Software firm evolution and innovation–orientation

The software industry is experiencing dramatic growth worldwide. This paper offers a theoretical framework to examine the growth and evolution of software firms from an innovation–orientation perspective. While it is apparent that the attitudes and perceptions of a firm’s key stakeholders towards innovative product development hold valuable insights on its future growth and evolution, such a perspective has received limited theoretical attention in studies on firm evolution. In this paper, we define a software firm growth stage model that reflects the changes in a firm’s process and product portfolios. We offer a set of research propositions that link the innovation-related attitudes and perceptions of a firm’s internal stakeholders to firm evolution. The research model has several important implications for both research and practice and can be extended to other high technology contexts.     

Do the contingencies of external monitoring, ownership incentives, or free cash flow explain opposing firm performance expectations?

Neoclassical and strategy frameworks stipulate that managers promote corporate performance and shareholder interests in their resource allocation decisions. Agency related works anticipate that executives seek their own personal interests at a cost to performance and shareholder wealth in their resource allocation choices. In this study, an attempt is made to resolve these conflicting anticipations. We propose that changes in levels of resource allocations (advertising expenditure, R&D spending, capital intensity) may be more positively associated with changes in levels of subsequent corporate performance for firms with greater external monitoring or with higher CEO ownership incentives. We also propose that changes in levels of resource allocations may directly (inversely) affect changes in levels of subsequent performance of the actively (passively) monitored enterprises, lacking (possessing) free cash flow. Additionally, we propose that changes in levels of resource allocations may directly (inversely) affect changes in levels of subsequent performance of firms with high (low) CEO ownership incentives in the absence (presence) of free cash flow. Regression models are utilized to test our proposals on a longitudinal sample obtained from the Compustat database. The empirical findings are generally supportive of our proposals.

The relationships between firm’s strategy,resources and innovation performance: resources-based view perspective

Besides basic competitive priority (quality, cost, delivery and flexibility), innovation has been recognised as one of the primary sources of competitive advantage for manufacturing industry to compete in global markets. This paper, therefore, presents an empirical study on the relationship between firm strategy, resources and innovation performance. Drawing from the grounded theory of resource-based view, and using 218 responses from Thai production/operation managers, this paper shows that differentiation strategy had a positive relationship with both internal capital or internal resources (represented by knowledge and creativity management) and networks capital or external resources (represented by customer and supplier network). The findings also revealed that only internal capital had a positive effect on innovation performance. Finally, contributions to industry practitioner, academia and national agency in supporting and promoting innovation are presented.     

When do leaders matter? Ownership,governance and the influence of CEOs on firm performance

Leadership and strategic management research suggests that the extent to which CEOs influence performance largely depends on the presence or absence of certain factors. These factors may include the characteristics of the task at hand, subordinates, the organization itself or the external environment. Among these factors, a fundamental contingency that has received little empirical attention is an organization's ownership and governance structure—that is, who owns and monitors the organization. In this paper, we outline how different ownership and governance structures can present the opportunity for, or limit, leader influence and empirically examine the extent to which CEO effects on financial performance depend on these structures. Examining organizations in the same industry but with different ownership and governance structures, our results suggest that these structures are closely aligned with the degree to which CEOs influence firm performance. Our findings support the notion that leaders matter most when ownership and governance structures correspond with a weak or ambiguous institutional logic. This study contributes new insight into the “opportunity structure” of CEO influence, that is, the organizational factors that shape leader discretion and, hence, condition the CEO's level of influence over firm performance.     

Dual class shares,board of directors’ effectiveness and firm’s market value: an empirical study

This study aims to identify whether a relationship exists between the controlling shareholders’ voting power and outside directors’ effectiveness in maximizing firms’ financial performance. We analyze a panel data with 3057 observations for the 2000–2012 period using a random effects model, logit and probit regressions, and the two-stage model of Heckman in the Brazilian stock market. Our findings show that firms whose controlling shareholders use dual class shares to leverage their voting power have less independence from the board and worse financial performance and market value. Further, the percentage of outside directors tends to be ineffective in increasing the firm’s value, and in changing the firm’s chief executive officer (CEO) when (1) the controlling shareholder’s voting power is leveraged, or (2) when the CEO assumes a position on the board of directors simultaneously. We interpreted that these results are in line with the arguments in favor of the existence of a new agency cost, which is related to the undue obedience of board members to authority, such as the largest controlling shareholder or the CEO in Brazilian listed firms.     

State ownership and listed firm performance: a universally negative governance relationship?

Our analysis of more than 1,000 Chinese listed firms, 2003–2005, reveals a positive association between state ownership (SO) and firm performance. Arguably, if SO “causes” performance, it must be through the channel of agency cost. Therefore, our paper checks the robustness of this positive SO/performance finding by analyzing the role of agency cost as a mediator. It emerges that SO in the Chinese context may represent a strategic asset rather than an agency burden. However, it is not clear whether this is an outcome driven by efficiency or power.     

How do formal and informal institutions influence firm profitability in emerging countries?

Drawing from institutional economics, we examine how the quality of formal institutions (e.g. protection of property rights, efficiency of the judicial system and government regulations) and a particular aspect of informal institutions, trust, influence the profitability of small and medium-sized enterprises (SMEs) vis-à-vis large firms. Our theoretical framework, which is supported by an analysis of over 205,000 observations in 16 emerging countries in the Central and Eastern European (CEE) region, explains why informal and formal institutions have a considerably different effect on the profitability of SMEs and large firms, and indicates that while SMEs benefit from formal institutional quality more than large firms do, large firms benefit from trust in society more than SMEs. It further shows that formal institutions and trust substitute each other in influencing firm profitability and that this substitution effect is stronger for large firms.     

Education,training and development policies and practices in medium-sized companies in the UK: do they really influence firm performance?

This paper sets out to examine the relationship between training and firm performance in middle-sized UK companies. It recognises that there is evidence that “high performance work practices” appear to be associated with better performance in large US companies, but argues that this relationship is less likely to be present in middle-sized companies. The paper's key contribution is to justify the wider concept of education, training and development (ETD) as applicable to such companies. It then finds that clusters of some ETD variables do appear to be associated with better middle-sized company performance.     

What’s in a name? Decomposing corporate reputation to assess the relative impact of temporal, firm and industry level factors

While the perceptual nature of corporate reputation is rarely contested, the role of governance and firm financial performance does not have the same consensus. As reputation is an embedded capability that cannot be distinctly valued or traded, the ambiguity in reputation generation clouds researchers’ attempts to understand the relative importance of the underlying causal factors, particularly firm-specific attributes like board characteristics, governance and ownership—independent of the firm’s financial performance over time. Utilizing a resource—based view, we develop a theoretically grounded framework that enables us to deconstruct corporate reputation and parse out the impact at multiple levels and the factors therein. We decompose reputation into time, firm and industry level factors, offer hypotheses on the relative importance of the factors at each level, and thereafter we simultaneously assess within and across the temporal, firm and industry levels to quantify the impact of the causal factors. We find that 49.65 % of the variation in corporate reputation is firm-specific, independent of financial performance, while industry-specific variables account for just 5.04 %. The temporal factors including the multi-level interaction terms explain 46.06 % of reputational variation, of which financial performance accounts for only 18.53 % and the “halo effect” of prior financial performance is short-lived. Furthermore, the commonly accepted factors explain only 26.44 % of the total variation in corporate reputation, and some of the governance and ownership indicators contradict generally accepted agency expectations.     

Responsible leadership development – crucible experiences and power relationships in a global professional services firm

There is increasing consensus that Human Resource Development (HRD) has a central role to play in promoting the principles and practices of corporate responsibility (CR). An important HRD intervention involves developing responsible leaders able to attract support for CR throughout the organisation, but empirical research is lacking in this area. This article contributes to the theoretical and practical knowledge of responsible leadership development (RLD) by addressing two questions: first, how does RLD engender learning that goes beyond basic cognitive awareness? Second, what affects participants’ abilities to manifest this learning in the workplace? A review of the RLD literature reveals a ‘knowing-doing gap’, which, it is posited, may be linked to a lack of theorisation around power. This issue is investigated by means of a case study on a responsible leadership development programme run by a professional services firm. Drawing on Bourdieusian concepts of language and power, the study reveals some of the mechanisms that inspired new socially responsible values whilst also demonstrating some of the contextual barriers inhibiting their manifestation in the workplace. It is argued that HRD professionals need to engage with Bourdieusian ideas of language and power to promote deeper learning around responsible leadership, which can more easily be embedded into the workplace.     

Overcoming the liability of foreignness without strong firm capabilities — the value of market-based resources

The concept of “liability of foreignness” — the costs of doing business abroad — has been known and discussed since the mid-1970s. At the core of these discussions is the role that firm capabilities play in overcoming or limiting these costs. This raises the question of how firms with inappropriate, limited or constrained capabilities relative to their host environment overcome the liability of foreignness. This paper focuses on the subsidiaries of “emerging multinationals” and how they manage the demands of a technologically and economically highly developed host country. A host location with sophisticated markets and well-developed institutional infrastructure may be a highly challenging environment for firms that have grown their organizational capabilities in less developed contexts. This paper explores that situation and considers how resources available on the market — for example through supplier inputs — assist subsidiaries to benefit from their presence in a munificent location. Despite the acknowledged limitations of a transaction-based approach, this paper presents evidence that purchasing knowledge provides an accessible strategy for overcoming some liabilities of foreignness.     

To fit in or stand out? How optimal distinctiveness in technological diversification affects firm performance

Previous research has observed technological diversification from a strategic viewpoint and regarded it as a strategy used by firms to differentiate themselves from competitors. This perspective, however, overlooks the fact that firms' strategies can also be understood as conformity to institutional pressure to gain legitimacy. In order to study the technological diversification–firm performance relationship from a more comprehensive viewpoint, this paper starts from a strategic balance perspective and investigates how technological diversification conformity enhances firm performance. Using a unique dataset of Chinese listed firms' patenting activities from 2003 to 2014 and adopting ordinary least squares (OLS) regression, we produce empirical findings that reveal a curvilinear (inverted U-shaped) relationship between firms’ conformity in technological diversification and their performance. Our results further delineate the boundary conditions that influence this relationship. We find that firm age positively moderates the relationship, that is the conformity-performance relationship is steeper with the older firms. Moreover, the result suggests that state ownership negatively moderates the relationship, that is, the relationship is flatter when firms are controlled by the state.     

Does a firm’s exposure to ethical failures matter to financial markets? A governance perspective

This paper investigates if a firm’s ethical reputation, in conjunction with its governance, affects its standing within financial markets. A firm`s ethical reputation, as measured by ethical failures, arises from its involvement in ethical violations and incidents while a comprehensive index proxies for governance. We assess a firm’s standing within financial markets through two complementary perspectives, i.e., the level of information asymmetry between managers and investors, as inferred from analyst forecast dispersion and analyst forecast error, and the relation between a firm’s earnings and its stock market valuation or return (value relevance). Our results suggest that a firm`s ethical reputation affects financial analysts’ forecasts as well as the stock market value assigned to its reported earnings. Moreover, it appears that corporate governance moderates such relations, with strong (weak) governance compensating for a weak (strong) ethical reputation. Overall, our evidence shows that ethical failures do not seem to pay.     

Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity

This study empirically analyzes whether gender diversity enhances boards of directors’ independence and efficiency. Using data from 3,876 public firms in 47 countries and controlling for a wide set of corporate governance mechanisms, we find that firms with more female directors have higher firm performance by market (Tobin’s Q) and accounting (return on assets) measures. The results also suggest that external independent directors do not contribute to firm performance unless the board is gender diversified. These results hold with respect to different estimation models and robustness tests. Overall, our findings provide evidence that the female directors enhance boards of directors’ effectiveness. Finally, we find that firms that are concerned with board independence, and that firms in more complex environments are more likely to have gender-balanced boards.     

How can David orchestrate resources to enhance firm performance? A dynamic approach to coping with resource constraints

Given that the possession of abundant resources does not always guarantee superior firm performance, this study proposes a dynamic approach to enhancing firm value. Building on the resource orchestration thesis, we investigate how firms facing resource constraints enhance their capabilities over time by orchestrating resources and how this resource orchestration can play a role in improving firm performance. Using the dynamic perspective, this study identifies four resource orchestration modes, which are specified based on how a given firm dynamically allocates its resources to technology (enacted by R&D activities) and marketing (enacted by advertising activities). Accordingly, we claim that firms with resource constraints can enhance their performance by escalating or altering their resources over time. To test our hypotheses, we used a sample of 4078 small and medium-sized enterprises in manufacturing industries between 1984 and 2018. We found that focus escalation for technology positively affects firm performance, captured by Tobin's q, and that focus alternation toward either technology or market is positively related to firm performance. Finally, we discuss the theoretical and practical implications of our findings.     

What is it like to work for a big five consulting firm? Interview by Barbara J. Linney

Is consulting for a big five a career direction you've thought about pursuing? In this column, Barbara Linney interviews physician executive Don Gessler, MD, MBA, CPE, FACPE, to talk about his experience in working for a big five consulting firm. He discusses how he got his position at ABC Consulting Firm, the nature of the work, the rigorous travel schedule, the pluses, and the type of physician executive that is satisfied in this environment. He describes some of the projects and tasks he has been involved in as a consultant. He emphasizes that if physicians don't like to do selling, consulting is not a place for them to be and that it is a very team-based structure.     

The illusion of independence: Spun-off firms’ risk-taking as a function of status and attachment to the parent firm

This paper examines the post-divestiture behavior of spun-off firms. Drawing on the spin-off literature and middle-status conformity theory, we argue that spun-off firms—as newly independent and publicly traded firms—tend to limit their risk-taking behavior to match the expectations of a crucial audience, i.e., security analysts. Following the logic of middle-status conformity theory, we hypothesize that firms with mid-level status are particularly susceptible to analysts' pressures, whereas high- and low-status firms are free to take greater risks. Crucially, however, we propose that this relationship is less pronounced for spun-off firms that are more attached to their parent firms, as formal and informal linkages between these two types of firms can endure beyond the separation and limit spun-off firms' independence. Using a dataset of 102 spin-off transactions occurring between 1995 and 2010, we find empirical support for a U-shaped relationship between spun-off firms' status and risk-taking. This relationship is attenuated when spun-off firms are more attached to their parents. We contribute to the spin-off literature by demonstrating that a spun-off firm's post-divestiture behavior is determined by the capital market audience's expectations and the attachment to the parent firm. In so doing, we also contribute to the literature on middle-status conformity theory by identifying a boundary condition of the theory. Additionally, we make a methodological contribution by combining ideas from the spin-off and institutional theory literature to develop a particularly comprehensive measure of attachment.     

Does owner CEO narcissism promote exporting SMEs' market spreading strategy? Joint effects of asset-specific investments and firm exporting experience

This study explores the influence of owner chief executive officer (CEO) narcissism on the market spreading strategy of exporting small-to-medium enterprises (SMEs). Combining insights from the literature on CEO narcissism and trait activation theory, it is argued that SMEs with narcissistic owner CEOs are more likely to prefer a market spreading strategy, depending on firm-level asset-specific investments and exporting experience. The empirical analysis of a sample of 248 exporting SMEs in China supports the theoretical prediction that owner CEO narcissism has a positive impact on the preference toward a market spreading strategy. In addition, the results show that asset-specific investments weaken the positive influence of owner CEO narcissism on the preference of a market spreading strategy, but this negative moderating effect becomes less significant as SMEs gain more exporting experience. This paper contributes to the emerging research on the role of owner CEO narcissism in firm internationalization decisions, offering a more complete understanding of the extent to which owner CEO narcissism can influence exporting SMEs' tendency toward market spreading, and delineating how such influence may be dependent on organizational-level situational factors.