Resolving a dilemma of signaling bankrupt‐firm emergence: A dynamic integrative view

Research summary : Predicting the emergence of bankrupt firms relying on firm signals involves a stigma‐related dilemma. On the one hand, bankrupt firms tend to send positive signals through restructuring to decouple themselves from the stigma of bankruptcy. On the other hand, the preexistence of the bankruptcy stigma may reduce the signaling effectiveness of firms' restructuring efforts, making the outcome prediction difficult. We address this dilemma by developing a dynamic integrative view to extend signaling theory, arguing that subsequent signals from key external stakeholders can effectively help evaluate bankrupt firms' quality and reduce the ambiguity in interpreting firms' restructuring signals. Using a sample of U.S. public bankrupt firms under Chapter 11 reorganization, we find evidence supporting the argument. Managerial summary : Applications of signaling theory to predict reorganization outcomes are in their infancy. The dynamic integrative framework developed in this study is useful in identifying different types of signals and predicting outcomes of firms in crisis. The results of this study can be useful for various decision makers to predict the turnaround potential of bankrupt firms. Our results show that an increase in alliance partners, institutional investors, and securities analysts following a bankrupt firm predicts the firm's reorganization outcome. Moreover, firms that are able to gain positive attention from key stakeholders will also gain positive interpretations of their strategic efforts. Signals from alliance partners and institutional investors amplify the signaling effect of a firm's de‐diversification effort in predicting its reorganization outcome. Copyright © 2015 John Wiley & Sons, Ltd.     

Technological diversity,related diversification,and firm performance

Previous findings that related diversification creates value have been called into question over concerns about methodology and measures. Reviewing existing theory to consider how a firm's knowledge base interacts with its product market activity, I address several of these concerns by creating a measure of technological diversity based on citation‐weighted patents. The measure indicates a firm's opportunity for corporate diversification based on economies of scope in valuable knowledge assets, is defined for both single‐ and multibusiness firms, and is not correlated with more fundamental aspects of diversification, such as the number of businesses in the corporate portfolio. Evidence from a large sample of firms shows the positive relationship between diversification based on technological diversity and market‐based measures of performance, controlling for R&D intensity and capital intensity as further indicators of the type of assets underlying diversification. Results hold when controlling for the endogeneity of diversification and performance in a cross‐sectional sample or when controlling for unobserved factors using panel data. Copyright © 2006 John Wiley & Sons, Ltd.     

Diversification strategy,capital structure,and the Asian financial crisis (1997–1998): evidence from Singapore firms

We use agency theory to predict the influence of related and unrelated product diversification on a firm's level of debt financing. Further, we argue that the link between diversification and capital structure is moderated by the environment in which firms operate. Using SAS PROC MIXED, we fit a mixed‐effects model to our unique six‐year longitudinal dataset (1995–2000) of 245 publicly listed Singapore firms. Our data spans the period of the Asian Financial Crisis (1997–1998). We find that firms pursuing unrelated product diversification take on less debt financing in stable environments, but more debt financing in dynamic environments. Using longitudinal structural equation modeling, we find a reciprocal relationship between a firm's product diversification strategy and its debt financing level. Copyright © 2009 John Wiley & Sons, Ltd.     

Intra‐industry diversification and firm performance

We study how intra‐industry product diversity affects firm performance by analyzing the implications of expanding a firm's product line within its core business. We conjecture that increases in product diversity initially undermine performance because of negative transfer effects but then improve it due to economies of scope. We further theorize that this U‐shaped effect of product diversity becomes more pronounced as the firm increases the intensity of its technology investment, yet is likely to be attenuated by the firm's accumulated experience with intra‐industry diversification. Data on 156 U.S.‐based software firms operating from 1990 to 2001 furnish support for these conjectures. Our study advances emerging research on intra‐industry diversification by underscoring some of its contingent performance effects. Copyright © 2013 John Wiley & Sons, Ltd.     

Unraveling the mechanisms of reputation and alliance formation: A study of venture capital syndication in China

Extant research shows that resources are significant to a firm's choice of alliance formation. We focus on an important form of intangible resource—firm reputation—and examine how it affects a firm's propensity to form alliances. We propose an inverted U‐shaped relationship between a firm's reputation and its likelihood of alliance formation, resulting from the opposing mechanisms of opportunity and need. We also examine how this relationship may vary across two contingencies: (1) foreign and domestic firms; and (2) different levels of institutional development. Empirical analyses of China's venture capital (VC) industry provide support for our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.     

Revisiting the firm,industry, and country effects on profitability under recessionary and expansion periods: A multilevel analysis

Research summary: Despite voluminous past research, the relevance of firm, industry, and country effects on profitability, particularly under adverse contexts, is still unclear. We reconcile institutional theory with the resource‐based view and industrial organization economics to investigate the effects of economic adversity, such as the 2008 global economic crisis. Using a three‐level random coefficient model, we examine 15,008 firms across 10 emerging and 10 developed countries for the 2005–2011 period. We find that firm effects become stronger under adversity, whereas industry effects become weaker, as well as country main and interaction effects, particularly among the emerging economies. These findings confirm our assumptions that the firm's own fate is, to a great extent, self‐determined; a reality that is even more pronounced during periods of extreme economic hardship. Managerial summary: In this research, we examine how generalized economic adversity affects the balance across the firm‐, industry‐, and country‐specific factors determining firm profitability. We specifically examine 15,008 firms from 10 emerging and 10 developed countries during the 2005–2011 period to investigate the effects of the 2008 global economic crisis on firm performance. We find that in such adverse conditions, the role of the industry and the country are reduced and the firm's own resources and capabilities become more pertinent for firm performance. This phenomenon is more pronounced across emerging markets. We conclude that the firm's own fate is, to a great extent, self‐determined, a reality that is markedly more evident during periods of extreme economic hardship. Copyright © 2015 John Wiley & Sons, Ltd.     

Within‐business diversification in technology‐intensive industries

This study extends diversification research to a new level of analysis, examining how within‐business diversification, which occurs when firms extend existing product lines or expand into new ones, affects organizational survival. While prior research suggests that corporate‐level diversification accounts for relatively little variation in performance, within‐business diversification matters a great deal, by influencing which start‐ups survive and which firms better cope with rapid environmental change. Specifically, we find that the relationship between within‐business diversity and survival is contingent on the amount of environmental change wrought by a firm's competitors as they simultaneously diversify their own product portfolios and innovate technologically. Analysis of the population of U.S. personal computer manufacturers from the industry's founding in 1975 through 1994 supports our premise: Regardless of its effects across businesses, diversification matters a great deal within them. Copyright © 2004 John Wiley & Sons, Ltd.     

The impact of technical consultants on the quality of their clients' products: Evidence from the Bordeaux wine industry

Research summary : Recent research rooted in the resource‐based view of the firm suggests that resources are more likely to create value if they are effectively managed. An underlying assumption of the literature is that firms manage their resources on their own. However, many firms hire consultants to help them do so. In this study, I develop and test hypotheses regarding the impact of technical consultants on the quality of their clients' products. Using data from the Bordeaux wine industry, I find evidence that the use of technical consultants has a positive impact on relative product quality and a negative impact on the extremeness of relative product quality. Moreover, the positive impact of technical consultants on relative product quality is stronger at lower levels of relative resource quality. Managerial summary : Findings from a study in the Bordeaux wine industry indicate that the decision to hire consultants should depend on a firm's strategy. If a firm wants to improve its performance, it should hire consultants. Indeed, the “best practices” of technical consultants are generally more valuable than internally generated knowledge. If a firm wants to achieve outstanding performance, hiring consultants may not be the right decision. Because the “best practices” of technical consultants have more certain performance implications than internally generated knowledge, they decrease the likelihood of extremely low performance. However, their lack of uniqueness also decreases the likelihood of extremely high performance. Finally, the decision to hire consultants should depend on the quality of a firm's resources. Firms with low‐quality resources tend to benefit more from the “best practices” of technical consultants. Copyright © 2016 John Wiley & Sons, Ltd.     

Foreign‐based competition and corporate diversification strategy

Since the mid‐1980s U.S. domestic firms have faced significant increases in foreign‐based (i.e., import) competition as reductions in barriers to international commerce have resulted in markets and industries becoming increasingly global. Despite the growing and widespread importance of foreign‐based competition, the influence that such competition may exert on corporate diversification strategy is a question largely overlooked in the strategic management literature. This paper examines the impact of foreign‐based competition in a firm's core business on both the level and nature of a firm's diversification strategy at the corporate level in a panel dataset of U.S. firms over the period 1985–94. Our findings provide the first evidence that increased foreign‐based competition is indeed a statistically significant factor explaining both the reduced business‐level diversity and the increased strategic focus of U.S. firms that has been widely perceived over the past two decades. Copyright © 2005 John Wiley & Sons, Ltd.     

Resource ambidexterity through alliance portfolios and firm performance

Research summary : Partner resources can be an important alternative to internal firm resources for attaining dual and seemingly incompatible strategic objectives. We extend arguments about managing conflicting objectives typically made at the firm level to the level of a firm's alliance portfolio. Specifically, will a balance between revenue enhancement and cost reduction attained collectively through partner resources accessed via a firm's various alliances be similarly beneficial for firm performance? Additionally, how do strategic attributes of alliance portfolio configuration, specifically alliance portfolio size and partner resource scope, condition the balance‐performance relationship? Based on data from the global airline industry, we find support for the balance‐performance relationship, though such balance is less beneficial for firms in the case of access to a broader resource scope per partner . Managerial summary : Increasing revenue and reducing costs simultaneously can potentially enhance firm competitiveness. We highlight that an alliance strategy can be an important alternative to internal resources for attaining such dual strategic objectives, particularly when partner resources accessed through alliances are treated collectively as portfolios. We examine the importance of balancing product‐market extending and efficiency‐improving partner resources in the global airline industry as well as the impact of two alternate strategies for accessing resources through alliances: fewer partners with more resources per partner or more partners with fewer resources per partner. We find that resource balance at the portfolio level helps airlines improve performance. Our results also suggest that managers should be cautious of accessing too many resources through just a few partners . Copyright © 2015 John Wiley & Sons, Ltd.     

Firm growth,adaptive capability,and entrepreneurial orientation

Research summary: This paper posits adaptive capability as a mechanism through which a firm's prior growth influences the exhibition of future entrepreneurial action. Defined as the firm's proficiency in altering its understanding of market expectations, increased adaptive capability is a consequence of the new resource combinations that result from expanding organizational boundaries. Increased adaptive capability in turn corresponds to expansion of entrepreneurial activity, as firms increase their entrepreneurial orientation as the strategic mechanism to capitalize on their improved understanding of market conditions. We find support for our research model in a two‐study series conducted in South Korea and the United Kingdom. Managerial summary: Most would agree that entrepreneurially oriented firms—being innovative, entering new markets, and taking risk—grow faster. But how a firm becomes entrepreneurial is a complicated question. In this study, we flipped the growth relationship around and found support for growth contributing to a firm's entrepreneurial orientation. But between growth and being more entrepreneurial is the firm's ability to recognize changes in market expectations. We argue that as a firm grows, it acquires new resources and new knowledge of how to use those resources. These new resource combinations increase its ability to recognize changes in market expectations—its adaptive capability. This capability uncovers new entrepreneurial opportunities for value creation. To capture this potential value, firms expand their entrepreneurial orientation. Copyright © 2016 John Wiley & Sons, Ltd.     

Resource relatedness and the mode of entry into new businesses: Internal resource accumulation vs. access by collaborative arrangement

When firms seek to enter a new business segment, they have to decide how to best gain access to the required resources. This paper analyzes how resource relatedness influences a firm's decision between internal development and collaborative arrangement as modes of entry. We distinguish between a firm's capacity to transfer its established resources to the new segment (resource transferability) and the integration and synergistic combination of current firm resources with target segment resources in day‐to‐day operations (resource complementarity). Resource transferability makes entry by internal development more likely, but this effect depends on segment characteristics. Synergies from complementary resources can be exploited more easily within firm boundaries than across an alliance interface. However, certain partner characteristics can substitute in part for belonging to the same firm. Copyright © 2014 John Wiley & Sons, Ltd.     

Product Change Intensity, Product Advantage, and Market Performance: An Empirical Investigation of the PC Industry

Product change decisions, such as the frequency of new product introductions, can impact product performance characteristics, sales, and market share of several generations of products and, therefore, a firm's long‐term survival and growth. The purpose of this study was to explore the impact of a firm's product change frequency, also referred to as product change intensity. A conceptual model linking a firm's product change intensity to its product advantage—and, in turn, to its market performance—with strategic product change orientation and technology competence as moderating effects, was used as a foundation for the study's hypotheses. These were tested using hierarchical and linear regressions, based on survey data collected from 55 U.S. companies in the personal computer (PC) industry. The analysis confirmed that a PC firm's product rate of change is positively associated with its product advantage and that its product advantage, in turn, is positively associated with its market share and growth performance. However, the hypothesized moderating effects were not confirmed. Rather, a firm's product change orientation and its level of technology competence are more likely to have a direct impact on product advantage. The implications of these findings are that, in general, firms that release new products frequently will have them viewed more favorably by the market than products with lower change intensities. Also, firms with higher levels of competence in the product technology domain tend to create products with greater market attraction. Finally, more radical changes to PC product architectures may pay off better than relatively minor changes. These results may not apply to other industries due to the specific design of personal computers and the nature of this fast‐paced market. Neither do the findings necessarily apply to all firms regardless of those firms' specific product and market strategies. More research is necessary to understand how a firm's adopted strategy, and the industry in which it operates, affect the relationships demonstrated in this study.     

Firm heterogeneity in complex problem solving: A knowledge‐based look at invention

Research summary : The knowledge‐based view suggests that complex problems are best solved under hierarchical (within‐firm) governance. We examined why firms assumed to be in general alignment with this theory might nonetheless produce solutions of varying usefulness. We theorize that a firm's internal knowledge variety (IKV) is associated with its capacity to support cross‐domain knowledge flows during search, and its ability to identify and explore promising areas on the solution landscape. We further theorize that partner knowledge in familiar (unfamiliar) domains can offset specific weaknesses in searching rugged landscapes, inherent with low or high (moderate) IKV. We find support for these ideas in the context of drug discovery, extending KBV's focus on governance alignment to explain variation in problem‐solving effectiveness within hierarchy. Managerial summary : Firms that concentrate their inventive efforts in a few technological domains, but also dabble in several others, have problem‐solving advantages: they can better support knowledge transfer and recombination across domains. Firms that focus too narrowly or spread their inventive efforts thinly across many domains lose these advantages, but might compensate through alliance partnerships. Our study of drug discovery shows that while firms with very low or high knowledge variety tend to produce weaker solutions than firms in the moderate range, their inventive performance improves when alliance partners afford them access to additional knowledge in familiar domains. We explain how the combination of firm and partner knowledge enables firms to better identify, evaluate, and implement alternative solutions to complex problems. Copyright © 2016 John Wiley & Sons, Ltd.     

Do Individual Employees' Learning Goal Orientation and Civic Virtue Matter? A Micro‐Foundations Perspective on Firm Absorptive Capacity

Research summary : In this study, we build on the micro‐foundations perspective and investigate how individual characteristics contribute to the development of firm absorptive capacity. In particular, we assess how individual learning goal orientation affects firm potential and realized absorptive capacity. Furthermore, we study how individuals' civic virtue acts as a micro‐level social integration mechanism that moderates the effect from firm realized absorptive capacity to potential absorptive capacity. Using the multilevel structural equation modeling technique and data from 871 core‐knowledge employees nested in 139 high‐technology firms, we find support to our major hypotheses. Together, this study finds support for the micro‐foundations' perspective and generates novel insights on how individual‐level factors could be linked with firm‐level heterogeneity in absorptive capacity. Managerial summary : We study how employees' characteristics contribute to a firm's absorptive capacity, that is, the ability of a firm to identify, assimilate, and exploit knowledge from the environment. Because firms have increasingly tapped into external resources to foster innovation over the past two decades, absorptive capacity is crucial to firm learning and success. Using data from 871 core‐knowledge employees in 139 high‐technology firms, we find that individual employees' learning goal orientation, the tendency to seek improvements in employees' competence and to understand or master new things advances the development of a firm's potential and realized absorptive capacity. More important, individual employees' civic virtue, the discretionary involvement in company issues, serves as a social integration mechanism that reduces the gap between firm potential and realized absorptive capacity. Copyright © 2017 John Wiley & Sons, Ltd.     

Knowledge spillover in corporate financing networks: embeddedness and the firm's debt performance

Building on social embeddedness theory, we examine how the competencies and resources of one corporate actor in a network are transferred to another actor that uses them to enhance transactions with a third actor—a strategic process we dub ‘network transitivity.’ Focusing on the properties of network transitivity in the context of small‐firm corporate finance, we consider how embedded relations between a firm and its banks facilitate the firm's access to distinctive capabilities that enable it to strategically manage its trade‐credit financing relationships. We apply theory and original case‐study fieldwork to explore the types of resources and competencies available through bank–firm relationships and to derive hypotheses about how embedded bank–firm relationships affect the strategy of small‐ to medium‐sized firms. Using a separate large‐scale data set, we then test the generalizability of our hypotheses. Our qualitative analyses show that embedded bank–firm ties provide special governance arrangements that facilitate the firm's access to bank‐centered informational and capital resources, which uniquely enhance the firm's ability to manage trade credit. Consistent with our arguments, our statistical analyses show that small‐ to medium‐sized firms with embedded ties to their bankers were more likely to take lucrative early‐payment trade discounts and avoid costly late‐payment penalties than were similar firms that lacked embedded ties—suggesting that social embeddedness beneficially affects the financial performance of the firm. Copyright © 2002 John Wiley & Sons, Ltd.     

The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity

Corporate venture capital (CVC) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U‐shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors. Copyright © 2013 John Wiley & Sons, Ltd.     

Multinationals' diversification and the risk-return trade-off

This paper advances a theoretical rationale to explain Bowman's paradox (1980) that firms with high returns can have low risk. Here we draw on the rich body of international management research and argue that global market diversification, which provides firms with three distinct options and opportunities over domestic firms, can explain the high return-low risk profile. We also argue that no strong theoretical rationale exists in support of either related or unrelated product diversification generating such a favorable risk-return profile. By integrating both the product and the global market dimension of diversification into our analyses and by controlling for the industry effect, this paper sheds new light on the relationship between corporate diversification and the risk-return tradeoff. The results of this research, which are based on the diversification experiences of 125 multinationals, reveal the strikingly important, though so far overlooked, role that global market diversification plays in the joint management of corporate risk and return. Global market diversification here reflects both the multiplicity of international market areas in which a firm operates and the distribution pattern of a firm's industries across these multiple areas.     

Whom are you promoting? Positive voluntary public disclosures and executive turnover

Research summary: This paper uses signaling theory to bring together two complementary research streams that have largely ignored each other: strategic human resource management and media relations management. We argue that when publicly traded firms voluntarily and publicly disclose positive information about their value creation and appropriation activities, they also send positive signals to managerial labor markets regarding executives' capabilities. Accordingly, we hypothesize a positive association between public disclosures and voluntary executive turnover. An analysis of pharmaceutical and communications equipment firms from 1990 to 2004 supports this prediction, underscoring the need to understand better the effects of voluntary public disclosures on a firm's ability to protect its human capital. More generally, our results highlight the importance of considering the impact of a single signal on multiple receivers. Managerial summary: Given the organizational benefits of positive media coverage, the considerable effort that firms put into managing their image in the media is not surprising. We argue and show, however, that when a firm enhances its public image it also improves its executives' positions in the managerial labor market and, by so doing, increases their likelihood of voluntarily leaving the firm. In particular, we find that corporate press releases, an important mechanism for managing information released in the public domain to signal a firm's competitive advantages, may result in unintentional loss of senior management talent. This trade‐off suggests that firms should increase coordination between their strategy, human resources, and corporate communications/investor relations departments to ensure that they collectively weigh the benefits and costs of publicly disclosing value‐relevant information. Copyright © 2015 John Wiley & Sons, Ltd.