Knowledge that Transforms

Research summary: Behavioral Theory highlights the crucial role of social comparisons in attention allocation in adaptive aspirations. Yet, both the specification of social reference points and the dynamics of attention allocation have received little scholarly examination. We address performance feedback from two social reference points relative to divisions in multidivisional firms: economic reference point and political reference point. Comparing divisional performance with the two reference points can give consistent or inconsistent feedback, which has important consequences for the dynamics of attention allocation in adaptive aspirations. We find consistent feedback leads to more attention to own experience, while inconsistent feedback results in more attention to the social reference point the focal division underperforms. Results reveal that political reference point plays an important role in determining managerial attention allocation . Managerial summary: This article is based on how goal‐based performance of divisions relative to both their relevant external market rivals and sister divisions in multidivisional firms influences corporate resource allocation. As a result, various combinations of performance against the two groups of peers drive the reallocation of divisional management attention. We show that specific attention shifts occur on average as a function of the focal division's performance relative to the marketplace performance and that of sister divisions . Copyright © 2016 John Wiley & Sons, Ltd.

Research summary: P revious studies have mixed findings on the relation between corporate socially responsible policies and firm performance. This paper focuses on a specific type of corporate social responsibility—corporate sexual equality, measuring how a firm treats its lesbian, gay, bisexual, and transgender ( LGBT ) employees, consumers, and investors—and examines whether and how it relates to firm performance. Using a longitudinal dataset of public firms in the U . S . during the period of 2002–2006, we demonstrate that firms with a higher degree of corporate sexual equality have higher stock returns and higher market valuation. We also identify one of the mediating channels, the labor market channel, that brings higher productivity to firms that embrace sexual equality . Managerial summary: C orporate sexual equality measures how a company treats its lesbian, gay, bisexual, and transgender ( LGBT ) employees, consumers, and investors. It is an important dimension of corporate social responsibility policies and diversity management. Using a longitudinal dataset of public firms in the U . S . during the period of 2002–2006, we demonstrate that firms with a higher degree of corporate sexual equality have higher stock returns, higher market valuation, and higher labor productivity. Our findings suggest that discriminatory hiring behaviors based on sexual orientation hurt employers and shareholders financially and that implementing corporate sexual equality policies can enhance firms' financial performance, generating competitive advantages in labor markets and mutual benefits between employers and employees . Copyright © 2016 John Wiley & Sons, Ltd.

Research summary : M ost strategic management studies adopt an average‐centered view that uses the central tendency to explain between‐group variation in performance (i.e., performance differences between business units, firms, industries, and countries). In this study, we explain within‐group variation using a variance‐centered view that focuses on the peripheral characteristics of performance distributions as defined by skew and heavy tails (i.e., variance and kurtosis). Drawing on performance feedback theory, we hypothesize that successful firms tend to develop a positive skew in their performance distributions, which we call a “positive skew effect” in this study, and that heavy tails moderate this effect. Our analysis of the performance of a group of foreign affiliates provides general support for our hypotheses at both the firm and segment (industry and country) levels . Managerial summary : M anagers of multi‐business firms use various approaches to improve the aggregate performance of their business units. Some expand the range of upper performance outliers (exploration) or reduce the range of lower outliers (downsizing); others improve the performance of current business units (exploitation). We find that firms with superior performance tend to have a balanced mix of the three approaches. We also find that segments (countries and industries) with higher mean performances provide environments that facilitate the entry of productive firms and the exit of unproductive firms and provide environments in which incumbents can further improve their performance by learning from others. We observe that successful firms and segments have a positive skew in their performance distributions, which we call a “positive skew effect.” Copyright © 2016 John Wiley & Sons, Ltd.

Research summary : This article provides the first review of a growing line of scholarly work in strategy that we refer to as “value capture theory.” The common thread in this work is its use of cooperative game theory as a general, mathematical foundation upon which to build a deep understanding of firm performance in market settings. Our review: (1) describes the primary elements of the theory; (2) highlights important blindspots that it resolves with respect to existing theoretical approaches; (3) calls attention to several of its novel insights; and (4) summarizes a myriad of applications and empirical studies that have appeared in recent years using value capture theory . Managerial summary : Traditionally, theoretical claims in strategic management have been supported by informal, qualitative reasoning. Recently, however, a new line of theoretical work based upon mathematical methods, known as “value capture theory,” has been gaining in popularity. This article reviews the recent advances in this line with a particular emphasis upon a number of its important insights, several of which challenge longstanding propositions from the traditional line. For managers, the formal nature of value capture theory is well‐aligned with data‐driven analyses of strategic situations . Copyright © 2016 John Wiley & Sons, Ltd.

Research summary: Reorganization has been proposed as a key dynamic capability. This study compares the performance outcomes of two forms of reorganization, differing in their pervasiveness: organizational restructuring and organizational reconfiguration. Our dynamic panel data analysis of large U.S. corporations between 1985 and 2004 finds contrasting performance outcomes for these two forms of reorganization: in general, the more pervasive restructuring is associated with positive performance outcomes, while the more limited reconfiguration is associated with negative performance outcomes. However, outcomes vary by environment. Consistent with dynamic capabilities theory, we find evidence that in dynamic environments reconfiguration outcomes turn positive, while restructuring outcomes turn negative. We discuss implications for dynamic capabilities theory and managerial policy . Managerial summary: Firms need to reorganize in order to adapt to change. This study compares the financial performance consequences of two forms of reorganization: organizational restructurings and organizational reconfigurations. Restructurings involve fundamental change in organizational principles and are typically irregular; reconfigurations involve incremental change and are frequent. Examining a set of large U.S. corporations, we find these two forms of reorganization have contrasting financial consequences, depending on context. In the general case, fundamental restructurings have positive consequences, while incremental reconfigurations have negative consequences. However, this general result reverses in specifically dynamic environments, where reconfigurations are positive financially, while restructurings are negative. We conclude that the relative frequency of reconfigurations helps adaptation in dynamic environments. Managers should choose forms of reorganization according to the rate of environmental change . Copyright © 2016 John Wiley & Sons, Ltd.

Research summary : Strategy scholars increasingly conduct research in nontraditional contexts. Such efforts often require the assistance of third‐party intermediaries who understand local culture, norms, and language. This reliance on intermediation in primary or secondary data collection can elicit agency breakdowns that call into question the reliability, analyzability, and interpretability of responses. Herein, we investigate the causes and consequences of intermediary bias in the form of faked data and we offer Response Pattern Analysis as a statistical solution for identifying and removing such problematic data. By explicating the effect, illustrating how we detected it, and performing a controlled field experiment in a developing country to test the effectiveness of our methodological solution, we encourage researchers to continue to seek data and build theory from unique and understudied settings . Managerial summary : Any form of survey research contains the risk of interviewers faking data. This risk is particularly difficult to mitigate in Base‐of‐Pyramid or developing country contexts where researchers have to rely on intermediaries and forms of control are limited. We provide a statistical technique to identify a faking interviewer's ex post data collection, and remove the associated data prior to analysis. Using a field experiment where we instruct interviewers to fake the data, we demonstrate that the algorithm we employ achieves a 90 percent accuracy in terms of differentiating faking from nonfaking interviewers . Copyright © 2016 John Wiley & Sons, Ltd.

[Research summary: The importance of firm-stakeholder relationships is gaining increasing attention. Although a theory of the drivers and consequences of stakeholder pressure has been developing, it focuses on pressures from organized stakeholders such as shareholders, NGOs, and activists, and does not incorporate the emerging possibility that individual voices may matter. By exploring corporate Twitter, which facilitates movement of individual stakeholders such as customers to a higher stakeholder class by providing them with a greater sense of power and urgency, we study the circumstances under which customer voices significantly affect analyst stock recommendations. We find that favorable reactions to firm-initiated messages matter, directly or indirectly, depending on the messages’ growth implications. Customer-initiated negative messages have a significant impact only with high volume and formal institutions that support customer opinions. Managerial summary:Social media is increasingly used by firms for disclosing information and engaging stakeholders. Yet, we know little about whether and how social media usage matters. We show how corporate Twitter usage may influence analyst stock recommendations. Our interviews of securities analysts suggest that social media is not institutionalized yet, but increasingly used as a source of channel checks, especially for vibes, validations, and so on. Our analyses of corporate Twitter accounts show that both firm-initiated and customer-initiated tweets can have significant impact on analyst recommendations under certain conditions. For firm-initiated tweets, the extent of retweets is an important factor, along with the content of tweets, in particular, growth implications. For customer-initiated tweets, negative tweets matter, but only with high volume and regulatory structure that supports customer protection.]

[Research summary: While alliance researchers view prior partner-specific alliance experience as influencing firms' subsequent alliance or acquisition decisions, empirical evidence on the alliance versus acquisition decision is surprisingly mixed. We offer a reconciliation by proposing and testing an analytical framework that recognizes prior partner-specific experiences as heterogeneous along three fundamental dimensions: partner-specific trust, routines, and value certainty. This allows us to use a policy-capturing methodology to rigorously operationalize and test our mechanism-level predictions. We find that all three mechanisms can increase the likelihood of a subsequent alliance or acquisition, and in terms of the comparative choice between alliances versus acquisitions, partner-specific trust pulls towards alliances, and value certainty pulls towards acquisitions. We conclude with a discussion of the theoretical and empirical implications of our approach and method. Managerial summary: This study focuses on an important corporate decision: When a firm has had an alliance with another firm, how would that experience affect the likelihood of a future alliance or acquisition with that same firm? We first suggest that it will depend on three factors: the level of trust that existed in that prior alliance, the extent to which specific work routines were developed, and the degree to which the firm was able to confidently assess the value of the partner firm 's resources. We then find that trust is a particularly strong predictor of future alliances, while confidence regarding value more strongly predicts future acquisitions. In this way, we demonstrate more precisely how past corporate choices can affect (consciously or unconsciously) future ones.]

Research summary : T his study employs longitudinal multilevel modeling to re‐examine the relative importance of business unit, corporation, industry, and year effects on business unit performance. Total variance in performance is partitioned into stable variance and dynamic variance. Sources of these two parts of variance are explored. Empirical results indicate that (1) stable effects of corporation‐industry interaction are substantially important, but were unequally confounded with stable effects of business unit, corporation, and industry in results of previous studies; (2) stable effects of corporation, industry, and corporation‐industry interaction, taken together, are of similar relative magnitude to stable effects of business unit; and (3) random and nonlinear year effects are very important in explaining dynamic variance. These findings extend our theoretical and empirical understanding of performance variability . Managerial summary : W hether stable or changing, business units themselves, corporate‐parents, and industries influence business unit operations. This article investigates the relative effects of these factors on business unit performance. Although the traditional wisdom is that business unit is critical, this research finds that corporate‐parent, industry, and interactions between these, taken together, are as influential as business unit. Specifically, interactions between corporate‐parent and industry are important for over‐time average business unit performance, indicating that a given corporate‐parent unevenly influences its business units in different industries and that a particular industry unevenly influences business units within itself from different corporate‐parents. This study also demonstrates that changes in business unit, corporate‐parent, and industry are important drivers of over‐time volatility of business unit performance and that effects of these changes differ . Copyright © 2016 John Wiley & Sons, Ltd.

Research summary : This study examines whether companies employ corporate social responsibility ( CSR ) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We exploit plausibly exogenous changes in state unemployment insurance ( UI ) benefits from 1991 to 2013. Higher UI benefits reduce the cost of being unemployed and hence increase employees' incentives to engage in adverse behavior. We find that higher UI benefits are associated with higher engagement in employee‐related CSR . This finding suggests that companies use CSR as a strategic management tool—specifically, an employee governance tool—to increase employee engagement and counter the possibility of adverse behavior. We further examine plausible mechanisms underlying this relationship . Managerial summary : This study examines whether companies employ corporate social responsibility ( CSR ) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We find that companies react to increased risk of adverse behavior by strategically increasing their investment in employee‐related CSR (e.g., work‐life balance benefits, health and safety policies). Our findings have important managerial implications. In particular, they suggest that CSR may help companies motivate and engage their employees. Hence, companies dealing with employees that are unmotivated, regularly absent, or engage in other forms of adverse behavior, may find it worthwhile to design and implement effective CSR practices. Further, our findings suggest that CSR can be used as employee governance tool. Accordingly, managers could benefit from integrating CSR considerations into their strategic planning . Copyright © 2015 John Wiley & Sons, Ltd.