Strengthening organizational ambidexterity with top management team mechanisms and processes

Abstract

Organizational ambidexterity is the organizational capability to simultaneously pursue explorative and exploitative innovation strategies. Studies have examined the Top Management Team (TMT) actions and decisions with the ambidextrous orientation of a firm. Further, studies have also shown that a behaviourally integrated TMT is positively associated with organizational ambidexterity. However, there has been limited research examining the antecedents to the behaviourally integrated TMT. Anchored in the upper echelons perspective, we have examined the influence of TMT processes and mechanisms on organizational ambidexterity. The TMT is observed to positively influence ambidexterity by enhancing the firm’s ability to meet the differentiation-integration challenges, and by facilitating the effective deployment of ambidextrous Human Resource (HR) architectures for employee learning. Thereby, this investigation examines the effect of TMT processes and mechanisms in enabling structural as well as contextual ambidexterity. The results from a sample of 78 hi-tech Small and Medium Enterprises (SMEs) across different industries were analysed using partial least squares structural equation modelling. We find the mediating role of TMT behavioural integration in the effect of TMT connectedness and TMT cross-functional interfacing mechanisms on organizational ambidexterity. However, our results show that rewards contingent on organizational performance do not motivate the TMT members to facilitate organizational ambidexterity. The results from this study lend support to the upper echelons perspective and add to two distinct streams of literature namely organizational ambidexterity and behavioural integration.     

Credit Spread Changes and Equity Volatility: Evidence from Daily Data

We investigate the determinants of daily changes in credit spreads in the U.S. corporate bond market. Using a sample of liquid investment grade and high‐yield bonds, we show that both systematic bond and stock market factors as well as idiosyncratic equity market factors affect changes in the yield spread at the daily frequency. In particular, we find that increase in stock market volatility has a positive effect on changes in the spread of corporate bonds over the corresponding Treasuries beyond that captured by standard term structure variables. Our results show that there is an almost contemporaneous inverse relationship between changes in the bond yield spread and the stock return of the issuing firm.     

Modeling aggregate air-travel itinerary shares: logit model development at a major US airline

This study reports the results of aggregate air-travel itinerary share models estimated at the city-pair level for all city-pairs in the US. These models determine the factors that influence airline ridership at the itinerary level and support carrier decision-making. The models are estimated using aggregate multinomial logit methodology and use comprehensive data. Independent variables for the models measure various itinerary service characteristics: level-of-service, connection quality, carrier, carrier market presence, fares, aircraft size and type, and time of day. The results are intuitive, and validation tests indicate that the models outperform existing methods. Finally, the impacts of changing various itinerary service attributes on carrier market share are discussed.     

Audit committee financial expertise and properties of analyst earnings forecasts

An important role of financial accounting information is to aid financial statement users in forming expectations about the firm's future earnings. Prior research finds that accounting financial expertise of the audit committee is associated with higher financial reporting quality. We extend this literature by examining the association between audit committee financial expertise and analysts' ability to anticipate future earnings. We find a significant association between accounting financial expertise on the audit committee and analyst earnings forecasts that are more accurate and less dispersed. In contrast, we do not find a significant association between non-accounting financial expertise (i.e., supervisory expertise) and forecast accuracy or forecast dispersion. These findings contribute to our understanding of the benefits of accounting expertise in audit committees by demonstrating an association between accounting financial expertise and improvements in analyst earnings forecasts.     

The influence of mergers on firms' product‐mix strategies

This study draws on the institutional and resource‐based theories of the firm and examines whether multi‐product firms use mergers as a strategic tool to reconfigure their product‐mix toward high‐profit products. We propose that mergers facilitate product‐mix reconfiguration by relaxing institutional and organizational constraints on resource redeployment. Analysis of data from the U.S. hospital industry reveals that, relative to non‐merging hospitals, merging hospitals increased their presence in profitable, insured services but did not shift away from low‐profit services used by the uninsured. Copyright © 2004 John Wiley & Sons, Ltd.     

Determinants of corporate cash holdings: Evidence from spin-offs

We study the factors that influence the cash allocation decision around a spin-off, using variables suggested by the trade-off theory, and controlling for the possible endogeneity of leverage and cash ratios. Spin-offs provide an opportunity to examine the determinants of cash allocation at the margin at the time of creation of a new entity. Our results indicate that managers allocate higher cash ratios to smaller firms, and firms with high research and development expense ratio, low net working capital ratio, and low leverage. Thus, higher cash ratios are correlated with difficulty of raising external capital and reduced availability of cash from internal sources. In addition, managers also base the cash allocation on observable immediate growth opportunities instead of on long-term possible growth. An analysis of excess cash ratios, defined as the difference between the actual and predicted cash ratios, indicate that firms are, on average, allocated less cash than suggested by trade-off models, and this deviation in allocated cash from predicted levels is explained only by concurrent profitability of the firms (a pecking order theory implication).     

The Simultaneous Relation Between Auditor Switching and Audit Opinion: An Empirical Analysis

Previous studies examining the relation between the audit opinion and auditor switching assume a one-way causation, with the issuance of a qualified opinion triggering a switch. However, analytical studies dealing with auditor independence issues (e.g., Magee and Tseng, 1990; Dye, 1991; Teoh, 1992) suggest an opposite causation, in which the auditor is less likely to qualify the opinion for a client who may switch auditors. Some evidence of an opposite causation is provided by Krishnan (1994), who finds that auditors treat switchers more conservatively (relative to non-switchers) in issuing the audit opinion. The causation between switching and the audit opinion is clearly important for policy decisions regarding both opinion shopping and auditor independence. In this paper, we test the two-way causation hypothesis and find evidence in support of a two-way causation. Our simultaneity-adjusted estimates confirm previous findings of a positive effect of a qualified opinion on switching (Chow and Rice, 1982; Craswell, 1988; Citron and Taffler, 1992). However, we find in addition that auditors are more likely to issue qualified opinions to switchers. This finding does not support the analytical studies cited earlier.     

Event study with imperfect competition and private information: earnings announcements revisited

Although prior research documents that prices respond to earnings announcements, only a little of the price variation is explained by these announcements. To further investigate the properties of the information environment around these announcements we use NYSE TAQ data and compute the maximum likelihood estimates (MLEs) of the primitive parameters of a Kyle (Econometrica 53(6):1315–1336, 1985) type model within and around earnings announcement windows. These include the precision of fundamentals given only public information, the precision of private signals, and the variance of uninformed liquidity trading (noise). We find that liquidity noise is higher while the precision of beliefs given only public information is lower within an earnings announcement window. The precision of private information is higher in an event window, consistent with greater information acquisition to try and interpret a public announcement. We also document that Kyle’s λ is higher in an event window, showing an overall increase in information asymmetry. Our overall findings suggest that the earnings announcement window is distinguished from the preceding and subsequent windows not by being a period with more public information but as a period with different public information.