at low transaction costs. We test these ideas on a unique panel data set derived from Compendia, World Bank data and the Fraser Institute’s economic freedom data. We find that while entrepreneurship positively impacts TFP, the marginal contribution of entrepreneurship to TFP is strongest in economies with substantial government activity.
The emergence over the last two decades or so of knowledge as an important part of the explanatory structure of management research is an intellectual breakthrough that is comparable in terms of its transforming impact to the behavioral revolution of the 1960s. A veritable knowledge movement has emerged that spans several fields in management. I take stock on alternative research strategies with that movement, distinguishing between capabilities first, networks first and individuals first strategies. Reasons are given why more research attention need to be allocated to the latter strategy if the knowledge movement is to continue making progress, but that the aim should ultimately be to reach towards multi-level research that combines aggregate constructs with top-down processes and bottom-up processes.
Investments in dispersed foreign subsidiaries and international joint ventures (IJVs) are often thought to enhance corporate flexibility and thereby reduce risk. We tested these predictions from real options theory and the international strategy literature using a set of recently developed downside risk measures. The evidence reveals that U.S. manufacturing firms with greater multinationality or investment in IJVs do not generally obtain lower levels of downside risk. Implications for theory and future empirical research are offered.
"Howard Aldrich and Martin Ruef’s tour de force shows us how the evolutionary approach can explain change not only in organizational populations, but within sectors and within organizations. Aldrich and Ruef display an astonishing command of the management literature, using vivid illustrations from cutting edge research to show how the processes of variation, selection, retention, and struggle operate within organizations and across them. A lucid and engaging book that should appeal both to the newcomer to organization theory and to the old pro."- Frank Dobbin, Harvard UniversityA keenly anticipated Second Edition of an award winning classic, Organizations Evolving presents a sophisticated evolutionary view of key organizational paradigms that will give readers a unified understanding of modern organizations. This Second Edition is up-to-date in its survey of the literature, as well as an overview of the new developments across organization studies. It contains new sections on organizational forms, community evolution and methods for studying organizations at multiple levels. The field of organization studies contains many contending paradigms that often puzzle and perplex students. This book is a stunning synthesis of the major organizational paradigms under the umbrella of organizational theory. Scholars and students will find it an excellent guide to the strengths and weaknesses of the various approaches, as well as an outstanding review of the best recent empirical research on organizations. The book includes many helpful features, such as: " Review questions and exercises that will consolidate reader's learning " A methodological appendix that assesses common research methods " Engaging cases that bring principles and concepts to lifeThis Second Edition is a rich resource for study, discussion and debate amongst organizational scholars and postgraduate students of organizations.
This paper develops an approach to organizational governance decisions that recognizes how the choice of organizational governance form affects both the creation and appropriation of economic value. The paper begins with a detailed survey of three theoretical approaches—transaction cost economics (TCE), the resource-based view (RBV), and Real Options analysis (RoA) to the study of organizational governance. This review serves to provide background material on each theory as well as to identify the similarities and differences in the assumptions underlying these perspectives. A concluding section provides a series of propositions for future empirical research that may help to integrate these theories by incorporating notions of both value creation and value appropriation.
Purpose
The purpose of the paper is to determine and empirically examine the effect of human resource management (HRM) practices on knowledge transfer within multinational corporations.
Design/methodology/approach
It is suggested that the employment of human resource practices, which affect absorptive capacity of knowledge receivers and support organizational learning environment, is positively related to the degree of knowledge transfer to the subsidiary. Moreover, the higher degree of knowledge transfer is expected when HRM practices are applied as an integrated system of interdependent practices. Hypotheses derived from these arguments are tested on the data from 92 subsidiaries of Danish multinational corporations (MNCs) located in 11 countries.
Findings
Results of the analysis indicated the existence of two groups of HRM practices conducive to knowledge transfer. The simultaneous effect of the first group of HRM practices consisting of “staffing”, “training”, “promotion”, “compensation” and “appraisal” on the degree of knowledge transfer was found to be positive and substantial. The hypothesis regarding the effect of corporate socialization mechanisms and flexible working practices (the second group of HRM practices) was not supported by the data. The analysis also indicated that some HRM practices have a complementary effect on the degree of knowledge transfer when they are applied as a system.
Research limitations/implications
While this study makes a contribution to our understanding of the relationship between HRM practices and knowledge transfer in the MNC, clearly, additional research is needed to develop this link further, which until now has been largely black‐boxed.
Originality/value
Makes a contribution to our understanding of the relationship of HRM practices and knowledge transfer in MNCs.
This study addressed the question of whether firms in a competitive, globally integrated environment face a ''liability of foreignness'' and to what extent either importing home-country organizational capabilities or copying the practices of successful local firms can help them overcome this liability. Predictions were tested with a paired sample of 24 foreign exchange trading rooms of major Western and Japanese banks in New York and Tokyo. Results support the existence of a liability of foreignness and the role of a firm's administrative heritage in providing competitive advantage to its multinational subunits. They also highlight the difficulty firms face in copying organizational practices from other firms.
In this article I extend real options theory to technology positioning projects and specify how the relationship between boundary conditions and uncertainty influences the value of a technology option, as well as the appropriate timing of its exercise. I also take a strategic perspective on uncertainty itself, concluding that option value can be amplified by investments to shift boundaries, ideally in ways that are idiosyncratic to the firm.
Research on multinational corporation (MNC) knowledge transfer has argued continuously for the behavior of knowledge senders to be a determinant of knowledge transfer. Although the importance of disseminative capacity regarding knowledge transfer has been illustrated in numerous conceptual studies, substantial empirical support is largely absent. Based on previous studies, re-operationalizes disseminative capacity as being dependent upon the ability and the willingness of organizational actors to transfer knowledge where and when it is needed in the organization. Using the context of expatriation, suggests that MNCs may apply different mechanisms depending on whether they want to develop expatriates' ability or willingness to transfer knowledge. Suggests that MNCs may enhance expatriates' willingness to transfer knowledge through the employment of long-term expatriate assignments, whereas expatriates' ability to transfer knowledge may be increased through their involvement in temporary assignments such as short-term assignments, frequent flyer arrangements, and international commuting. Tests the hypotheses empirically based on data from 92 subsidiaries of Danish MNCs located in 11 countries.
This study examines the relationship between corporate strategy and capital structure, specifically the diversfication and financing strategies of a firm. The results show that equity financing is preferred for related diversification and unrelated diversification is associated with debt financ-ing. Additionally, firms diversifying through acquisitions are more likely to use public sources of financing and those emphasizing internal development of new businesses depend primarily on private sources of financing. Using simultaneous equation estimation, we found a reciprocal relationship between a firm's financial strategy and its corporate diversification strategy. Mode and nature of diversification are also reciprocally interrelated.
Empirical studies on the impact of knowledge management on the performance of MNC subsidiaries remain elusive to date. This study examines the effect of knowledge management tools such as corporate university, communities of practice, group benchmarking, learning systems and rewards upon absorptive capacity and performance with unique data from subsidiary units in a large German MNC – Heidelberger Cement. The findings suggest that knowledge management tools unfold their performance impact through their significant influence on absorptive capacity and knowledge inflows. The key contributions to the current literature on knowledge flows in the MNC include an empirically corroborated link between deployments of knowledge management tools and their impact on the subsidiary employee's ability and motivation to learn from internal knowledge flows in the MNC as well as their impact on subsidiary business performance.
Equity financing is the optimal strategy for innovating firms, which can use their financial structure as a signalling device to attract outside investors. This situation is likely to arise when the firm undertakes a specific purpose R&D project aimed at developing a certain product innovation. Typically, innovations of this kind draw on the firm's cumulative. idiosyncratic knowledge base and, accordingly, the innovation process involves an high degree of asset specificity. Under such circumstances, the terms of debt financing will be adjusted adversely, and equity financing will represent the most economically efficient solution. These arguments are developed in standard static principal-agent models dealing with New Technology Based Firms and publicly held large firms undertaking an aggressive R&D strategy. In the case of NTBFs, two kinds of optimal venture capital contracts are considered, which render the sharing rules independent (a) of the agent's action and (b) of both the agent's action and the specific assets involved in the transaction. Regarding innovating large firms, it is argued that in this case, too, equity represents the optimal financing strategy, and that top executives use their equity share to signal the firm's expected return stream and value to outside investors.
Understanding sources of sustained competitive advantage has become a major area of research in strategic management. Building on the assumptions that strategic resources are heterogeneously distributed across firms and that these differences are stable over time, this article examines the link between firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate sustained competitive advantage-value, rareness, imitability, and substitutability are discussed. The model is applied by analyzing the potential of several firm resources for generating sustained competitive advantages. The article concludes by examining implications of this firm resource model of sustained competitive advantage for other business disciplines.
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.
The idea of joining strategy literature and financial literature to address the capital structure question arose in two ways. Financial scholars, unable to agree on a desirable mix of debt and equity, have called for managerial inputs. Likewise, strategy scholars have called for inputs from functional areas such as finance. The product of this joint review is a set of propositions suggesting that a strategy perspective might help to explain the capital structure decision.
This study examines the effects of previous entry on the subsequent decisions of Japanese electronics companies to invest in the United States. By gathering data at the firm level, the empirical analysis provides a fine-grain sorting out of firm and industry effects on foreign direct investment decisions. The findings show that investment behavior is highly heterogeneous across firms and reflects their individual technological capabilities and their history of previous investments in the United States. Real exchange rate levels are also important. The results suggest that initial investments serve as platforms for subsequent entry, with the timing of entry triggered by movements in real exchange rates.
The basic thesis of this exploratory investigation was that a corporate strategy perspective may complement the traditional financial paradigm in explaining capital structure in large U.S. corporations. Earlier fusion of strategic and financial literature led to a series of propositions antecedent to this work. Inclusion of Rumelt's diversification categories plus elsewhere validated financial contextual variables led to hypotheses for the present study. Results suggest a managerial choice perspective may help to explain the capital structure choice at the firm level of analysis.
ABSTRACT Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market {3, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in {3 that is unrelated to size, the relation between market {3 and average return is flat, even when {3 is the only explanatory variable. THE ASSET-PRICING MODEL OF Sharpe (1964), Lintner (1965), and Black (1972)
Competition in the American economy has fundamentally changed over the last few decades, from static to dynamic. This study labels this important change the hypercompetitive shift, and documents it across 200 industries of the US manufacturing sector during I958 to 1991. For industries that undergo a hypercompetitive shift, there is an increase in the cross-firm variance in performance and a rotation in the value-rivalry relationship from a negative association to an inverted-U. As a consequence of these competitive changes, the strategic focus of firms shifts from careful exploitation of given, highly durable strategic assets to the steady creation of many new, rapidly depreciable ones.
The key driver of hypercompetitive shift is the dynamic resourcefulness of an industry, or the ease with which new strategic assets can be created. Determinants of dynamic resourcefulness include the dynamism of related transactors (notably consumers and suppliers). the knowledge base of the industry, and structural conditions that promote easy entry.
This paper argues that knowledge mapping may provide a fruitful avenue for intellectual capital management in academic environments such as university departments. However, while some research has been conducted on knowledge mapping and intellectual capital management in the public sector, the university has so far not been directly considered for this type of management. The paper initially reviews the functions and techniques of knowledge mapping and assesses these in the light of academic demands. Second, the result of a focus group study is presented, where academic leaders were asked to reflect of the uses of knowledge mapping at their departments and institutes. Finally a number of suggestions are made as to the rationale and conduct of knowledge mapping in academe.
In this paper, we argue that consideration of firm strategy can help illuminate the choices managers make between debt and equity financing. Within an industry, the form of competition that each firm chooses will determine the strategic value to the firm of maintaining financial slack. Our empirical analysis yields strong support for the proposition that financial slack should be a particularly critical strategic imperative for firms pursuing a competitive strategy premised on innovation. We also demonstrate that firms pursuing such a strategy that fail to recognize the value of financial slack are likely to perform poorly. Copyright © 2003 John Wiley & Sons, Ltd.
Industrial classifications were used as a basis for operational definitions of both industrial and organizational task environments. A codification of six environmental dimensions was reduced to three: munificence (capacity), complexity (homogeneity-heterogeneity, concentration-dispersion), and dynamism (stability-instability, turbulence). Interitem and factor analytic techniques were used to explore the viability of these environmental dimensions. Implications of the research for building both descriptive and normative theory about organization-environment relationships are advanced.
The analogy between financial options and corporate investments that create future opportunities is both intuitively appealing and increasingly well accepted. Executives readily see that today's investment in R&D, or in a new marketing program, or even in a multiphased capital expenditure can generate the possibility of new products or markets tomorrow. But for many, the leap from the puts and calls of financial options to actual investment decisions has been difficult and deeply frustrating. The calculations required to value real options have been dauntingly complex, and practical how-to advice on the subject has been scarce and mostly aimed at specialists, preferably with Ph.D.'s in finance. The framework presented here bridges the gap between the practicalities of real-world capital projects and the higher mathematics associated with formal option-pricing theory. Timothy Luehrman's step-by-step approach can be mastered by anyone who knows how to work with basic discounted cash flows. It is based on a simple mapping between the characteristics of a capital project and the five variables that determine the value of a simple call option on a share of stock. Luehrman's methodology is designed to be used by general managers, not technical specialists. It deliberately sacrifices absolute precision in order to generate a number "good enough" to provide executives with valuable insight into their most important and complex investment decisions - insight that standard discounted-cash-flow analysis typically obscures.
Technology is rapidly altering the nature of competition and strategy in the late twentieth century, moving us toward a 'new competitive landscape' in the twenty-first century. The new competitive landscape presents new issues, new concepts, new problems and new challenges. This essay examines the broad nature of the technological changes that are occurring and identifies some of the important implications of these changes for strategic management. The purpose of the paper is to stimulate further research into these issues in strategic management and to provide an overall context for the other papers appearing in this special issue.
This article develops an option-theoretic perspective for organizational strategic management. Grounded in the basic intuition that people seek to "keep options open" in situations that involve an unforeseeable future, and supported by theory in financial economics, this view is a recent development in strategy. The theory integrates resource allocation, sense making, organizational learning, and strategic positioning in a unified framework, and it provides a new explanation for some counterintuitive empirical findings.
Argues that complex forces (new delivery technologies, changing demographics, emergence of corporate universities, global economy) have created a new, competitive landscape for higher education that forces institutions to think methodically about how to respond. A framework for college planning, incorporating three critical components, is proposed: strategic guidelines and program development parameters; rigorous business planning process; and rapid evaluation/decision-making process. (MSE)
This empirical paper explores knowledge outflow from MNC subsidiaries and its impact on the MNC performance. We develop and test hypotheses derived from literature on MNC knowledge flows integrated with the perspective of knowledge-creating, self-interested MNC subsidiaries. The hypotheses are developed using a simultaneous equation model applied to a unique dataset encompassing a German MNC, HeidelbergCement. Enablers and impediments of knowledge outflows are assessed in order to explain why subsidiaries share their knowledge with other MNC units. Implications are examined by studying the link between knowledge outflows and subsidiary performance. Our findings suggest that knowledge outflows increase a subsidiary's performance only up to a certain point and that too much knowledge sharing may be detrimental to the contributing subsidiary's performance.
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
An ongoing argument in financial management has been how to craft a capital structure which maximizes shareholder wealth. This question has gained prominence within the strategic management field because of the apparent link between capital structure and the ability of firms to compete. By integrating models from organizational economics with the strategic management literature, we are able to theorize that a firm’s capital structure is influenced by environmental dynamism, and that the match between environmental dynamism and capital structure is associated with superior economic performance. Our large-scale empirical analyses provide supportive evidence for the proposition that competitive environments moderate the relationship between capital structure and economic performance. From a theoretical standpoint, these findings provide another link between capital structure and corporate strategy. More importantly, we are able to move the discussion beyond the limitations of financial risk and incorporate the strategy concept of decision making under uncertainty. For practical application, these findings offer informed advice for managers on how to craft a capital structure. Copyright © 2000 John Wiley & Sons, Ltd.
Most corporate risk management research focuses on particular risk exposures to the exclusion of other interrelated exposures. By contrast, this study models corporate risk exposures using a multivariate approach integrating the distinct exposures of interest to finance, international business, and strategy researchers. The paper addresses the implications of multivariate modeling for corporate risk management, some key methodological issues arising in empirical estimation of corporate economic exposures, and directions for research on integrated risk management. © 1998 John Wiley & Sons, Ltd.
Among the important elements of a company's strategic plan is its decision about the degree of financial leverage it elects to imbed in its capital structure. A simple operational framework that can assist in framing that decision, which concentrates on the likelihood of being unable to meet fixed financial charges, is presented. The model is tested empirically, and support for its potential usefulness in the financial planning process is found.