Knowledge that Transforms

The influence of institutional factors on firm entry has long interested strategy scholars. However, we have limited understanding of how the sociocultural environment, defined as the unwritten, decentralized “rules of the game,” influences founding rates in emergent industries; we know even less about how these noneconomic factors differentially influence entry by new entrepreneurial ( de novo ) firms versus diversifying incumbent ( de alio ) firms. Utilizing a unique dataset on entry in the green building supply industry, we find that, while economic and policy factors are highly correlated with de alio entry, the sociocultural environment exerts a greater influence on de novo firms. Our findings contribute to the literature on corporate demography, institutions and entrepreneurship, and industry emergence . Copyright © 2013 John Wiley & Sons, Ltd.

Our study examines asymmetric rivalry within and between strategic groups defined according to the size of their members. We hypothesize that, owing to several forms of group‐level effects, including switching costs and efficiency, strategic groups comprising large firms expect to experience a large amount of retaliation from firms within their group and accommodation from the group comprising smaller firms. Small firms, on the other hand, expect to experience a small amount of retaliation from the group comprising large firms and no reaction from the other firms in their group. We estimate the effect of group‐level strategic interactions on firm performance. Our analysis reveals that the rivalry behavior within and between groups is asymmetric, which supports the dominant‐fringe relation between firms, as described in our hypothesis . Copyright © 2013 John Wiley & Sons, Ltd.

We examine cross‐national variation in the global growth of commercial microfinance from 1998 to 2009 as a natural experiment to analyze the role of national institutions in shaping the ability of commercial enterprises to reach the global poor. Our results demonstrate that a country's level of state fragility represents an important institutional context of poverty that explains significant cross‐national variation in the commercial microfinance industry's ability to grow its client base, control costs, and attract commercial capital. Moreover, we find that commercial microfinance lenders have experienced greater difficulty than nonprofit lenders in growing their client base in more fragile state settings. Our results support the proposition that the state shapes both institutional hazards and opportunities for business‐led efforts to combat global poverty . Copyright © 2013 John Wiley & Sons, Ltd.

This study explores the implications of interfirm status differentials for firm behaviors in corporate takeover transactions. We argue that the more the status differential between two firms is aligned with expectations of their roles embedded in the specific economic activity, the easier it is for them to agree on the appropriate means to reach consensus on the transaction. Using the empirical context of the U.S. corporate takeover market, we found that the greater the status differential between an acquirer and a target, the more positively the market reacts to both the acquirer and the target upon the announcement of the acquisition deal, the more likely it is for the deal to be completed, and the more likely the acquirer is to achieve better post‐acquisition performance . Copyright © 2013 John Wiley & Sons, Ltd.

Using a detailed dataset from the Chilean construction industry, we explore how the predictions of the transaction cost and capabilities theories interact to explain building contractors' decisions to ‘make or buy’ the specialty trade activities needed to complete a construction project. We show that the contractor's productive capabilities strongly mediate the relationship between transaction hazards that originate from either temporal specificity or an exogenous change in the subcontracting law and the vertical integration decision. The inclusion of differential capabilities and its interaction with transactional hazards infuse contractors' boundary choices with systematic patterns of heterogeneity and contribute to the integration of these theoretical perspectives. Our analysis corrects for the endogeneity of the capabilities variable and provides a detailed assessment of the marginal effects in logit models . Copyright © 2013 John Wiley & Sons, Ltd.

How do small firms manage their alliance strategies with large firms? This study compares the relative impacts of exploration and exploitation alliances with large firms on small firms' valuation. Integrating the literatures on the exploration/exploitation paradigm and alliance governance, we argue that exploitation alliances with large firms will on average generate higher values for small firms than exploration alliances with large firms due to a heightened risk of appropriation in exploration alliances. However, if small firms can manage their alliances with large firms via proper alliance governance, they will increase their valuations from exploration alliances with large firms. Analyses of the U.S. biopharmaceutical industry from 1984 to 2006 largely support our hypotheses . Copyright © 2013 John Wiley & Sons, Ltd.

Although a firm's innovation performance has been commonly attributed to its innovative capability, in a study of 102 Chinese automobile assemblers, we find that employees' collective motivation for new product development ( NPD ) is more important than NPD capability in determining firms' innovation performance. This finding suggests that researchers need to simultaneously consider both unit‐level capability and unit‐level motivation in studying the mechanisms that drive innovation. Furthermore, our results indicate that a firm's strategic orientation focusing on NPD affects its employees' collective NPD motivation and NPD capability through relevant, mediating HRM practices . Copyright © 2013 John Wiley & Sons, Ltd.

This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event ( IPO or acquisition). We study 8,600 U.S.‐based, VC ‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios . Copyright © 2013 John Wiley & Sons, Ltd.

In this paper, we argue that capabilities serve as shift parameters that result in a change in the critical value of asset specificity at which firms switch from in‐sourcing to outsourcing. Capabilities have two effects: they result in a change in firm production costs and in firm governance costs relative to the market. As a result, the frontier at which market governance gives way to firm governance shifts. Three factors that produce such shifts are the value, rarity, and inimitability of capabilities employed in firm processes. Considered as shift parameters, the effect of capabilities integrates seamlessly into transaction costs reasoning and is not a competing view of firm governance. We demonstrate these arguments empirically using a sample of 180 information systems sourcing decisions . Copyright © 2013 John Wiley & Sons, Ltd.

We investigate whether superior performance on corporate social responsibility ( CSR ) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to (1) reduced agency costs due to enhanced stakeholder engagement and (2) reduced informational asymmetry due to increased transparency. Using a large cross‐section of firms, we find that firms with better CSR performance face significantly lower capital constraints. We provide evidence that both better stakeholder engagement and transparency around CSR performance are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables approach, and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and environmental dimension of CSR . Copyright © 2013 John Wiley & Sons, Ltd.