On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms

Research Summary

In this study, we propose and test a multi‐stakeholder perspective to address variation in innovation performance across firms. Specifically, we analyze how a focal firm's innovation performance is shaped by its political stakeholders (local and central governments) and economic stakeholders (suppliers, buyers, and competitors). Using a data set consisting of over 26,400 Chinese firms, we first find support for our predictions that a focal firm's innovation performance will be enhanced by both its government connections and the innovativeness of its economic stakeholders. We then analyze whether the interdependent effect of these political and economic stakeholders is more likely to be synergistic versus antagonistic, and find evidence consistent with the antagonistic view.

Managerial Summary

We show how a firm's innovativeness is influenced strongly by its relationships to external stakeholders. Specifically, we examine the potentially dual‐edged role of political stakeholders (local and central governments) and economic stakeholders (suppliers, buyers, and competitors). Using extensive data on Chinese firms, we find: (a) that the higher the level of government connections, the greater a firm's innovativeness; (b) that firms located in proximity with more innovative economic stakeholders also tend to have higher innovation performance. We also look beyond these independent positive effects to examine the joint effect of these two forms of stakeholder influence, and here we see that more influence is not always better. Specifically, we find that the innovation benefit that typically accrues to firms in proximity to more innovative economic stakeholders is weakened when those firms also have higher‐level government connections.     

Stakeholder value appropriation: The case of labor in the worldwide mining industry

Research Summary : We evaluate how the value appropriated by employees varies in response to an exogenous shock to the price of the firm's product and how this variation depends on institutional and ownership structures. Institutional and ownership structures that favor employees can influence firms’ location decisions and shareholders’ incentives to invest. Using data from the main copper mines in the world, we show that the value appropriated by employees rises in response to an exogenous increase in the price of minerals. Our results indicate that the magnitude of the increment in the value captured by employees is larger in stated‐owned companies, when labor regulations promote productivity‐based payments, when wages are determined through a centralized bargaining process, and when regulations associated with hiring and firing are more flexible. Managerial Summary : We show how labor regulations and state ownership affect the value appropriated by employees when there are exogenous changes in the price of the firm's products. Since the value generated by a firm is distributed among different stakeholders, a higher appropriation of value by employees results in lower appropriation by another party. Therefore, by changing the distribution of value, managerial decisions about location and entry could be affected. For instance, shareholders of firms with positive future expectations about the prices of their products might prefer to enter markets in which salary negotiations are not centralized or where partnership with the local government is not mandatory. Overall, our analysis calls for the consideration of the external environment when evaluating value appropriation by different types of stakeholders.     

Strategic human capital management in the context of cross‐industry and within‐industry mobility frictions

Research Summary: We develop and test a theory examining how frictions that restrict mobility across industries and frictions constraining mobility within an industry can co‐occur to effectively isolate individual human capital, ultimately changing the firm's make‐versus‐buy decision for human capital. Empirically, we demonstrate that when cross‐industry frictions in the form of limited skill transferability and within‐industry frictions in the form of noncompete enforceability are both present, employees exhibit longer tenures, firms hire workers with less initial experience, firms change the amount and nature of training provided, and wages marginally increase. These findings suggest that sufficiently strong and complementary mobility frictions shift the emphasis of firms’ human capital management practices toward internal development of human capital relative to acquisition on the external market. Managerial Summary : In the face of frictions to employee mobility both within and across industries, which we capture empirically using measures of noncompete enforceability and limited skill transferability across industries, firms tend to hire less experienced workers, such workers exhibit longer tenures, and firms invest more in their training, particularly in the development of new skills. Our findings imply that for firms operating under such complementary frictions, better hiring and internal development capabilities are particularly important for performance, while those firms without such capabilities may benefit from considering ways to circumvent the mobility frictions, including moving out of the focal state or lobbying for different noncompete laws.     

Lighting the way or stealing the shine? An examination of the duality in star scientists' effects on firm innovative performance

Do star employees enhance or constrain the innovative performance of an organization? Using data from 456 biotechnology firms between 1973 and 2003, we highlight the duality of the effects that stars have on firm performance. We show that while stars positively affect firms' productivity, their presence constrains the emergence of other innovative leaders in an organization. We find that firm productivity and innovative leadership among non‐stars in a firm are greatest when a star has broad expertise and collaborates frequently. We offer cross‐disciplinary insights into the role of human capital as a source of competitive advantage, suggesting that the value of human capital in a firm is contingent on the mutual dependence inherent in high‐status employees' relationships with other individuals in a firm. Copyright © 2014 John Wiley & Sons, Ltd.     

风险企业薪酬策略研究

本文讨论了基于人员流动研究风险企业薪酬激励的重要性，通过对Paul Oyer的薪酬策略数学模型的分析，讨论了该模型的缺陷并进行了改进，探讨了风险企业的所有者如何选择最优的薪酬策略模式，在保证对员工进行有效的激励的前提下，达到所有者权益最大化的目标。     

Leveraging foreign institutional logic in the adoption of stock option pay among Japanese firms

Research summary : We investigate why Japanese firms have adopted executive stock option pay, which was developed with shareholder‐oriented institutional logic that was inconsistent with Japanese stakeholder‐oriented institutional logic. We argue that Japanese managers have self‐serving incentives to leverage stock ownership of foreign investors and their associated institutional logic to legitimize the adoption of stock option pay. Our empirical analyses with a large sample of Japanese firms between 1997 and 2007 show that when managers have elite education, high pay inequality with ordinary employees, and when firms experience poor sales growth, foreign ownership is more likely associated with the adoption of stock option pay. The study shows the active role of managers in facilitating the diffusion of a new governance practice embodying new institutional logic. Managerial summary : Why have Japanese firms adopted stock option pay for executives? Inconsistent with Japanese stakeholder‐oriented tradition in corporate governance, such pay has been believed to prioritize managerial attention to the interests of shareholders over those of other stakeholders. However, to the extent that shareholders' interests are legitimate in the Japanese context, executives who have self‐serving incentives to adopt such pay can leverage the need to look after shareholders' interest in their firms to legitimize their decisions. In a large sample of Japanese firms, we find that foreign ownership (representing shareholders' interests) is more likely to be associated with the adoption of stock option pay when managers are motivated to receive such pay, such as when they have elite education, high pay inequality with ordinary employees, or poor sales growth. Copyright © 2015 John Wiley & Sons, Ltd.     

Stakeholder Orientation and Acquisition Performance

Research summary : In this article, we study how a firm's stakeholder orientation affects the performance of its corporate acquisitions. We depart from prior literature and suggest that orientations toward employees, customers, suppliers, and local communities will affect long‐term acquisition performance both directly and through its interactions with process characteristics, such as preacquisition relatedness and postacquisition integration. Analyses of data on a sample of 1884 acquisitions show overall a positive association between acquirers' stakeholder orientation and acquisition performance. In addition, we find support for a positive moderation of business relatedness on the performance impacts of stakeholder orientation. Structural integration has a similarly positive moderation effect only for some of the stakeholder categories. Managerial summary : Does collaboration with stakeholders during an acquisition pay off in terms of performance? The results of this research show that it is worth engaging stakeholders during the M&A process, but that the efficacy of involvement practices may depend on the type of stakeholders and the characteristics of the acquisition. While acquiring firms that take account of suppliers and local communities consistently overperform in their acquisitions, the inclusion of employees might be not beneficial (and even harmful) when the target firm operates in a dissimilar business or when managers do not plan to maintain it as a separate entity. Copyright © 2017 John Wiley & Sons, Ltd.     

Strategies for Integrating Stakeholders into Sustainability Innovation: A Configurational Perspective

Sustainability is a key driver of innovation for products, services, and business models. Sustainability innovations are aimed at improving the environmental, social, and economic performance of the innovated solution. Given the complexity of many sustainability challenges, leading innovators may seek to boost their innovation capacity by tapping into the ideas, knowledge, and expertise of their stakeholders. In doing so they need to consider how many and which stakeholders to integrate into new product development (NPD) processes, and at what stage. This study investigates stakeholder integration strategies associated with high sustainability performance of innovation. Building on the literatures of sustainability innovation and stakeholder integration in the context of NPD, this study developed a configurational model to analyze stakeholder integration strategies. The empirical data consisted of 80 interviews and documents from 13 medium to large companies and their stakeholders in Europe. Using the fsQCA method, it was found that there is not just one effective strategy but three stakeholder integration strategies for high sustainability performance of innovation. The results imply that deep organizational engagement with stakeholders is necessary for the achievement of high performance. Otherwise, the three strategies range from progressive openness, which allows stakeholders to exert a fundamental influence on the sustainability innovation, to limited openness toward stakeholder integration. With the early secondary strategy pointing to progressive openness, companies integrate secondary stakeholders early on and so maximize the influence of different views on the innovation. As to limited openness, companies following the selective strategy limit the number of stakeholder groups in NPD but are indifferent to the timing of these groups’ inputs. Finally, the fine‐tuning strategy is least open to atypical views as it restricts the share of secondary stakeholders and only allows external inputs after the fuzzy front end phase when key decisions regarding the innovation have been made.     

Shareholder value,stakeholder management,and social issues: what's the bottom line?

We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright © 2001 John Wiley & Sons, Ltd.     

Microfoundations for stakeholder theory: Managing stakeholders with heterogeneous motives

Instrumental stakeholder theory proposes a positive relationship between fairness toward stakeholders and firm performance. Yet, some firms are successful with an arms‐length approach to stakeholder management, based on bargaining power rather than fairness. We address this puzzle by relaxing the assumption that all stakeholders care about fairness. Empirical evidence from behavioral economics and social psychology suggests that firms face a population of potential stakeholders that consists not only of so‐called ‘reciprocators,’ who do care about fairness, but also of self‐regarding stakeholders, who do not. We propose that a fairness approach is more effective in attracting, retaining, and motivating reciprocal stakeholders to create value, while an arms‐length approach is more effective in motivating self‐regarding stakeholders and in attracting and retaining self‐regarding stakeholders with high bargaining power. Copyright © 2013 John Wiley & Sons, Ltd.     

Leveraging who you know by what you know: Specialization and returns to relational capital

Research Summary: This paper investigates the interaction effects of specialization and relational capital on performance. We distinguish between upstream and downstream relational capital and theorize that higher levels of specialization will buffer against decreases in upstream relational capital, because of deeper domain expertise and stronger downstream relational capital. Conversely, higher levels of generalization permit greater gains from increases in upstream relational capital, due to leverage across a more diversified downstream portfolio of activities. We test and find support for these hypotheses in the context of the US lobbying industry. Our study contributes to the strategic human capital literature by isolating the dimension of specialization and relational capital embodied within individuals and providing performance implications of the interactions. Managerial Summary: Both “what you know” and “whom you know” impacts performance. Generalists and specialists are different on the “what you know” dimension. On the “who you know” dimension, we distinguish between upstream (supplier) and downstream (client) relationships. We show that specialists are buffered by deeper downstream relations from performance declines when their powerful upstream connections lose power. Generalists benefit from broader networks when their upstream connections gain power. Thus, when the value of their relationships change, specialists and generalists should each assess when they can reap performance benefits, and when they need to bolster against adversities. For firms, our study suggests hiring the right mix of specialists and generalists is important to reduce risks from relational losses while enjoying the performance benefits from relational gains.     

With greater power comes greater responsibility? takeover protection and corporate attention to stakeholders

Using takeover protection as an indicator of corporate governance, this study examines how an exogenous shift in power from shareholders to managers affects corporate attention to non‐shareholding stakeholders. Two competing hypotheses are entertained. The shareholder view predicts that stronger takeover protection will lead to a decrease in corporate attention to shareholders and non‐shareholding stakeholders alike, as managers divert resources from shareholders to the pursuit of their private interests. The stakeholder view, in contrast, predicts that stronger takeover protection will increase corporate attention to non‐shareholding stakeholders. Because catering to non‐shareholding stakeholders contributes to the long‐term value of the firm, managers will be more likely to attend to those stakeholders when relieved from short‐termism triggered by the threat of hostile takeovers. Using a sample of 878 U.S. firms from 1991 to 2002, the study finds that an exogenous increase in takeover protection leads to higher corporate attention to community and the natural environment, but has no impact on corporate attention to employees, minorities, and customers. Additional analyses show that firms that increase their attention to stakeholders experience an increase in long‐term shareholder value. These findings provide additional evidence that relief from short‐termism is a likely source of the increase in corporate attention to non‐shareholding stakeholders following the increase in takeover protection. Copyright © 2008 John Wiley & Sons, Ltd.     

Disruptive technologies, stakeholders and the innovation value-added chain: a framework for evaluating radical technology development

Contemporary frameworks for evaluating technological innovations contend that innovative success is dependent upon the ability of firms to acquire and assimilate new knowledge without disrupting value chain members such as suppliers, customers and complementary innovators. These frameworks, however, provide little advice on how to deal with radical, controversial innovations that may also introduce new undesirable environmental, health, and social side affects. In addition to technological, commercial and organisational uncertainties, the developers of such technology typically must resolve social uncertainties, a particularly difficult activity because of the added complexities and often conflicting and/or difficult-to-reconcile concerns from secondary stakeholders. Attempts must be made to address the potential unintended and unforeseen consequences of the technology, as well as its potential benefits, if it is to be successfully applied. Using Monsanto's development of agricultural biotechnology as an illustration, we suggest an evaluation framework that incorporates stakeholder theory, innovation management concepts and Popper's evolutionary learning methodology of science and its extension to social issues.     

Organization–stakeholder fit: A dynamic theory of cooperation,compromise, and conflict between an organization and its stakeholders

Research Summary : We advance the concept of organization–stakeholder fit (O–S fit) to explain cooperative behavior between an organization and its stakeholders. O–S fit describes the compatibility that exists between an organization and a stakeholder when their characteristics are well matched. We highlight two dimensions of O–S fit: value congruence, or the supplementary fit of organizational and stakeholder values, and strategic complementarity, or the complementary fit of strategic needs and resources. For each dimension, we detail the unique relational factors—including core elements of trust, predictability, attraction/exchange, and communication—that motivate cooperation. We then explicate the ways in which value congruence and strategic complementarity dynamically interrelate over time. Finally, we consider how organization‐stakeholder misfit may result in alternative relational behaviors, such as conflict or compromise. Managerial Summary : We develop a new way of thinking about the relationship between organizations and stakeholders. Recognizing that positive relationships require a degree of fit or compatibility, we argue that cooperative behavior between an organization and its stakeholders is maximized when relational partners share both core values and strategic priorities. We explain that high fit along these two dimensions increases trust, relational predictability, attraction/exchange, and communication. We also describe how positive relationships might be formed with fit along only one dimension, and how negative relationships might result in the presence of misfit. Ultimately, we suggest that managers who want to foster positive relationships with stakeholders should concentrate on aligning their values and priorities, rather than simply concentrating on one or the other.     

企业社会责任与财务绩效关系的实证研究——利益相关者视角的面板数据分析

本文按照资本形态的不同,将利益相关者划分为货币资本利益相关者、人力资本利益相关者、生态资本利益相关者、社会资本利益相关者,构建了企业社会责任的利益相关者模型。以46家上市公司2003—2007年的数据为依据,运用面板数据模型,研究了企业社会责任与财务绩效之间的关系。研究表明:我国上市公司已经开始关注其社会责任,但社会责任的披露信息仍然很少;大多数企业社会责任变量对当期财务绩效的影响为负;长期来看,企业履行社会责任对其财务绩效具有正向影响作用。     

Let them go? How losing employees to competitors can enhance firm status

Research summary : Because employees can provide a firm with human capital advantages over competitors, firms invest considerably in employee recruiting and retention. Departing from the retention imperative of strategic human capital management, we propose that certain employee departures can enhance a firm's competitiveness in the labor market. Specifically, increased rates of career‐advancing departures by a firm's employees can signal to potential future employees that the firm offers a prestigious employment experience that enhances external mobility opportunities. Characterizing advancement based on subsequent employers and positions, we analyze data on U.S. law firm hiring and industry surveys of perceived firm status between 2004 and 2013. We find that increased rates of employee departures lead to increases in a firm's prestige when these departures are for promotions with high‐status competitors. Managerial summary : Firms often emphasize employee retention. Employee departures, especially as a result of being hired away by competitors, are often viewed as threats to a firm's competitive advantage. We propose, however, that employee retention need not be an unconditional strategic imperative. We argue that certain employee departures can enhance a firm's competitiveness in the market for human capital by signaling to potential employees that the firm offers a prestigious employment experience, which can help them obtain attractive positions with other employers. Analyzing data on U.S. law firm hiring and industry surveys of firm associates between 2004 and 2013, we find that increased rates of employee departures lead to increases in a firm's prestige when these departures are for promotions with high‐status competitors. Copyright © 2016 John Wiley & Sons, Ltd.     

Employee Mobility and Interfirm Relationship Transfer: Evidence from the Mobility and Client Attachments of United States Federal Lobbyists, 1998–2014

Research summary : Employee mobility can erode competitive advantage by facilitating interfirm knowledge and relationship transfer. This study investigates the latter and identifies factors that influence the likelihood of its occurrence. Using a novel database that tracks the employment and client attachments of U.S. federal lobbyists, I show that repeated exchange with employees (firms) increases (decreases) the likelihood clients follow employees who switch firms. Structurally, multiplexity reduces the likelihood of client transfer and weakens the effect of employee–client repeated exchange, with the multiplexity effect strongest when team members have specialized expertise. By examining the main and interactive effects of repeated exchange, multiplexity, and specialized human capital, this study extends prior work by demonstrating how individual, organizational, and structural relationship characteristics affect client transfer and retention ex‐post employee mobility . Managerial summary : When do clients follow employees who switch firms? What can firms do to guard against it? These questions are important in service‐based industries where clients may become loyal to individual employees within the firm rather than to the firm itself. This study provides evidence that helps practicing managers: (a) identify which clients are most at risk of defecting if employees exit, and (b) structure relationships in ways that mitigate the likelihood that employee exit results in client loss. Findings suggest that a client is more likely to defect when she has extensive history working with the exiting employee, particularly if the employee was the sole link between the client and firm. Managers, however, can reduce the risk of client loss following employee exit by structuring relationships so that clients work with teams of employees rather than exclusively with an individual and by increasing the degree of specialization within these teams . Copyright © 2017 John Wiley & Sons, Ltd.     

Stakeholder relations and the persistence of corporate financial performance

We examine the effect of a firm's relations with its nonfinancial stakeholders, including its employees, suppliers, customers, and communities, on the persistence of both superior and inferior financial performance. In particular, integrating and extending the resource‐based view of the firm and stakeholder management literatures, we develop the arguments that good stakeholder relations not only enable a firm with superior financial performance to sustain its competitive advantage for a longer period of time, but more importantly, also help poorly performing firms to recover from disadvantageous positions more quickly. The arguments are supported by the analysis of a series of first‐order autoregressive models. Our findings further suggest that the positive effect of good stakeholder relations on the persistence of superior performance is not as strong as that of some other firm resources, such as technological knowledge, but it is the only factor examined that promises to help a firm recover from inferior performance. Therefore, the role of positive stakeholder relations in helping poorly performing firms recover is found to be more critical than its role in helping superior firms sustain their performance advantage. Copyright © 2009 John Wiley & Sons, Ltd.     

Human capital matters: Market valuation of firm investments in training and the role of complementary assets

Research summary: This article empirically examines the economic value to firms of investing in the training of their employees and firm‐level factors that influence how much the firms benefit. Event study methodology is used to obtain a measure of the economic impact of information regarding a firm's human capital management investments and policies. Subsequent regression analyses are then used to test hypotheses regarding possible complementary relationships between firm‐level factors and human capital investments. Results provide robust support for the proposition that effective investments in human capital and training matter, and that these human capital investments are more impactful when combined with complementary assets of R&D, physical capital, and advertising investments . Managerial summary: Do firm investments in training and the development of employee human capital matter with regard to financial performance? We find that, yes, these investments do matter. Our results show that managers who view employee human capital as an asset to be invested in and developed can expect to outperform those who view it as a cost to be minimized. In addition, we find that these human capital investments will be of even greater economic value to firms when they have made complementary investments in R&D, physical capital, and advertising . Copyright © 2016 John Wiley & Sons, Ltd.