Are Founder-Led Firms Less Susceptible to Managerial Myopia?

[We’re pleased to welcome authors Charlotte L. Schuster of Technical University of Dresden, Alexander T. Nicolai of the University of Oldenburg, and
Jeffrey G. Covin of Indiana University. They recently published an article in Entrepreneurship Theory and Practice entitled “Are Founder-Led Firms Less Susceptible to Managerial Myopia?,” which is currently free to read for a limited time. Below, they briefly write about the motivation and impact of their research.

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What motivated you to pursue this research?

“Over the last two decades, critical concern among academics and practitioners increased that managers act myopically. This criticism refers to managers sacrificing a company’s long-term for its’ short-term goals – often expressed in cutting R&D expenses to meet earnings targets. Among the most cited reasons for managerial myopia in management research are short decision horizons of opportunistic managers. While existing research in different disciplines mainly focused on “professional” managers and CEOs of publicly listed companies, it is not clear whether myopic management practices also apply to founder-CEOs. Founders might differ inherently from salaried managers in terms of passion and intrinsic motivation, incentive structure, and duration in the company. This motivated us to analyze empirically whether founder-CEOs who built up a company and accompanied it from its early stage through and beyond the company’s IPO are, indeed, less susceptible to managerial myopia than nonfounder-CEOs.”

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

“Several recent events suggested that managerial myopia is prevalent among very big companies. For instance, the German Automotive Manufacturer Volkswagen gained negative publicity with the systematic manipulation of emission values on the test stand. By risking an immense image loss in the long run and the payment of high conversion and compensation costs to customers in the medium term, the company preferred to save R&D expenses in the short term and, thus, forewent the process of developing a better technology.

In contrast to professional managers, founders often claim to be long-term oriented. They seem to be more interested in demonstrating and pursuing a long-term vision for the company than committing to short-term earnings goals. For example, Jeff Bezos, founder and CEO of Amazon.com took losses for years and withstood the capital market pressure to make quick profits in order to realize his vision of building up the company. In a similar vein, Elon Musk, founder and CEO off Tesla Motors and SpaceX, is known for trying to win support for his views – ignoring the earnings expectations of the capital market.
Such contradicting company examples further motivated us to explore the investment behavior of founder- versus nonfounder-led firms in the context of short-term earnings goals.”

In what ways is your research innovative, and how do you think it will impact the field?

“Our study is the first to examine the phenomenon of managerial myopia in the context of founder- versus nonfounder-led firms. We leverage insights drawn from agency theory and stewardship theory as bases for explaining both a specific myopic earnings management practice as well as the influence of CEO founder status on the likelihood of this practice occurring. Specifically, our study contributes to knowledge based on corporate governance and entrepreneurship research that employs stewardship theory to explain the behavior of individuals who place their firms’ interests above their own self-interests. While we did not find a negative relationship between stock ownership and myopic R&D cuts as agency theory would suggest, our results document the influence of founder status as a factor associated with CEOs being good stewards of their firms’ assets, congruent with the stewardship theory position regarding founder-CEOs’ behavior. Our empirical results shed light on how firms can benefit from founder management and illuminate the financial conditions under which potentially detrimental earnings management practices may surface. Thus, our study contributes to a growing understanding of how and why founder management can well serve a firm’s long-term interests.”

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Family Firms and the Choice Between Wholly Owned Subsidiaries and Joint Ventures

[We’re pleased to welcome authors Maria Cristina Sestu of the University of Pavia and Antonio Majocchi of the University of Pavia. They recently published an article in Entrepreneurship Theory and Practice entitled “Family Firms and the Choice Between Wholly Owned Subsidiaries and Joint Ventures: A Transaction Costs Perspective,” which is currently free to read for a limited time. Below, They briefly describe the motivation and impact of their research.

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What motivated you to pursue this research?

Recent entry mode research has largely ignored the ownership characteristics of the MNCs. We investigate the entry mode decisions of family and non-family firms and explore the role of family involvement on both the MNC side and the local partner side. We contend that the mixed results produced to date are a consequence of a lack of attention to family or non-family involvement on both sides in general and on the local firm side in particular. In the paper, we address why and how family involvement affects entry strategy.

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

Recent official data show that the value of cross border M&A and partial acquisitions deals in Italy reached a new high making the Italian companies the most targeted by foreign acquisitions in the EU along with France and just after the UK. A number of these acquisitions by family and non-family MNCs targeted iconic brands owned by family firms such as Loro Piana, Valentino, Pomellato and Krizia. Commenting the acquisitions on the news the managers involved on the deals often highlight the relevance of being a family firm. This suggests us that the family nature of both the target and the investing companies were still an underdeveloped issue in the management literature and convince us to further investigate the topic.

In what ways is your research innovative, and how do you think it will impact the field?

The intuition that studying the differences between the entry mode policies of family and non-family firms was a promising field of research proved right. We show that whether the investor and target are a family firm or not has an impact on the entry mode choice as family control is relevant on both sides of the transaction. We prove that future research in the field would be more fruitful if corporate governance characteristics were taken into account. We also show that family involvement generates some firm specific asset that affects family firm policies. In this way we contribute to the development of the theory of family firms.

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Rest, Zest, and My Innovative Best: Sleep and Mood as Drivers of Entrepreneurs’ Innovative Behavior

[We’re pleased to welcome authors Amanda J. Williamson of the University of Sheffield, Martina Battisti of the University of Portsmouth, Michael Leatherbee of Pontificia Universidad Católica de Chile, and J. Jeffrey Gish of the University of Oregon, Eugene. They recently published an article in Entrepreneurship Theory and Practice entitled “Rest, Zest, and My Innovative Best: Sleep and Mood as Drivers of Entrepreneurs’ Innovative Behavior,” which is currently free to read for a limited time. Below, they briefly write about the motivation and impact of their research, and speak about their research in a short video abstract.

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What motivated you to pursue this research?

We noticed that sleep is commonly undervalued by early-stage entrepreneurs, and realized that we know very little about what impact poor sleep quality has on entrepreneurially-relevant outcomes.

While the quality of our sleep is broadly declining, entrepreneurs in particular are under pressure to be “on” constantly. Recent studies indicate that early stage entrepreneurs feel that they need to be contactable and to work long hours in order to perform. Adding insult to injury, we noticed that entrepreneurial camps are often designed in a manner that encourage poor sleep, and that our media often celebrate poorly rested entrepreneurs as dedicated heroes.

This worried us, as evidence indicates that poor sleep can be dangerous. The long-term effects of poor sleep are evident in terms of our personal health, and the short-term effects are noticeable for our cognitive functioning. We started to wonder whether poor sleep could therefore be harmful for start-up performance, and if so, whether we might find an entrepreneurially motivated reason for entrepreneurs to prioritize their sleep. As innovative behavior is at the heart of effectively creating a venture, we thought it would be a great place to start exploring this topic empirically.

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

We felt that the time was right for this research. While there is a growing interest in entrepreneurial well-being, entrepreneurial sleep has received limited attention to date. We hoped our research could help trigger an emerging conversation and provide empirical evidence on the important role that sleep plays for entrepreneurial wellbeing and entrepreneurship more generally.

What advice would you give to new scholars and incoming researchers in this particular field of study?

To date, only a handful of studies have explored sleep in the context of entrepreneurship and entrepreneurial behavior, thus we have barely scratched the surface on what could be a very promising line of research in the field. We encourage scholars to explore the topic further. Some of the many questions that remain open include:
1. What role do naps have on entrepreneurs’ performance?
2. What influence do circadian rhythms have on the dynamics of entrepreneurial teams and daily fluctuations in entrepreneurial performance? When is it good or bad to have diversity in circadian rhythms within an entrepreneurial team?
3. Are there interventions that are particularly effective for improving entrepreneurs’ sleep?
4. Are there any entrepreneurial sleep impairment trends? For example, are particular entrepreneurial events and stages in the entrepreneurial process related to poor sleep? Is sleep impairment similar according to venture types or within teams? How does sleep compare between entrepreneurs and non-entrepreneurs?
5. How does sleep impairment impact upon other aspects of entrepreneurial performance? For example, on how entrepreneurial pitches are delivered and evaluated?
6. What are the effects of entrepreneurs’ sleep for the longer-term performance of the individual, team, and startup?
7. When does it pay to sacrifice sleep in entrepreneurship?

 

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Reflection on Institutions and Entrepreneurship Quality

[We’re pleased to welcome authors Dr. Farzana Chowdhury of University of Texas-Rio Grande Valley, David Audretsch of Indiana University, and Maksim Belitski of the University of Reading. They recently published an article in Entrepreneurship Theory and Practice entitled “Institutions and Entrepreneurship Quality,” which is currently free to read for a limited time. Below, Dr. Farzana briefly describes the motivation and significance of their research.

ETP_72ppiRGB_powerpointDuring 2012-2013 a group of researchers from Indiana University came across a continuing debate on the quantity and quality of entrepreneurial activity. We found that most of the studies to date considered it important to consider not just the quantity but also the quality of entrepreneurship because not all entrepreneurship contributes equally to economic activity.

Theory and empirical research suggested that entrepreneurship is an activity related to pursue and exploit market opportunities. These opportunities define the type of entrepreneurship activity which differs significantly across regions and countries. Recent research also debated that firm entry small business growth and other indicators are not necessarily per se good indicators reflecting the quality of entrepreneurship. Thus, we identified the need to develop a standardized and empirically tested measure of the quality of entrepreneurial activity across countries and to find a way how formal and informal institutions could enhance the quality of entrepreneurship.

Over the subsequent year, the authors participated in a professional development workshop (PDW) at the annual meetings of the Academy of Management in Philadelphia on the links between institutions and the individual choice made by individuals to become an entrepreneur.  Although important research published in two of the premier scholarly journals in the academic field of entrepreneurship,  The Journal of Business Venturing and Entrepreneurship: Theory and Practice had previously analysed this decision, little was known about how entrepreneurship quality is influenced by the corresponding rates of return –- or profit rates – associated with the various types of entrepreneurial activities, which in turn is shaped by the quality of existing political and legal institutions.

Our work focuses on the relationship between the quality of institutions and the quantity and quality of entrepreneurship across countries with different levels of economic development. The research impacts the field of institutional economies and economics of entrepreneurship by combining North’s (1990) institutional theory with Williamson’s (2000) institutional hierarchy approach, Whitley’s (1999) national business systems (NBS) perspective and Baumol’s (1990) theory of the productivity of entrepreneurship to explore the interactive and dynamic relationships between the formal and informal institutions and the quality and quantity of entrepreneurship. From the empirical perspective, the work contributes to understanding what types of institutions should be improved if entrepreneurship policy targets the quality of entrepreneurship activity. Most importantly the strength of the relationship still depends on the level of the country’s level of economic development. Our work provides a ranking of countries in descending order by quantity and quality of entrepreneurial activity which is complementary to the standard measures of entrepreneurial activity provided by the Global Entrepreneurship Monitor.

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Talent Management in the Public Sector: How to Explain Different Approaches?

education-1580143_1920 (1)[We’re pleased to welcome author Dr. Marian Thunnissen of Fontys University of Applied Sciences. Dr. Thunnissen recently published an article in Public Personnel Management entitled “Talent Management in Public Sector Organizations: A Study on the Impact of Contextual Factors on the TM Approach in Flemish and Dutch Public Sector Organizations,” which is currently free to read for a limited time. Below, Dr. Thunnissen recounts how her research began and developed.]

PPM_C1 template_rev.inddDorien and I were each working on a study on talent management (TM) in the public sector. While we met each other several time at academic conferences we were intrigued by the differences in the TM approached adopted by the public sector organizations under study. What could explain that the public sector organizations in the Dutch study all aimed for an exclusive and performance oriented talent approach, while the Flemish governmental entities opted for an inclusive approach? This interesting phenomenon was for us the starting point to compare our data and to explore what characteristics of the external and internal context could explain the differences.

While analyzing the data we realized that using theory on institutional mechanisms was insufficient to explain what happened and we decided to include institutional logics in our conceptual model. The data indeed shows that multiple factors in the organizational context affect the intended TM strategy. Market pressures resulting from the external labor market (and the position as an employer on that market) and budgetary constraints, as well as institutional pressures have an effect as well. Moreover, we found that ‘attributes’ of the organization filter the institutional mechanism. In our study the composition of the workforce combined with internal economy measures can be an explanation for choosing a specific TM approach. But most of all organizational culture seems to be crucial (e.g., Stahl et al., 2012; Kontoghiorghes, 2016). Yet, we have seen that the influence of organizational culture cannot be separated from the logics adopted by the actors in the dominant coalition. Moreover, the research also indicates that the origins of the key employees – being public service works or classic professionals such as the academics – has an significant impact on organizational culture and the logics dominant in the organization (Greenwood et al, 2011; Thornton et al., 2005). This is an important theoretical contribution of the paper. The impact of belief systems has been mentioned by Meyers and Van Woerkom (2014) and Nijs et al. (2013) but not yet studied in empirical TM research. Nonetheless, the data points out that the mechanisms, actors and logics are entangled and not easy to separate.

All in all, the data supports our statement that TM is not an instrumental, rational and independent process. Although key actors in the dominant coalition take notice of the contextual factors, TM also proves to be an intuitive and micro-political process. Therefore, our comparison highlights the importance of an institutional and organizational fit, but in particular the significance of a consistent ‘talent mindset’ embedded in organizational culture and leadership style (also see Stahl et al., 2012; Kontoghiorghes, 2016). We think that it is necessary for HR and managers in practice to show consideration for the potential impact of ‘tangible’ mechanisms such as labor market pressures and economy measures, but also to be more aware of the influence of personal beliefs and logics regarding talent and how to deal with those mechanisms and logics in the decision process.

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The September Issue of Administrative Science Quarterly is Now Online!

The September issue of Administrative Science Quarterly is now available and can be read online for free for the next 30 days. This issue offers a range of astute articles on organizational studies as well as insightful book reviews.

The lead article entitled “Place and Institutional Work: Creating Housing for the Hard-to-house” was authored by Thomas B. Lawrence of the University of Oxford and Graham Dover of the Mindset Social Innovation Foundation. You can read the abstract here:

The places in which organizational life occurs can have profound impacts on actors, actions, and outcomes but are largely ignored in ASQ_v60n3_Sept2015_cover.inddorganizational research. Drawing on ideas from social geography, we explore the roles that places play in institutional work. The context for our study is the domain of housing for the hard-to-house, within which we conducted two qualitative case studies: the establishment of Canada’s first residential and day-care facility for people living with HIV/AIDS, and the creation of a municipal program to provide temporary overnight accommodation for homeless people in local churches. In examining these cases, we found that places played three key roles: places contained, mediated, and complicated institutional work. Each of these roles was associated with a distinct ontology of place: places as social enclosures, as signifiers, and as practical objects. Our findings have significant implications for how we understand the relationship between location and organizations and allow us to develop a process model of places, institutions, and institutional work.

Click here to access the Table of Contents of the September issue of Administrative Science Quarterly. Want to know about all the latest from Administrative Science Quarterly? Click here to sign up for e-alerts!

Read Organization and Environment’s Special Issue for Free!

challenges-1221258-mCan institutional theorists constitute a society to better the relationship between organizations and the natural environment? What is the current state of the research on carbon disclosure? How have researchers addressed the tensions inherent in corporate sustainability? These topics and more are explored in Organization and Environment‘s Special Issue entitled “Review of the Literature on Organizations and Natural Environment: From the Past to the Future.”

Stephanie Bertels and Frances Bowen collaborated on the introduction to the Special Issue:

In summer 2015, the Organizations and the Natural Environment Division of the Academy of Management will celebrate the 20th anniversary of its first formal oae coverconference program back in 1995. Over the past two decades, a vibrant and engaged scholarly community has generated thousands of empirical and conceptual studies on the complex relationships between organizations and their natural and social environments. Each individual study focuses on specific research questions crafted to meet the rigorous requirements of academic journals. However, too often our journal publishing and professional norms push us to focus on small, incremental contributions to knowledge. Anniversaries can remind us to pause, take stock, and build on the past to shape a new future. The Organization & Environment (O&E) editorial board decided to provide a venue for this anniversary celebration: a special issue where as a community of scholars we can reflect on where we have been, what we have learned, and what remains to be understood to both further our field and help society address pressing environmental challenges.

In this first review issue of O&E, we hoped to draw insight and inspiration from in-depth reviews of specific topics. Our call for articles invited authors to reflect on the state of theory, empirical research, and practice in relation to key questions at the interface of organizations and the natural environment. We sought out comprehensive and analytical reviews of recent research that synthesized, integrated, and extended our thinking. We encouraged authors to anchor their thoughts in detailed retrospection on past and current research, and to identify the key theoretical, empirical, methodological, or practical challenges of future O&E research. There was an enthusiastic response from the community of scholars and in the end, we have assembled a group of six articles. Each offers a stand-alone review of a particular phenomenon within the O&E domain. Together they showcase the wide range of scholarship addressing topics ranging from the macro to the micro foundations of our field.

You can read Organization and Environment‘s Special Issue for free for the next 30 days! Click here to access the Table of Contents. Want to know when all the latest research like this becomes available from Organization and Environment? Click here to sign up for e-alerts!