Environment, governance, controls, and radical innovation during institutional transitions

Researchers pay only limited attention to the problem of drive force of radical innovation in institutional transitions, especially in China. Drawing on both institutional theory, managerial control theory, and innovation theory, this study examines the roles of external and internal drivers to firms?? radical innovation. Specifically, we examine the effects of external institutional environment and internal corporate governance on radical innovation by introducing management control systems. Based on data from a sample of 585 firms in China, this study finds that the effect of institutional environment uncertainty on radical innovation is significant but formal corporate governance is not. These results suggest that firms facing an uncertain institutional environment emphasize both financial control and strategic control, and firms that have adopted formal corporate governance prefer strategic control to financial control. The implications of these findings for research during institutional transitions are discussed.     

What factors determine the subsidiary mode of overseas R&D by developing-country MNEs? Empirical evidence from Chinese subsidiaries abroad

This study examines the determinants of the subsidiary modes of overseas research and development (R&D) by Chinese multinational enterprises (MNEs). Based on resource-based view and absorptive capabilities, we propose that financial resources and technological resources have different effects on the selection of overseas R&D subsidiary modes, which are competence-exploiting mode or competence-creating mode. This is supported by the empirical results in this paper using data from a survey of 40 Chinese overseas R&D subsidiaries. The results demonstrate that the parent firms with richer financial resources and more R&D expenses prefer the competence-exploiting mode, while the parent firms with more R&D personnel favor the competence-creating mode. Additionally, this study finds that firms matching our mode choice model tend to enjoy a higher level of innovative performance.     

Organizational adaptation in an economic shock: The role of growth reconfiguration

Studies suggest that firms navigating an economic shock can adapt and improve performance by targeting perceived growth opportunities. A puzzle, however, is that an economic shock increases environmental uncertainty and therefore the risk associated with growth reconfiguration. This study finds that growth reduced performance and increased the risk of firm failure during the Asian economic shock of 1997. Growing firms differed in the extent to which they were able to mitigate the constraints imposed by the shock. However, the presence of developed external institutions played a more systematic role in their adaptation than did organizational resources represented by financial slack or product diversification. The deliberate attempt to reconfigure augmented the adverse effect of the economic shock on firm performance and survival. Copyright © 2014 John Wiley & Sons, Ltd.     

Strategic control systems and relative r&d investment in large multiproduct firms

This paper hypothesizes that tight financial controls associated with large diversified M-form firms lead to a short-term, low-risk orientation and thereby lower relative investment in R&D. Further, it is hypothesized that increasing levels of diversification require different control systems which have significant implications for investing in R&D. Results of the study of 124 major U.S. firms suggest that less diversified U-form firms invest more heavily in R&D than more diversified M-form firms after controlling for size and industry effects. Additionally, dominant business firms invested more in R&D than either related or unrelated business firms. Finally, the relationship between R&D intensity and market performance was negative for related and unrelated firms. The findings suggest that the market evaluates R&D investment more positively for firms that are organized to seek synergy than for those that are organized to pursue a hedging (or diversification) strategy.     

Research notes and communications corporate restructuring and strategic change: The effect on diversification strategy and R & D intensity

In the 1980s a number of large corporations restructured their diversified businesses through divestitures. It is hypothesized that restructuring activity focused on firms at intermediate levels of diversification (e.g., related-linked) which have a mixture of related and unrelated business units. Results confirm this hypothesis which explains that such mixed corporate strategies create organizational and control inefficiencies in managing both related and unrelated types of business units. Restructured firms were also found to move towards two types of different internal capital markets (related and unrelated). Most restructuring firms moved toward lower levels of diversification (e.g., related-constrained), although some moved toward higher levels of diversification (e.g., unrelated business). Also, this study finds restructuring firms that changed their corporate strategy by reducing diversified scope increased their R&D intensity. Firms that restructured and increased their diversified scope decreased R&D intensity. This result suggested a partial substitution between diversification and R&D activity.     

Performance deviations and acquisition premiums: The impact of CEO celebrity on managerial risk‐taking

Research summary: This article draws on identity control theory and a study of acquisition premiums to explore how CEO celebrity status and financial performance relative to aspirations affect firm risk behavior. The study finds that celebrity CEOs tend to pay smaller premiums for target firms, but these tendencies change when prior firm performance deviates from the industry average returns, thereby leading these CEOs to pay higher premiums. The study also finds that the premiums tend to be even larger when celebrity CEOs have more recently attained celebrity status. Taken together, these findings contribute to identity control theory and CEO celebrity literatures by suggesting that celebrity status is a double‐edged sword and that the internalization of celebrity status by CEOs strongly influences the decision‐making of CEOs. Managerial summary: The purpose of this article is to examine how CEO celebrity status and financial performance relative to aspirations affect the size of acquisition premiums. The study finds that celebrity CEOs tend to pay smaller premiums for target firms. However, when celebrity CEOs' prior firm performance is either better or worse than the industry average, these CEOs pay higher premiums. This situation is exacerbated when the CEO has only recently been crowned a celebrity. In effect, these CEOs feel great pressure to match the inflated performance expectations that come with celebrity status. These findings suggest that being a celebrity is a double‐edged sword. The implication here is that CEOs who have recently been crowned a celebrity should be aware of these pressures and cope accordingly. Copyright © 2015 John Wiley & Sons, Ltd.     

经济政策不确定性与银行贷款损失准备计提

银行贷款损失准备计提的顺周期特征加剧金融系统的不稳定,受到学界和业界的广泛关注,监管机构逐步要求银行采取前瞻性的计提策略以应对贷款损失准备的顺周期特征,经济发展越来越受到宏观经济政策不确定性的影响,银行是否考虑当前经济政策不确定性,对贷款损失准备进行前瞻性计提?本文选取2004—2017年中国126家商业银行数据,研究经济政策不确定性对银行贷款损失准备计提的影响。实证分析发现,经济政策不确定性与贷款损失准备计提显著正相关,经济政策不确定性越大,贷款损失准备计提越多,在考虑地级市领导人更替、银行高管更替、宏观经济层面遗漏变量,以及使用工具变量的内生性分析后,结果保持稳健。异质性分析发现,这一效应在上市银行、外资持股比例较高、中小银行中表现更为明显。从银行风险管理角度的机制分析发现,不良贷款越多、风险储备越少的银行,经济政策不确定性增加时,计提的贷款损失准备越多,说明风险预防动机是其主要目的。进一步的分析发现,银行在经济政策不确定性较高时增加计提,有助于稳定银行收益、降低银行破产风险。本文的研究从经济政策不确定性的视角,为中国银行贷款损失准备计提的理论和实践提供了新的解释。     

Investment decisions in troubled times: A Bayesian approach applied to Brazilian firms

This study analyses the investment decision of 497 Brazilian firms during a period of unstable macroeconomic conditions. The role of financial constraints is considered in a Bayesian econometric model. We estimate three different models, and the results indicate the presence of financial restrictions, especially for capital-intensive firms. The recursive predictive density criterion indicates that the most preferred model is the one in which firm-specific effects are correlated with cash-flow. Financial restrictions are more important for capital-intensive firms, probably due to their lower profitability indexes, higher fixed costs and higher degree of property diversification.     

Determinants of R&D–Marketing Integration in High-Tech Japanese Firms

Although the R&D/marketing interface has been extensively studied in U.S. firms, this article reports the results of a study of this important relationship in Japanese high-tech firms. Based on published studies of U.S. firms, Mark Parry and Michael Song hypothesize that Japanese R&D managers' perceptions of the ideal level of R&D/marketing integration will reflect perceptions of both their firm's strategy and environmental uncertainty. They also hypothesize that perceptions of the level of achieved R&D/marketing integration are related to perceptions of organizational structure and climate. To test these hypotheses, they examine the survey responses of 274 Japanese R&D managers. Their analysis suggests that R&D managers' perceptions of firm strategy and the level of environmental uncertainty are significantly correlated with the perceived need for integration. Findings also indicate that R&D managers' perceptions of achieved integration reflect perceptions of the quality of R&D/marketing relations, the value placed on integration by senior management, the business background of R&D personnel and the risk-orientation of senior management.     

Diversification strategies,business cycles and economic performance

Two major diversification strategies of firms are examined: diversification into related businesses and diversification into unrelated businesses. The first strategy attempts to exploit operating synergies. In the second, the firm attempts to gain financial benefits from its ability to increase leverage due to a greater stability of cash flows. The study utilizes a large sample affirms to assess empirically the benefits and costs of these two diversification strategies by developing a new measure of diversification across business cycles and economic sectors. This new measure is compared with Berry—Herfindahl type measures of total diversification and recent measures of diversification into related businesses. The results indicate that pure financial diversification is associated with (a) more stable cash flows, i.e. lower operating risk; (b) increased levels of leverage; and (c) lower profitability. These observations are in accord with the theory. We also reaffirm that firms which diversify into related businesses have, on the average, higher profitability than non-diversified firms, although these results are not always statistically significant.     

Stock Market Response to Strategic Technical Alliances between Drug and Biotechnology Firms

Traditionally, firms in the pharmaceutical industry have depended on their internal research and development (R&D) capabilities to maintain a productive new product pipeline. During the past two decades, however, the industry's pipeline productivity has decreased compromising the industry's ability to meet shareholder expectations. As a strategy to invigorate pipeline productivity, and impact financial performance, pharmaceutical firms have increased utilization of strategic technical alliances. Earlier research shows that the degree of financial impact resulting from strategic technical alliances varies in terms of partnership type and differences between client and partner firms. This research studies strategic technical alliances between pharmaceutical and biotechnology firms from 1985 to 2012. Event study methodology is used to determine the relationship between stock market response to alliance announcements, measured as cumulative abnormal returns, and factors representing the absorptive capacity of the pharmaceutical firms in the sample. Then, variables indicating the development stage of the drugs included in the alliances are added to assess the effect of project risk on the market response. The study finds that, in general, the stock market responds in a positive manner to strategic technical alliances in the pharmaceutical industry reflecting the market's immediate response, and expectations of future firm value, resulting from the alliance. The degree of the market's response varies in terms of the client firms’ absorptive capacity with new product introductions being the strongest driver. The market responds similarly to alliances across different drug development stages, however, a stronger response is observed in preclinical and extension stages.     

Information Use and New Product Outcomes: The Contingent Role of Strategy Type

Information is an important resource for firms to develop new products successfully, and firms must rely on their ability to use information effectively. This research builds on information processing and contingency theories to explore the effect of firm strategy type and the conceptual and instrumental use of information on new product outcomes. Firms operating in high-tech industries are faced with high levels of uncertainty caused by rapidly evolving technologies. Consequently, creating innovative and successful products becomes particularly challenging. Past research examining organizational use of information points to the presence of strategic contingencies that may impact the new product outcomes that accrue to a firm. A cross-sectional study was conducted to examine how the impact of information use on new product outcomes varies by strategy type. Using data from 150 software development firms based in a developing economy, the theoretical hypotheses proposed are tested. After controlling for environmental turbulence, the research results demonstrate that firms focusing on specific types of information use innovate successfully only when that information use is congruent with an appropriate strategic orientation. Specifically, the present study finds that prospector firms focusing on conceptual information use enhance both their new product performance and new product creativity outcomes, whereas analyzer firms enhance only their new product performance outcomes. A focus on instrumental information use has different effects for firms. Defender firms enhance both their new product performance and creativity outcomes only when focusing on instrumental information use. In contrast, prospector firms detract from their new product creativity outcomes, and analyzer firms reduce their new product performance outcomes when focusing on instrumental information use.     

Strategic Value Assessment and Explorative Learning Opportunities with Customers

This study recognizes that collaboration with customers for new product development may bring important financial benefits to firms, but at the same time may seriously hamper explorative learning. Many firms are approached by customers with requests to develop new products for them. While such requests may strengthen customer relationships and result in short‐term financial gains, it may force a firm in technologically undesirable directions. As a result, many firms struggle with the dilemma of, on the one hand, responding to customer requests, and on the other hand, safeguarding the long‐term competitive position of the firm. Firms with strong customer ties are particularly prone to this dilemma. Drawing on opportunity recognition literature, capability monitoring literature as well as goal setting theory, the authors have developed a framework arguing that Strategic Value Assessment (SVA) can help resolve this. SVA is defined as an a priori business evaluation of the value of a particular innovation collaboration, based on anticipated long‐term strategic benefits. It helps innovative firms to focus on collaboration with customers with lead user status and to develop intense relationships, allowing for more effective knowledge transfer and learning. The framework is tested using data collected from a sample of 136 business‐to‐business firms in the Netherlands. The sampling frame was a panel of small and medium‐sized high‐tech enterprises. The study finds positive direct and indirect effects of SVA on explorative learning. In addition, the findings show that the intense collaboration/learning relationship is positively moderated by customer lead user status, and negatively moderated by customer dependence. The findings suggest that SVA is a useful heuristic for managers to utilize opportunities for innovation involving collaboration with customers.     

When does guanxi bolster or damage firm profitability? The contingent effects of firm- and market-level characteristics

This paper advances that a nuanced approach is necessary to understand the effectiveness of managerial ties (guanxi) in improving firms' financial performance. We take a contingency approach to examine how the effects of managerial ties on performance may be moderated by firm-level factors (i.e., firm age and entrepreneurial orientation) and market-based forces (i.e., demand uncertainty and technological turbulence). Using a survey of 289 firms in China, we find that managerial ties are more salient with regard to enhancing performance for more entrepreneurial-oriented and younger firms. Managerial ties fail to provide performance benefits to firms when high demand uncertainty exists or when the level of technological turbulence is high, which suggests a performance limitation of established ties with government officials, buyers, suppliers, and competitors. The theoretical and managerial implications of the findings are further discussed.     

Linking corporate strategy to capital structure: diversification strategy,type and source of financing

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 financing. 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. © 1998 John Wiley & Sons, Ltd.     

Integration,knowledge creation and B2B governance: The role of resource hierarchies in financial performance

Knowledge is a critical competitive resource for firms that increasingly exploit resources and capabilities combined with those of channel partners to create new knowledge. However, the opportunism risks inherent in any B2B relationship require firms to employ governance mechanisms to protect their interests. These tensions call for further study of how B2B partners exploit combined resources to produce new knowledge. This research employs a Resource Hierarchy View of resource bundling to describe the ways that firms integrate internal and external processes to achieve financial performance through knowledge creation, and the role that relational governance approaches play in enabling those resource combinations. The study finds that normative and formalized governance forms both enable complex combinations of knowledge creation and integration resources in a way that affects financial performance more than either resource could in simpler combination. However, there are differences in how knowledge is created through internal and external process integration.     

An exploratory study of strategic acquisition factors relating to performance

This study investigated the relationship of seven common factors of acquisition strategy to the long run financial performance of acquiring firms: relative size, acquisition rate, industry commonality, timing, type of consideration, acquiree profitability and price paid. The factors were analysed individually and in concert using a database of 138 active acquiring firms which had accomplished some 3500 acquisitions during the 1967-1976 study time period. All factors except price paid were found to be individually significantly statistically related to the performance measures. Also, these factors together accounted for most of the post-merger financial performance which can be attributed to the acquisition programme. These results indicate that six key acquisition variables, on the average, largely determine the success of acquisition strategy. Therefore, by means of those variables, guidelines are provided that should improve the effectiveness of an acquisition programme.     

Resource allocation for open and hidden learning in learning alliances

A satisfying relationship between alliance members is important for the success of learning alliances, especially those in the Asia Pacific region. While learning alliances create conditions for firms to leverage each other’s knowledge, firms may be opportunistic and appropriate each other’s knowledge, and firms face a tradeoff because appropriation affects the relationship between alliance members. After reviewing previous studies on knowledge sharing in learning alliances, we differentiate firms’ learning into open and hidden learning, and argue that open learning contributes to competence trust, while hidden learning reduces goodwill trust, which consequently affects open learning. Learning uncertainty, introduced in this study, and learning benefits determine expected payoffs of open and hidden learning, which influence firms’ resource investment in them. This study also finds that behavior and output control are important moderators of the relationships between expected payoffs of open and hidden learning and the resources invested in them. Thus, this study advances our understanding of the tension between cooperation and competition and the learning dynamics in learning alliances. The solution to solving the knowledge sharing dilemma in learning alliances is to promote partners’ open learning and to restrain their hidden learning. Therefore, this study argues that, with open and hidden learning, implementing proper control measures and influencing partners’ learning benefits and uncertainties can settle this dilemma. Furthermore, this study classifies the relationships of learning alliances into four types and gives an explanation of why horizontal learning alliances are usually more competitive than vertical ones.