Transnational Board Interlocks as a Source of Non‐experiential Knowledge for the Firm in Foreign Markets

Board interlocks between firms headquartered in different countries are increasing. We contribute to the understanding of this practice by investigating the transnational interlocks formed by the 100 largest British firms between 2011 and 2014. We explore the association between different attributes of a firm's internationalization process, namely performance, structural and attitudinal, and the extent of the firm's engagement in transnational interlocks. We posit that the value of transnational interlocks as a non‐experiential source of knowledge will vary according to which of these three attributes becomes more prominent as the firm internationalizes. We do not find a significant relationship between the performance and structural attributes of internationalization, as measured by the firm's percentage of foreign sales and assets, respectively, and increased engagement in transnational interlocks. We do, however, find an inverted U‐shaped relationship between the attitudinal attribute of internationalization, represented by the psychic dispersion of the firm's foreign operations, and the firm's number of transnational interlocks. This non‐linear relationship reveals both a natural boundary for the firm's capacity to engage in transnational interlocks and a reduced willingness to engage in such ties once a certain degree of attitudinal internationalization has been reached.     

Organizational emotional capability,product and process innovation,and firm performance: An empirical analysis

The concept of emotional capability is one of the competencies that a firm has which is vital for the daily life of the organization. However, the effect of emotional capability, involving the dynamics of encouragement, displaying freedom, playfulness, experiencing, reconciliation, and identification constructs on the firm innovativeness (i.e., product and process) is interestingly missing in the technology and innovation management (TIM) literature. In this study, by investigating 163 Turkish firms, the dynamics of encouragement and experiencing were found to have a positive association with both firm product and process innovativeness; and the dynamics of displaying freedom have a positive relationship with firm process innovativeness. We also demonstrate that the impact of emotional capability constructs on firm innovativeness is contingent upon environmental uncertainty. Specifically, we find that the influence of the dynamics of encouragement on firm product innovation increases with increased rate of environmental uncertainty. Interestingly, the relationship between the dynamics of experiencing and product innovation across low, medium, and high levels of environmental uncertainty is an ∩-shaped. And, the relationship between the dynamics of displaying freedom and product innovation across low, medium, and high levels of environmental uncertainty is a U-shaped. In addition, we show that a firm's emotional capability influences its financial and market performance via firm innovativeness. We discuss the theoretical and managerial implications of the study's findings.     

Rethinking the Corporate Financial–Social Performance Relationship: Examining the Complex,Multistakeholder Notion of Corporate Social Performance

The corporate financial performance (CFP)–corporate social performance (CSP) relationship has been investigated many times over the past few decades, yet the notion of CSP has generally been understood to be a single, monolithic aspect of corporate strategy. This article examines the common CFP–CSP understanding in three distinct ways: (1) by extending the evaluation of CSP as a complex, multistakeholder notion; (2) by analyzing CSP's relationship with the firm's financial performance at a given point in time as a lead (independent) variable in the relationship and as a lag (dependent) variable in the relationship; and (3) for both positive and negative stakeholder relationships. The results indicate that the employee emerges as the stakeholder group most strongly linked to CFP, followed by the consumer stakeholder. The natural environment and the community stakeholder group are minimally associated with CFP. General support is found for a CFP–CSP relationship at a given point in time, with some support found for CSP as a lead (independent) variable. When used as a measure of financial performance, return on assets is more often correlated with CSP than is return on equity. These results and their implications are discussed.     

Innovativeness as an Unintended Outcome of Franchising: Insights from Restaurant Chains

A growing trend in improving innovation outcomes is to go outside the firm's boundaries. One mechanism by which firms extend organizational boundaries is through franchising their channels. Yet, the effects of franchising on innovation outcomes have been overlooked in the literature. We propose that a firm's emphasis on franchising will affect its organizational innovativeness, conceptualized as product and process innovativeness, independently and with other firm characteristics—franchising experience, firm size, financial leverage, and slack resources. We find support for our hypotheses using a nonlinear seemingly unrelated regression model estimated using panel data from 38 U.S. restaurant chains between 1992 and 2005. The positive effect of the emphasis on franchising on product innovativeness is stronger for firms with high financial leverage, but weaker for firms with high slack resources. For process innovativeness, the effect is stronger for firms with high financial leverage but weaker for large firms, and for firms with high franchising experience and high slack resources. The findings indicate that a firm's emphasis on franchising has contingent effects on product and process innovation outcomes. Thus, franchising emerges as a competing mechanism (to alliances and joint ventures) that extends organizational boundaries and affects organizational innovativeness.     

Relationship between Online Retailers’ Reputation and Product Returns

Customer product returns are key cost drivers that eat into online retailers’ profits. However, management research has neglected to examine ways of reducing return rates without causing a concomitant decrease in sales. Drawing from signalling and dissonance theories, we investigate the relationship between online retailers’ reputation and product return rates. Two experiments designed to produce causal conclusions show that reputation reduces return rates (Studies 1 and 2) and that return motivation is a boundary condition for that relationship (Study 2). A field study based on an online consumer panel demonstrates the robustness of the negative impact of online retailer reputation on product returns in a setting that emphasizes external validity (Study 3), in comparison with Studies 1 and 2, which maximize internal validity. Study 3 also examines managerially important contingencies of the causal relationship by considering three variables: purchase frequency; retailer type; and customer gender. Overall findings indicate that an online retailer's reputation is a powerful means of reducing product return rates. The findings also show that the strength of the relationship between reputation and product returns is influenced by return motivation and the three variables investigated in the field study.     

The Design and Introduction of Product Lines When Consumer Valuations are Uncertain

This article presents a model of the design and introduction of a product line when the firm is uncertain about consumer valuations for the products. We find that product line introduction strategy depends on this uncertainty. Specifically, under low levels of uncertainty the firm introduces both models during the first period; under higher levels of uncertainty, the firm prefers sequential introduction and delays design of the second product until the second period. Under intermediate levels of uncertainty the firm's first product should be of lower quality than one produced by a myopic firm that does not take product line effects into consideration. We find that when the firm introduces a product sequentially, the strategy might depend on realized demand. For example, if realized demand is high, the firm's second product should be a higher‐end model; if demand turns out to be low, the firm's second product should be a lower‐end model or replace the first product with a lower‐end model.     

The Effect of Product Development Restructuring on Shareholder Value

This article examines the effect of product development restructuring (PDR) on shareholder value. The results are based on a sample of 165 announcements made during 2002–2011. PDR announcements are associated with an economically and statistically significant positive stock market reaction. Over a two‐day period (the day of the announcement and the day preceding the announcement), the mean (median) market reaction is 1.63% (0.87%). The market reaction is generally positive regardless of the PDR purpose or action. Although the market reaction is more positive for higher R&D intensity firms, it is not directly affected by the firm's prior financial performance or whether the firm's primary PDR objective is to increase revenues or cut costs. However, the interaction between the firm's prior financial performance and its primary PDR objective is significant. For firms that are financial outperformers, the market reaction is more positive if the firm's primary PDR objective is to increase revenues. For financial underperformers, the market reaction is more positive if the firm's primary PDR objective is to cut costs.     

How Should a Firm Manage Deteriorating Inventory?

Firms selling goods whose quality level deteriorates over time often face difficult decisions when unsold inventory remains. Since the leftover product is often perceived to be of lower quality than the new product, carrying it over offers the firm a second selling opportunity, a product line extension to new and unsold units, and the ability to price discriminate. By doing so, however, the firm subjects sales of its new product to competition from the leftover product. We present a two period model that captures the effect of this competition on the firm's production and pricing decisions. We characterize the firm's optimal strategy and find conditions under which the firm is better off carrying all, some, or none of its leftover inventory. We also show that, compared to a firm that acts myopically in the first period, a firm that takes into account the effect of first period decisions on second period profits will price its new product higher and stock more of it in the first period. Thus, the benefit of having a second selling opportunity dominates the detrimental effect of cannibalizing sales of the second period new product.     

Acquisition as a means for external technology sourcing: Complementary, substitutive or both?

This paper addresses the question of how a target firm's innovation activities relate to the acquiring firm's R&D characteristics, and more specifically, if the former substitute for, or complement the acquirer's activities. It investigates this question in three narrowly defined high technology industries by analysing the association of three R&D characteristics of acquiring firms with different measures of acquisition extent and content. The R&D characteristics referred to are: addressing R&D efforts, R&D outputs and absorptive capacity. Data was collected in each case for those firms whose combined sales revenue makes up 80% of the industry total and is used to test a set of hypotheses derived from extant literature. The findings confirm a substitutive relationship between acquisitions and acquirer research efforts as well as between acquirer and target patent output, whereas absorptive capacity is complementary to acquisition activities. The results reveal that acquirers target firms that hold a large number of patents in the fields where acquirer patenting is weak, and so address weaknesses in their own R&D output. This finding extends the extant literature on the role of external technology sourcing in the high technology context. Research findings are presented along with their implications and directions for future research.     

The value of a firm’s engagement in ESG practices: Are we looking at the right side?

Firms allocate many resources to environmental, social, and governance (ESG) issues and to growth options as if they were independent sources of value. Challenging this view, this paper explores the interplay of a firm's engagement in ESG practices and growth options in determining its total value. We draw upon real options reasoning to explain how ESG practices can carry two opposite (trust-enhancing and risk-reducing) forces, driving an inverted U-form relationship between ESG performance and growth options value. Moreover, we argue that ESG performance and growth options are likely to build substitutive insurance mechanisms which might exert a negative moderating effect of growth options on the relationship between ESG performance and a firm's total value. Empirical analyses of ESG scores and growth options values on a panel of U.S. firms from 2009 to 2018 provide substantial support for our hypotheses. Our results show that the inverted U-form relationship between ESG performance and growth options value becomes stronger for the environmental and social pillars. Our evidence on the moderating effect of growth option values also provides valuable insights for interpreting prior conflicting empirical evidence on the association between ESG performance and a firm's total value.     

Investment in Facility Changeover Flexibility for Early Entry into High‐Tech Markets

A model is introduced to analyze the manufacturing‐marketing interface for a firm in a high‐tech industry that produces a series of high‐volume products with short product life cycles on a single facility. The one‐time strategic decision regarding the firm's investment in changeover flexibility establishes the link between market opportunities and manufacturing capabilities. Specifically, the optimal changeover flexibility decision is determined in the context of the firm's market entry strategy for successive product generations, the changeover cost between generations, and the production efficiency of the facility. Moreover, the dynamic pricing policy for each product generation is obtained as a function of the firm's market entry strategy and manufacturing efficiency. Our findings provide insights linking internal manufacturing capabilities with external market forces for the high‐tech and high‐volume manufacturer of products with short life cycles. We show the impact of manufacturing efficiency and a firm's ability to benefit from volume‐based learning on the dynamic pricing policy for each product generation. The results demonstrate the benefits realized by a firm that works with its manufacturing equipment suppliers to develop more efficient and flexible technology. In addition, we explore how opportunities afforded by pioneer advantage enable a firm operating a less efficient facility to realize long term competitive advantage by deploying an earlier market entry strategy.     

The Impact of Limited Supply on a Firm's Bundling Strategy

A firm's two‐product bundling decision is examined when the supply of one product is limited and consumer valuations are normally distSteckeributed. The firm can choose to sell products separately and/or through a bundle. We find that the impact of limited supply on a firm's bundling decision depends on the correlation between the consumer valuations of the two products as well as the symmetry level of the two products in terms of their attractiveness (how much they are valued by consumers). When the valuation correlation is high and the symmetry level of the two products is low, limited supply can drive bundling. When the valuation correlation is low or the symmetry level is high, limited supply can drive no bundling. When the attractiveness of both products are low or the valuation correlation is very high, limited supply has no impact on a firm's bundling decision: The firm should not bundle for all supply levels. This study offers a new driver for product bundling: the limited supply of a product. The existing bundling literature suggests that a firm should bundle symmetric products that have a low consumer valuation correlation, when bundling is driven by consumer valuation heterogeneity reduction. In contrast, when bundling is driven by limited supply, a firm should bundle asymmetric products with a high consumer valuation correlation. The benefit of supply‐driven bundling depends on the severity of supply limitation. When supply limitation is moderate, bundling creates value by expanding the market of the less attractive product. When supply limitation is severe, bundling enables a firm to extract a higher margin from the less attractive product.     

An empirical examination of the science–technology relationship in the biotechnology industry

Understanding how a firm's scientific capability influences its technology development has important implications on the firm's research and development (R&D) strategies. However, the current literature reveals a puzzling outcome in its empirical investigations on the science–technology relationship. While many studies show the positive influence of a firm's scientific capability on its technological performance, a few others indicate that if a firm focuses its attention more on cutting edge science, its overall technological performance will suffer. We suggest that these findings can be reconciled by conceptualizing and measuring the scientific capability of the firm differently. This paper attempts to demonstrate how different notions of scientific capability are associated with different performance outcomes. Furthermore, a firm's scientific capability facilitates the integration of new knowledge to produce valuable technologies when a firm broadens its search for new knowledge. The paper highlights the nuances of conceptualizing and measuring the firm's scientific capability in two different ways: number of scientific publications and non-patent references. The findings also shed light on the mechanism through which science accelerates technological progress inside a firm.     

The Effects of Strategic and Structural Supply Chain Orientation on Operational and Customer‐Focused Performance

Supply chain orientation (SCO), or the implementation of a supply chain management philosophy, consists of two distinct, yet interdependent elements, namely strategic SCO and structural SCO. Strategic SCO involves integrating an SCM philosophy into the firm's strategy development, while structural SCO encompasses operational‐level behaviors and actions that reflect such a philosophy. This study extends the research on SCO by developing hypotheses on the contingent effects of strategic SCO and structural SCO on a firm's operational and customer‐focused performance. Drawing on the strategy‐structure‐performance framework, the study proposes that strategic SCO and structural SCO positively affect different dimensions of performance and that structural SCO plays a mediating role in the relationship between strategic SCO and performance. These relationships are tested using primary survey data and archival data from 183 manufacturers in the Midwestern US. Results confirm that strategic SCO is associated with both operational performance and customer‐focused performance, but structural SCO is only related to operational performance. Structural SCO acts as a mediator in linking strategic SCO with operational performance and customer‐focused performance and mediation effects are strengthened at higher levels of environmental dynamism.     

The learning organization and its dimensions as key factors in firms' performance

Managerial responses to the Dimensions of the Learning Organization Questionnaire^© together with both perceptual and objective measures of firms' financial performance were analysed. Multiple regression equations were developed to examine the relationship between overall learning organization score and the performance variables return on investment (ROI), return on equity (ROE), earnings per share (EPS), net income per employee and percentage of sales from new products. The results of the study suggest that there is a positive relationship between learning organization behaviours and business performance.     

The Influence of Stakeholders on the Environmental Strategy of Service Firms: The Moderating Effects of Complexity,Uncertainty and Munificence*

Drawing on the resource‐based view of the firm, we examine how complexity, uncertainty and munificence in the general business environment moderate the association between a firm's stakeholder integration capability and its environmental strategy. Our data were drawn from 134 ski resorts in 12 countries in western Europe and North America. Our study finds that (1) an organizational capability of stakeholder integration is associated with a service firm's adoption of a proactive environmental strategy; (2) an uncertain business environment has a direct positive influence and a complex business environment has a direct negative influence on a firm's environmental strategy; and (3) complexity has a negative moderating influence on the relationship between a firm's stakeholder integration capability and its environmental strategy.     

Walking on thin ice: CEOs′ internationalization decisions in underperforming firms

We build on previous research on the behavioral theory of the firm to examine the relationship between performance shortfalls and internationalization. We start from existing literature in claiming that the interplay between the aspirations of restoring performance and survival concerns leads to an inverted U-shaped relationship between a firm's performance shortfalls and its new internationalization. Our main contribution is to show that CEO duality moderates this relationship. Dual CEOs have a high control of the board that reduces oversight and increases their job security. This allows them to impose their risk preferences, thus embracing survival over aspirations. Our empirical analysis using a sample of Spanish listed firms from 1986 to 2010 provides support for our hypotheses.     

Network Positions and the Probability of Being Acquired: An Empirical Analysis in the Biopharmaceutical Industry

This paper examines the relationship between the firm's direct ties, its inter‐firm network prominence and its likelihood of being acquired. The authors argue that firm's direct ties and prominence enhance the firm's visibility and signal its quality – and thus foster the firm's likelihood of being acquired. However, higher levels of direct ties and prominence, by providing access to resources and the firm's status, respectively, increase the firm's ability to remain independent and thus reduce its likelihood of being acquired. Thus, the authors posit the overall relation as an inverted U‐shaped. Furthermore, they show that, for firms that undergo an initial public offering, the aforementioned relation becomes much weaker. The hypotheses are empirically tested in the biopharmaceutical industry and important theoretical and managerial implications are discussed.     

Corporate Political Activity and Firm Performance: The Moderating Effects of International and Product Diversification

Prior research has found that corporate political activity (CPA) can both positively and negatively impact firm performance. Combining agency theory with the resource-based view, we examine the relationship between domestic lobbying (a key form of CPA) and firm performance by explicating the moderating effects of international and product diversification. We argue that expansion into international and product markets increases a firm's resources and reduces agency costs in domestic lobbying. Our results, based on a sample of 737 firms, show that lobbying is positively associated with performance for firms that are diversified in both international markets and along product-lines; whereas lobbying is counter-productive for purely domestic and undiversified firms. Our results contribute to the literature on the firm performance implications of corporate political activity by highlighting the roles of international and product diversification.