The literature on corporate diversification suggests a relationship between the relatedness of merging firms and risk. We tested that notion by classifying 297 large mergers into four relatedness categories and by using three measures of risk: unsystematic, systematic, and total. The findings show that risk reduction may be a valid rationale for mergers but not for the reasons often cited. Specifically, all types of mergers are associated with significant increases in unsystematic risk. Related mergers, however, are associated with a significant decline in systematic and total risk. The possible contributions to the results made by market conditions and leverage were explored.

This study analyzes the impact of ownership structure on R&D investments in the United States and Japan. It begins with the premise that U.S. and Japanese firms have distinct patterns of ownership that may result in disparities in R&D investments. Agency theory and stewardship theory are used to hypothesize about the relationship between ownership and R&D investments. Empirical evidence shows that the level of ownership concentration, and its impact, differ across countries. We argue that these differences result from a mixture of motives and incentives.

Owners and financial planners in new ventures prefer using internal sources of capital as much as possible because they are uncertain about how to obtain external financing and how the involvement of others will impact their ventures. Because undercapitalization and financial problems are at the center of nearly all business failures, it would appear useful for owners and financial planners to reduce the uncertainty surrounding external financing. Obtaining information about one source of this uncertainty, a lack of understanding of the decision processes followed by venture capitalists, is the focus of research in this paper and a growing body of literature. To further this line of study, we investigate the differences in decision behavior of venture capitalists, using bankers as a benchmark for comparison in cases in which debt and debt-related financing are sought. To the extent that venture capitalists have unique decision processes, owners and financial planners might improve their ability to obtain financing through knowledge of the unique features of venture capitalists' decision processes. In addition, venture capitalists might improve their decision effectiveness if made aware of systemic biases in their decision procedures. Using a computer software package to trace information acquisition processes, we found that venture capitalists acquired less information and followed a pattern of acquisition that was deeper within categories of information than bankers. In addition, venture capitalists showed a stronger preference for strategic data and less interest in historical financial data. Both groups minimized the use of financial forecasts and followed decision processes persistently across different types of companies (start-up and well-established). The implications of this study for practice are two-fold. First, if the owners or financial planners of a new or relatively new venture are seeking financing from external sources, they should package the business plan and request in a manner that is consistent with the source of financing. For example, requests from venture capitalists should highlight strategic information, such as descriptions of the product or process, patentability prospects, product market, and management team. Less emphasis should be placed on financial information, particularly financial projections. In contrast, requests for financing by banks should highlight historical financial information. Such differences between venture and bank financing may lead individuals who are seeking financing to conclude that because historical financial information is of primary importance to bankers, bank financing should be sought after the business has developed a positive financial history and trend. This would confirm intuition and research findings that venture financing is the primary source of external financing in the early stages of a new venture. Second, bankers and venture capitalists, like all decision-makers who have developed a degree of expertise in a particular specialty, should attempt to gain some insight into their decision processes. The goal of obtaining this information would be to provide feedback on processes, such as information acquisition, which tend to become automatic over time. With this knowledge, bankers and venture capitalists could examine any biases in their behavior with the ultimate goal of improving performance. This paper also has important implications for researchers. In particular, we have demonstrated that computer-based approaches for studying decision behavior offer promise for interesting explorations into important issues such as how venture capitalists make decisions. The computer minimizes researcher intrusion in the decision task and permits the collection of process data from samples large enough to permit statistical analyses. In addition, the subjects determine the length of the task and the direction of the search much as they would in practice, which increases the external validity of the research method.

Abstract Research Summary Venture capital funds have a limited lifecycle. As the fund ages, venture capitalists (VCs) are motivated to promote venture exit discussions with the venture board. We investigate the impact of VCs' exit pressure on the hazard of four types of venture exit (IPO, high‐value M&A, low‐value M&A, and liquidation), considering how VCs' exit pressure influences board collaboration. We find that while the VCs' exit pressure does not affect the hazard of IPOs, the pressure significantly increases the hazard of M&A and liquidation. Achieving important milestones does not reduce the impact of exit pressure on the hazard of low‐value M&A and liquidation. Independent directors moderate the impact of the VC's exit pressure, increasing the hazard of high‐value M&A and lessening the hazard of liquidation. Managerial Summary We investigate whether VCs' exit pressure due to an approaching deadline for fund liquidation influences the time to venture exit and how board composition affects the relationship between VCs' exit pressure and venture exit. Data from a sample of 219 VC‐backed U.S. surgical device ventures founded during 1989–2014 suggest that VCs' exit pressure decreases the time to M&A (both high‐value and low‐value M&A) and liquidation. Boards with more independent directors facilitate high‐value M&A and delay liquidation. VCs' exit pressure does not affect the time to IPO. These results provide evidence of the impact of the venture capital fund's finite life on investees other than the VCs and confirm the crucial role of independent directors in managing VCs' exit pressure.

In contrast to prior investigations using between-subjects designs to infer the existence of rigidity in decision behaviors, this research used a within-subject design to directly measure rigidity. We also extended previous examinations by distinguishing between semantic and episodic informational cues. Finally, we used a computer process-tracing technique that allows validity assessments of tests and keeps researcher intrusion to a minimum. Our results, based on data from three different groups of business analysts and two studies, suggest the inappropriate-ness of arguing that individuals show either exclusively rigid or non-rigid decision behaviors.

This study uses learning theory to show how knowledge domains affect product extension decisions and how these product decisions change as firms age. Faced with the choice of new product‐markets, a firm might decide to introduce a similar product, by leveraging existing firm knowledge, or to experiment with a less familiar product, which requires new knowledge. Using data on new drug introductions in the US generic pharmaceutical industry, the analyses showed clear support for heterogeneous product‐market entry patterns across knowledge domains as the firm ages. Across time, the form of learning shifts from exploration to exploitation . Copyright © 2013 John Wiley & Sons, Ltd.

Abstract Although an entrepreneur's initial strategy choices have a critical effect on a new venture's survival, growth, and long‐term performance, few studies have explored how pre‐founding experience influences these choices. Founders who over rely on their historical industry experiences may simply replicate the strategies of legacy firms. In turn, little is known about how founders can break these experience‐based constraints, if they exist. In an empirical analysis of 120 prospective entrants in air transportation from 1995–2005 we find that a founder's past experience strongly constrains choices, and the effect depends on the form of experience and type of strategy choice. Diversity of experience, at the level of the founder and founding team, lessens these constraints. Our results have valuable implications for research in strategy and entrepreneurship. Copyright © 2011 John Wiley & Sons, Ltd.

Hugh M. O'Neill, Richard W. Pouder, Ann K. Buchholtz, Patterns in the Diffusion of Strategies across Organizations: Insights from the Innovation Diffusion Literature, The Academy of Management Review, Vol. 23, No. 1 (Jan., 1998), pp. 98-114