Knowledge that Transforms

Research Summary Using 138 firm‐year observations for 46 U.S.‐listed firms headquartered in tax havens from 2004 to 2013, this study employs a matched‐sample design and documents that the level of corporate social responsibility (CSR) engagement is relatively lower for firms with tax haven headquarters (HQ) than for those with U.S. HQ. This result is robust to the use of firm philanthropy as a measure of CSR engagement and holds true in an environment with high CSR expectations from U.S. communities. In an alternative setting of HQ relocations within the United States, we use a difference‐in‐differences methodology and find that when firms move their HQ to states with lower corporate income taxes, they decrease the level of CSR engagement. Overall findings are consistent with corporate culture theory. Managerial Summary This article examines CSR engagement of U.S.‐listed firms headquartered in tax havens. Using data from 2004 to 2013, we find that firms with tax haven HQ exhibit a relatively lower level of CSR engagement than otherwise similar firms headquartered in the United States. In the same vein, tax‐haven‐headquartered firms tend to give less to charity, even when they face high CSR expectations from U.S. communities. In an alternative setting of HQ relocations within the United States, we document that the level of corporate social engagement is more likely to drop for firms that move their HQ to lower‐tax regions. We interpret our findings as evidence of corporate culture affecting both the tax avoidance and CSR activities of firms headquartered in tax havens.

Research Summary Over half a century after Merton's (1963) description of simultaneous discoveries “as a strategic research site” for social science, they are hardly ever studied. This paper illustrates the potential of this phenomenon as a research tool. First, I describe their vast theoretical potential for strategy and innovation research and review prior works on the topic. Second, I describe a new method that generates lists of recent simultaneous discoveries in science systematically and automatically using openly available sources. Third, I make the resulting dataset available for anyone to use. Managerial Summary Despite much anecdotal evidence that different people can simultaneously come up with essentially the same creative idea, little attention has been given to this phenomenon. Yet, “idea twins” have a deep impact on creative workers, and can teach us a lot about strategy and innovation. In this paper, I describe their potential as a research tool and the types of questions they can help to answer. I also propose a method to “harvest” simultaneous discoveries in science and provide a dataset that includes thousands of examples.

Research Summary Based on agency theory, CEOs with greater risk aversion should be given greater incentive‐based compensation to motivate risk taking. We explore whether new CEOs receive initial pay packages that follow this recommendation, or instead receive pay packages that mirror their risk preferences. Rather than finding support for the agency theory perspective, we find that new CEOs are compensated in the way that reinforces their existing risk preferences. Specifically, using a CEO's political orientation to capture relative risk tolerance, we find that conservative‐leaning CEOs receive relatively less performance‐based pay than their liberal‐leaning counterparts. Supplemental analyses suggest this occurs through both a matching and tailoring process, whereby boards offer similar pay packages from CEO‐to‐CEO, but modify them based on differences in risk tolerances. Managerial Summary When designing a new CEO's pay contract, what proportion of the total compensation should be guaranteed versus performance based? To encourage risk taking, most researchers suggest that CEOs with greater risk aversion should have a pay mix that is more heavily weighted toward performance‐based pay. We find that the opposite occurs; new CEOs who are more risk averse tend to receive relatively less performance‐based pay than new CEOs who are more risk tolerant. This appears to occur because CEOs are attracted to firms that offered the prior CEO a pay package that appeals to the new CEO's risk tolerance. Our results also suggest that risk‐seeking CEOs' strategic actions are more strongly influenced by performance‐based pay, while more risk‐averse CEOs seem relatively unaffected by pay mix.

Research Summary In this article, we examine the effects of institutional entry barriers on incumbent firms' technological diffusion. In particular, we combine new institutional economics and nonmarket perspectives to build a theoretical framework about the impact of local entry barriers on community‐based firms and how they affect incumbent firms' technology diffusion. We theorize that the local institutional environment reduces technology diffusion because of reduced entry threat, but incumbents' capabilities and the intensity of competition from private firms may moderate this effect. We exploit the exogenous geographical variation of alternative entry regimes in the U.S. broadband industry to causally capture incumbents' technology adoption strategies. This article suggests that local institutional contexts that advantage private firms over nonprivate firms may generate divergent spatial technology diffusion processes within and across firms. Managerial Summary In this article, we examine how firms adjust their technology adoption to their local institutional environment. We argue and empirically show that local institutions that restrict new entry by nonprivate firms reduce private incumbents' technology diffusion but the effect depends on firm and market characteristics. In particular, national incumbents are more resilient because of their capabilities while local competition by private firms moderates the negative effect of reduced entry threat. We use the context of the U.S. broadband industry to examine the effect of local institutions that provide advantages to some firms over others. Our results suggest that managers need to adjust their technology adoption strategies to the local regulatory environment taking into account firm's capabilities and market competition.

Research summary Women continue to be disproportionately underrepresented in new venture creation. We investigate whether and how founders can differently influence future entrepreneurial career choices of their male and female joiners. Using a large sample of startup firms with personnel where founders interact closely with joiners, we demonstrate that founders have a strong influence on a joiner's entrepreneurial career choice if both are female. We find empirical support for role modeling as a key underlying mechanism, accounting for alternative explanations such as selective matching based on gender and push‐driven factors. These findings increase our understanding of the roles of socialization and organizational context in shaping the career outcomes of employees, and provide evidence of a multiplier effect of female entrepreneurs. Managerial summary Women are less likely to be entrepreneurs than men. We investigate whether working in a startup founded by a woman instead of a man influences individuals' decision to become an entrepreneur later. We find this to be the case for women. This result is best explained by female founders acting as role models for their female employees in male‐dominated domains. Female founders able to break gender stereotypes seem to have an influence on the career choices of their female employees, especially among those who have lacked contact with entrepreneurs. Moreover, this influence is stronger if the female founder and employee have similar backgrounds. These findings confirm the importance of social interactions at work and suggest new ways to inspire more women to launch startups.

Research summary Building on the search‐based view of innovation, we develop a framework regarding how Google guides innovative search behavior. We exploit an exogenous shock, China's unexpected blockade of Google in 2014, and adopt a difference‐in‐differences approach with a matched sample of patents from China and nearby regions to test our predictions. Our analyses show that the blockade negatively affected inventors in China to search distantly in technological and cognitive spaces compared to those in the control group who were presumably unaffected by the event. The impact was less severe for inventors with larger collaboration networks but became more pronounced in technological fields proximate to science. Our findings contribute to innovative search literature and highlight the theoretical and practical importance of Internet technologies in developing valuable inventions. Managerial summary Inventors nowadays depend heavily on Internet search to access information and knowledge. They therefore become vulnerable to barriers imposed on their online search. In this study, we find that China's unexpected blockade of Google and its affiliated services altered the searching behavior of inventors in China such that they became less able to seek distant knowledge. This impact was further contingent on the availability of offline knowledge channels and the reliance of each technological field on science. We also find that the economic value of their inventions decreased due to the blockade. Our findings reveal a neglected but consequential aspect of Internet censorship beyond the commonly found media effect and offer important implications to practitioners and policymakers.

Research Summary We study how spinout founders' human capital and parent size relate to founders' propensity to stay in the same industry as their parents or to go outside the industry. Individuals with high human capital face a higher performance penalty if they form spinouts outside the parent industry, but they also face greater deterrence from large parents if they stay in that industry. Using matched employer–employee data on spinout founders and their coworkers, we find that individuals with higher human capital are less likely to form spinouts in distant industries than in the parent's industry. Further, we find that as parent size increases, such individuals are less likely to form spinouts in the parent's industry and more likely to form spinouts in distant industries. Managerial Summary We examine how the ability of potential entrepreneurs affects whether they found a startup in the same industry as their employers (“parents”) or in a different industry, and how that choice relates to the size of the parents. We find that founders with high ability are more likely to form a startup in the parents' industry. However, as the parent size increases, they are more likely to form a startup in a different industry. These findings suggest that while high‐ability founders want to benefit from their industry expertise by forming a startup in the parents' industry, some of them are dissuaded from doing so either because large parents try to retain high‐ability founders or because such founders want to avoid potential competition with large parents.

Research Summary This study examines the relationship between external hiring and the allocation of decision authority within organizations, and how they interact to affect organizational change and innovation. We test our hypotheses using panel data for a nationally representative sample of businesses in Canada. We find that the practice of external hiring of managers and high‐skilled nonmanagerial employees predicts greater decision authority allocated to each respective level of the hierarchy. Reallocation of authority is positively moderated by the strategic priority of (a) workplace reorganization for managerial hiring, and (b) new product development for nonmanagerial hiring. We also find evidence of related associations with workplace reorganization and product innovation. The findings suggest that decision authority allocation is essential to effectively utilize externally acquired human capital. Managerial Summary This study examines how the effectiveness of hiring managers and high‐skilled nonmanagerial employees from outside the firm is related to how much decision authority they are granted. We show that for both types of employees, external hiring predicts greater decision authority allocated to each respective level of the organization. For managers, external hiring predicts a greater likelihood of organizational change when more decision authority is granted. Similarly, for high‐skilled nonmanagerial employees, external hiring predicts the development of more novel innovations when more decision authority is given. Overall, the results suggest that hiring talent from outside the firm by itself is not sufficient to expect benefits to the organization—instead, firms must also empower outside hires with the authority needed to translate their knowledge into performance.

Research Summary Strategy formation is central to why some firms seize novel opportunities while others fail. We explore a core dilemma of strategy formation in entrepreneurial settings—whether to learn a novel strategy one domain at a time (modular) versus assemble a complex strategy of coherent activities across all domains at once (integrative). By studying six ventures, we develop a theoretical framework for how entrepreneurs effectively form novel, complex strategy: Decision weaving . They (a) employ sequential focus (not parallel), (b) pause at plateaus (not optima), and (c) deploy stepping stones (not leaps) in background domains. These behaviors enable both fast, effective learning and evolving yet holistic understanding of an emerging strategy. Overall, we contribute to the microfoundations of strategy by proposing a cognitively sophisticated, yet realistic strategist. Managerial Summary Strategy formation is central to why firms seize novel opportunities while others fail. By comparing three venture‐pairs, we develop a fresh framework for strategy formation in nascent markets where strategy is both novel and complex: Decision weaving. Effective strategists: (a) use sequential focus (not parallel) to learn about successive focal strategic domains, (b) pause at learning plateaus to consolidate that knowledge about a focal domain, and (c) use stepping stones to make progress in background domains without losing focus. These behaviors enable both fast, effective learning, and evolving yet holistic understanding of an emerging strategy. More importantly, these behaviors set the stage for rapid and profitable scaling (i.e., growth).

Research Summary Literature suggests that firms may approximate ambidexterity over time by alternating between periods of exploration and exploitation. We theorize and empirically test performance implications of two types of temporal transition between exploration and exploitation and their boundary conditions. We find that a discontinuous jump has a negative effect on firm performance while an incremental transition has a positive effect. We also find that the role of firm resources and particularly that of non‐scale‐free resources is critical in shaping the performance effects of the two types of temporal transition. Our findings indicate that the two types of temporal transition have distinct advantages and disadvantages. Managerial Summary Firms need to make use of old ideas and search for new ideas to remain competitive. We argue that firms take different approaches to achieve this goal. We find that firms that alternate between old and new ideas in an incremental and continuous manner perform better than firms that switch abruptly between old and new ideas. We also find that the performance effects of the two approaches are more pronounced for firms with limited resources. This finding warns managers of the danger of an abrupt and discontinuous jump between old and new ideas, especially for firms with limited resources.