Showing papers in "Strategic Management Journal in 2020"

On the relation between corporate social responsibility and financial performance

Abstract: Research Summary This study reexamines the relation between corporate social responsibility (CSR) and financial performance by benchmarking firms against industry peers in a given year to identify best‐in‐class and worst‐in‐class firms. We also address distributional issues when using CSR ratings (clustering of CSR scores around the median and material differences across industries and time) and financial performance ratios (the possible influence of extreme values). We find that the best‐in‐class firms outperform their industry peers in terms of operating performance and have higher relative market valuations (Tobin's Q). When we control for endogeneity, we find that the significant relation between operating performance and CSR categories disappears, calling into question whether this relation is causal. However, we continue to find that best‐in‐class firms receive higher relative market valuations than industry peers. Managerial Summary The conflicting evidence on the relation between CSR and firm performance may influence a manager's decision to invest in CSR activities and an investor's decision to invest in a firm. Our research provides managers and investors with important implications regarding the value of relative benchmarking. Managers should understand that expectations of CSR performance evolve over time and that investors place higher valuations on the best‐in‐class CSR firms within an industry.

What is a pivot? Explaining when and how entrepreneurial firms decide to make strategic change and pivot

Abstract: Most theories of strategic change focus on how large, established firms invested in their existing capabilities either recognize or fail to recognize the need for strategic change. Little research examines how early stage entrepreneurs lacking such investments decide when and how to change their strategies. With a longitudinal field study of seven entrepreneurial firms developing innovations in energy and cleantech, we examined 93 strategic decisions at risk for change. We found that decision makers chose to change their strategy only when new information conflicted with or expanded their beliefs. A pivot, or a strategic reorientation, was not achieved with a single decision, but by incrementally exiting or adding strategy elements over time, accumulating into a pivot. We contribute a grounded definition of what constitutes a pivot and explain when and how entrepreneurial firms pivot.

Chief sustainability officers and corporate social (Ir)responsibility

Abstract: Research Summary How will a chief sustainability officer (CSO) influence corporate social performance? Building upon the upper echelons perspective and the attention‐based view, this study argues that while a CSO helps channel managerial attention to a firm's social domain, managerial attention is more likely to be directed to negative issues than to positive issues. In addition, such relationships are contingent on the focal firm's governance design and its industry culpability. Analysis of a sample of S&P 500 firms for the period of 2005–2014 largely renders support to our predictions. Managerial Summary While more and more firms start to put a chief sustainability officer (CSO) on its top management team (TMT), the implications for corporate social performance of CSO presence remain unclear. With a sample of S&P 500 firms, we find that the presence of a CSO increases the firm's socially responsible activities (CSR) and reduces its socially irresponsible activities (CSiR). Moreover, CSO presence has a greater effect on reducing CSiR than on increasing CSR. These relationships become stronger when the firm has a sustainability committee on the board and is in a culpable industry.

History‐informed strategy research: The promise of history and historical research methods in advancing strategy scholarship

Abstract: Research Summary: The last decade has witnessed an increasing interest in the use of history and historical research methods in strategy research. We discuss how and why history and historical research methods can enrich theoretical explanations of strategy phenomena. In addition, we introduce the notions of “history-informed strategy research,” distinguishing between the dimensions of “history to theory” and “history in theory” and discussing various under-utilized methods that may further work on history-informed strategy research. We then discuss how contemporary research contributes to history-informed research within the strategy field, examine key methodological and empirical challenges associated with such research, and develop an agenda for future research. Managerial Summary: Firms are increasingly making use of their historical past as they reflect on their identities and how these can be used strategically. At the same time, strategy researchers are paying increasing to the use of historical research methods, as well as to how firms use history strategically. We take stock on the role of history in strategy research, outline the key strategic issues that can be informed by a historical way of doing research, discuss the available historical methods, and offer suggestions for future research in the history/strategy intersection.

Liminal movement by digital platform‐based sharing economy ventures: The case of Uber Technologies

Abstract: We explore the challenges that digital platform-based sharing economy ventures confront in establishing legitimacy for their business models by examining the dynamics that ensued when Uber Technologies deployed its ride-sharing business model in four U.S. cities. Uber entered each city to jump-start network effects by establishing cognitive legitimacy while deepening a sociopolitical legitimacy crisis that emerged due to mismatches between its business model and existing regulations. Operating between existing categories, Uber used a series of interrelated market and non-market strategies, which we label as liminal movement, to generate cognitive and sociopolitical legitimacy.

History and the micro‐foundations of dynamic capabilities

Abstract: Research Summary The capacity to manage history is an important but undertheorized component of dynamic capabilities. We argue that the capacity to manage the interpretation of the past, in the present for the future, is a critical ability that informs a firm's ability to successfully enact changes needed to adapt to disruptive technology. We identify and elaborate three specific cognitive interpretations of history—history as objective fact, history as interpretive rhetoric, and history as imaginative future‐perfect thinking—and demonstrate how these different views of history can be mobilized by managers to sense, seize, and reconfigure around opportunities made available by understanding the invisible thread of technology. Managerial Summary History is typically understood to be a constraint on a manager's ability to effect change. A firm's past is assumed to create inertia in routines and structures that compromise a firm's ability to change. We show how acquiring a broader understanding of the role of history can improve a manager's ability to enact organizational change. Studying the evolution of technology over time and across products allows managers to sense opportunities created by technological change. Using different narrations of the past as continuous or disruptive can improve a manager's ability to motivate or resist change. Using the past to construct convincing scenarios of the future, managers can enroll key stakeholders in the industry to support a strategic direction that advances the firm's strategic goals.

Mutualism and the dynamics of new platform creation: A study of Cisco and fog computing

Abstract: Research summary: How firms respond to the emergence of dominant platforms that undermine their competitiveness remains a strategic puzzle. Our longitudinal study shows how one incumbent, Cisco, responded to such a challenge by creating a new platform, Fog, without undermining the dominant platform, Cloud, where it played a complementor role. By developing a process model we reveal how a firm in a peripheral role in a platform ecosystem can reposition itself through a dynamic mix of material, symbolic and institutional actions to develop and legitimize an alternative platform. This can be done first through symbiosis with the dominant platform, then partial competition with it. We theorize the value of a mutualistic “rising tide lifts all boats” strategy in contrast to hostile “winner takes all” approaches. Managerial summary: The increasing pervasiveness of digital platforms are driving established firms to reboot their strategy to embrace emergent forms of competition, collaboration, and mutual coexistence. Fearing disruption in their traditional business models, firms may decide to jump into the platform game. However, this is not straightforward since they do not want to go head-to-head with existing platforms and alienate their partners and customers by being perceived as encroaching on their turf. We describe one way that established technology firms are overcoming this dilemma through a “rising-tide-lifts-all-boats” strategy to cultivate new platforms. We show the value of seemingly inconsistent and dynamic approaches toward strategic communication and investments firm can use to lead new platforms without facing backlash from others.

Machine learning and human capital complementarities: Experimental evidence on bias mitigation

Abstract: Research Summary The use of machine learning (ML) for productivity in the knowledge economy requires considerations of important biases that may arise from ML predictions. We define a new source of bias related to incompleteness in real time inputs, which may result from strategic behavior by agents. We theorize that domain expertise of users can complement ML by mitigating this bias. Our observational and experimental analyses in the patent examination context support this conjecture. In the face of “input incompleteness,” we find ML is biased toward finding prior art textually similar to focal claims and domain expertise is needed to find the most relevant prior art. We also document the importance of vintage‐specific skills, and discuss the implications for artificial intelligence and strategic management of human capital. Managerial Summary Unleashing the productivity benefits of machine learning (ML) technologies in the future of work requires managers to pay careful attention to mitigating potential biases from its use. One such bias occurs when there is input incompleteness to the ML tool, potentially because agents strategically provide information that may benefit them. We demonstrate that in such circumstances, ML tools can make worse predictions than the prior technology vintages. To ensure productivity benefits of ML in light of potentially strategic inputs, our research suggests that managers need to consider two attributes of human capital—domain expertise and vintage‐specific skills. Domain expertise complements ML by correcting for the (strategic) incompleteness of the input to the ML tool, while vintage‐specific skills ensure the ability to properly operate the technology.

Reliance on science: Worldwide front-page patent citations to scientific articles

Abstract: Research summary To what extent do firms rely on basic science in their R&D efforts? Several scholars have sought to answer this and related questions, but progress has been impeded by the difficulty of matching unstructured references in patents to published papers. We introduce an open‐access dataset of references from the front pages of patents granted worldwide to scientific papers published since 1800. Each patent‐paper linkage is assigned a confidence score, which is characterized in a random sample by false negatives versus false positives. All matches are available for download at http://relianceonscience.org. We outline several avenues for strategy research enabled by these new data. Managerial summary To what extent do firms rely on basic science in their R&D efforts? Several scholars have sought to answer this and related questions, but progress has been impeded by the difficulty of matching unstructured references in patents to published papers. We introduce an open‐access dataset of references from the front pages of patents granted worldwide to scientific papers published since 1800. Each patent‐paper linkage is assigned a confidence score, and we check a random sample of these confidence scores by hand in order to estimate both coverage (i.e., of the matches we should have found, what percentage did we find) and accuracy (i.e., of the matches we found, what percentage are correct). We outline several avenues for strategy research enabled by these new data.

Biased interpretation of performance feedback: The role of CEO overconfidence

Abstract: Research summary: This study examines how managerial biases in the form of overconfidence change the interpretation of performance feedback and, consequently, shape a firm's risk taking in response to it. Our formal analysis suggests that CEO overconfidence is associated with a lower willingness to increase firm risk taking when facing negative performance feedback and a higher willingness to decrease risk when facing positive feedback. An extension of our model also shows that, when firms are operating close to their survival level, the effects of CEO overconfidence will reverse. We test our predictions empirically with a sample of 847 American manufacturing firms in the years 1992 to 2014. Our results are consistent with our hypotheses and are robust to different empirical operationalizations of CEO overconfidence. Managerial summary: Managers evaluate the success of their current business strategy through feedback in the form of their firm's current financial results relative to their own previous performance or that of their peers. Our results show that overconfident CEOs interpret information about the financial situation of their firms more optimistically than non-overconfident CEOs, which in turn causes them to exhibit a less pronounced reaction to both positive or negative performance feedback. It is thus crucial that managers are clearly aware of how their interpretations and reactions to feedback are affected by their own deeply held personal beliefs and dispositions.

Disentangling the effects of hedge fund activism on firm financial and social performance

Abstract: Research Summary We investigate how hedge fund activism affects firms' financial and social performance. So far, research has examined either the impact of hedge fund activism on firms' short‐term financial performance, or how other types of shareholder activism affect firms' social performance. Crossing these boundaries with data on 1,324 activist hedge fund campaigns between 2000 and 2016, we find a clear trade‐off associated with hedge fund activism: benefits are shareholder‐centric and short‐lived, reflected in immediate increases in market value and profitability; however, these increases come at a mid‐ to long‐term cost to other stakeholders, captured by decreases in operating cash flow, investment spending, and social performance. We discuss our findings from a multi‐stakeholder perspective to move beyond a polarizing debate about the merits of hedge fund activism. Managerial Summary With hedge fund activism on the rise, determining the consequences of equity ownership by activist hedge funds on target companies' short‐term and long‐term financial and social performance takes on central importance. In this study, we find hedge fund campaigns are associated with three broad sets of outcomes for targeted companies: (a) an immediate but short‐lived increase in market value and profitability, and an immediate and long‐lived decline in operating cash flow; (b) decreases in number of employees, operating expenses, RD and (c) the suppression of corporate social performance. By capturing the range of positive and negative effects on target companies, our study presents the competing implications of hedge fund activism on business and society.

Stakeholder engagement strategies, national institutions, and firm performance: A configurational perspective

Abstract: **Research summary** Research documents the performance effects of attending to shareholders and treating employees well but underplays national differences in the relative power of labor and capital. We advance a configurational perspective that acknowledges the fit between stakeholder engagement, context, firm attributes and performance. As a cornerstone of this perspective, we develop a typology of stakeholder engagement strategies expressing how firms navigate the tension between conforming with local expectations—by prioritizing shareholders or employees, according to context—and being distinctive—by diverging from their peers. Analyzing a cross‐national sample of firms from 2004 to 2011, we identify combinations of engagement strategies, firm attributes, and contexts linked to high performance. Our findings highlight the multiple context‐dependent paths, which link stakeholder engagement to high firm performance. **Managerial summary** How do firms navigate pressures from shareholders and employees across different institutional environments? We develop a typology of stakeholder engagement strategies based on how firms in different countries strike a balance between conformity (i.e., prioritizing locally important stakeholders) and differentiation (i.e., prioritizing stakeholders that their local peers might neglect). Our findings show that the engagement strategies associated with high performance vary according to local institutional context and firm characteristics. In particular, by not merely prioritizing stakeholders who are already locally important, firms can use stakeholder engagement to differentiate themselves from their peers, and such engagement strategies are often linked to high performance. **Online appendix: Data Set** Available at [https://doi.org/10.35065/sten-2001](https://doi.org/10.35065/sten-2001)

Dealing with revered past: Historical identity statements and strategic change in Japanese family firms

Abstract: Research Summary This paper examines how strategy-makers attempt to reconcile change initiatives with organizational values and principles laid out long before, still encased in strategic identity statements such as corporate mottos and philosophies. It reveals three discursive strategies that strategy-makers use to establish a sense of continuity in time of change: elaborating (transferring part of the content of the historical statement into a new one), recovering (forging a new statement based on the retrieval and re-use of historical references), and decoupling (allowing the co-existence of the historical statement and a contemporary one). By so doing, our study advances research on uses of the past, establishes important linkages between identity and strategy research, and enhances our understanding of the intergenerational transfer of values in family firms. Managerial Summary Crafting a new corporate philosophy or mission statement can help implement strategic change, but can also be experienced as a disruption in people's sense of "who we are" as an organization. This paper reveals a variety of strategies that managers can use to deal with the tension between promoting change and maintaining a sense of continuity with a distant, revered past. By doing so, it helps managers confronting these issues deal with the enabling and constraining effects of the past. While this is a more general challenge for organizations with historical legacies, it is a particularly delicate issue for family firms grappling with the need to transfer values from one generation to the next, while retaining flexibility to change and adapt over time.

CEO cognitive flexibility, information search, and organizational ambidexterity

Abstract: Research summary Although prior research highlights the organizational and cognitive challenges associated with achieving organizational ambidexterity, there has been comparatively less empirical attention focused on the cognitive characteristics that may differentiate top managers of firms that achieve ambidexterity. We build on emerging research and identify cognitive flexibility as a cognitive characteristic with particular relevance to the challenges associated with ambidexterity and suggest that it works through chief executive officers (CEOs)' information search activities. We find that cognitively flexible CEOs are more likely to engage in effortful and persistent information search and rely to a greater extent on outside sources of information. In turn, effortful and persistent information search activities are associated with higher levels of organizational ambidexterity. Our study pushes forward the research agenda on cognitive micro‐foundations of firm capabilities. Managerial summary Ambidextrous organizations, or organizations that have the capability to pursue both incremental and discontinuous innovation, enjoy more sustainable competitive advantages. However, the achievement of organizational ambidexterity poses unique demands for top managers, including cognitive challenges. To help managers better understand these challenges, this study focuses attention on the role of the CEO in the achievement of organizational ambidexterity, and on CEO cognitive flexibility as a potential influencing factor. Our results suggest that CEO cognitive flexibility may influence organizational ambidexterity indirectly through its effect on CEO information search activities, in particular where and how intensely CEOs search for information. Our study reinforces the importance of human factors in the executive office for the development of firm dynamic capabilities, and the implementation of an innovation‐based strategy.

Mind the gap: The role of gender in entrepreneurial career choice and social influence by founders

Abstract: Research summary: Women continue to be disproportionately underrepresented in new venture creation. We investigate whether and how founders can differently influence future entrepreneurial career choices of their male and female joiners. Using a large sample of startup firms with personnel where founders interact closely with joiners, we demonstrate that founders have a strong influence on a joiner's entrepreneurial career choice if both are female. We find empirical support for role modeling as a key underlying mechanism, accounting for alternative explanations such as selective matching based on gender and push-driven factors. These findings increase our understanding of the roles of socialization and organizational context in shaping the career outcomes of employees, and provide evidence of a multiplier effect of female entrepreneurs. Managerial summary: Women are less likely to be entrepreneurs than men. We investigate whether working in a startup founded by a woman instead of a man influences individuals' decision to become an entrepreneur later. We find this to be the case for women. This result is best explained by female founders acting as role models for their female employees in male-dominated domains. Female founders able to break gender stereotypes seem to have an influence on the career choices of their female employees, especially among those who have lacked contact with entrepreneurs. Moreover, this influence is stronger if the female founder and employee have similar backgrounds. These findings confirm the importance of social interactions at work and suggest new ways to inspire more women to launch startups.

Navigating geographic and cultural distances in international expansion: The paradoxical roles of firm size, age, and ownership

Abstract: Research Summary While geographic and cultural distances deter firms' international expansion, they do so via different mechanisms, such that firms with advantages in overcoming one‐dimension may face disadvantages in overcoming the other. Larger, older, and state‐owned firms have better access to resources in their home countries than smaller, younger, and non‐state‐owned firms, and thus are less concerned about the high operating costs associated with larger geographic distances. However, they are less adaptable to culturally distant countries and thus are more concerned about larger cultural distances. We propose that firm size, age, and state ownership weaken the deterrent effect of geographic distance while amplifying the deterrent effect of cultural distance. Results using data on Chinese firms' location choices of foreign direct investments in 2001–2013 support our predictions. Managerial Summary A key decision that managers need to make in expanding overseas is the foreign location choice. Although managers generally refrain from expanding to geographically and culturally distant countries, the importance of geographic and cultural distances in their consideration varies across firms, which tend to differ in resource endowment and adaptability. Because larger, older, and state‐owned firms are better positioned to absorb additional operating costs but are less adaptable to foreign countries' local environments than smaller, younger, and non‐state‐owned firms, the deterrent effect of geographic distance (cultural distance) is weaker (stronger) for the former than for the latter. Our findings show that foreign countries that seem to be good fits when considering geographic distance may be misfits when considering cultural distance, and vice versa.

Get rich or die trying… finding revenue model fit using machine learning and multiple cases

Abstract: Research Summary While revenue models are strategically important, research is incomplete. Thus, we ask: “What is the optimal choice of revenue model?” Using a novel theory‐building method combining machine learning and multi‐case theory building, we unpack optimal revenue model choice for a wide range of products on the App Store. Our primary theoretical contribution is a framework of high‐performing revenue model‐activity system configurations. Our core insight is the fit between value capture (revenue models) and value creation (activities) at the heart of successful business models. Contrastingly, low‐performing products avoid complex value capture (i.e., freemium) and misunderstand value creation (e.g., overweight effort). Overall, we contribute a theoretically accurate and empirically grounded view of successful business models using a pioneering method for theory building using large, quantitative data sets. Managerial Summary Revenue models are critical for product performance. Yet, the high‐performing choice is often unclear. We combine machine learning with multiple‐case deep‐dives to unpack optimal revenue model choice for a wide range of products on the App Store, a significant setting in the digital economy. Our primary insight is that high‐performing products fit value capture (revenue models) and value creation (activity systems) to form coherent business models. Contrastingly, low‐performing products avoid complex value capture (i.e., freemium) and misunderstand value creation (e.g., overweight effort and price). We also identify the importance of user resources, marketing, offline brand, and product complexity for specific revenue models. Overall, we contribute a framework for the optimal choice of revenue model and spotlight the revenue model‐activity system configurations of successful business models.

Is managerial entrenchment always bad and corporate social responsibility always good? A cross-national examination of their combined influence on shareholder value

Abstract: Research summary: Building on the comparative capitalism's notion of institutional complementarities, we examine whether firms’ simultaneous adoption of managerial entrenchment provisions (MEPs) and corporate social responsibility (CSR) reinforces or undercuts one another in influencing firm financial performance. We propose that the financial impact of such configurations is contingent on the country's institutional setting. In Liberal Market Economies (LMEs), where firms face strong pressures to achieve short-term goals, the combination of MEPs and CSR creates shareholder value, particularly when firms engage in internally oriented CSR projects. Conversely, in Coordinated Market Economies (CMEs), where institutions already curb short-term demands, the combined adoption of MEPs and CSR initiatives destroys shareholder value, particularly when this CSR is external. Overall, our study enhances understanding of the institutional complementarity between corporate governance and CSR. Managerial summary: This study examines how two organizational practices, managerial entrenchment provisions (MEPs), and corporate social responsibility (CSR), combine between them to improve or reduce firms’ financial success. Our analysis demonstrates that institutional framework has a strong influence on their combined effect. When the institutional context supports solutions to coordination problems among economic agents through market-based arrangements, MEPs allow the implementation of strategies directed to promote long-term investments and relationships. In this case, MEPs when paired with CSR allow generating intangibles that contribute to create shareholder value. Contrarily, in frameworks with coordination mechanisms based on nonmarket arrangements, the joint adoption of MEPs and CSR destroys value by increasing the power of managers and blockholders to extract rents at the expense of firms’ minority shareholders.

Resource congestion in alliance networks: How a firm's partners’ partners influence the benefits of collaboration

Abstract: Research summary The network resources a firm can access through its strategic alliances are critical precursors to innovation: They provide the information and know‐how needed to generate new knowledge. Yet prior literature has not directly considered the congestion of network resources stemming from constraints on their capacity to be applied without loss of value across multiple settings. I examine the degree to which this form of resource congestion influences the innovation benefits a focal firm realizes from its alliance portfolio. In a panel dataset of biopharmaceutical firms, I find that the knowledge‐based resources of a focal firm's alliance partners can be congested due to multiple claims on these resources from the firm's partners’ partners. This insight bridges the network and resource‐based perspectives on alliances and innovation. Managerial summary Strategic alliances are an essential tool for managers in knowledge‐intensive settings: They allow firms to access diverse information and know‐how which can be of critical importance as inputs to the innovation process. What managers may overlook, however, is that the knowledge‐based resources of their alliance partners can be congested due to competing claims on these resources from the other alliances in which their partners are engaged. In such cases, firms may end up competing for resources such as partner time and attention with their partners’ other partners. Consequently, when engaging in alliances, managers should be attentive not only to the knowledge resources an alliance partner may hold but also to whether these partner knowledge resources may ultimately be congested due to their partners’ other relationships.

Serving differently: CEO regulatory focus and firm stakeholder strategy

Abstract: Research summary A fundamental question in stakeholder strategy research is why firms adopt certain strategies or approaches to engage with key stakeholders. Recent research suggests that CEOs' characteristics can influence their general decisions to engage with stakeholders, however, this work has yet to consider why CEOs might utilize specific stakeholder strategies. In this article, we demonstrate how CEO regulatory focus influences the nature of a firm's stakeholder strategy. Specifically, we argue that CEO prevention focus is positively associated with engagement in governance‐oriented initiatives and receptivity to governance‐oriented stakeholder activism, while CEO promotion focus is positively associated with engagement in socially‐oriented initiatives and receptivity to socially‐oriented stakeholder activism. We find strong support for our hypotheses in a sample of 374 publicly‐traded firms. Managerial summary The strategies a firm uses to engage with stakeholders can influence its performance, yet little is known about what makes firms focus on certain stakeholders over others. To better understand this, we examined CEO regulatory focus in a sample of large public companies. Our findings reveal that the way CEOs view decisions—either based on a sense of duty, obligations, and responsibility or as a means to achieve high ideals—influences their tendency to prioritize shareholder concerns or the concerns of a broader array of stakeholders. This suggests that executives should be aware of their own natural tendencies to inject their motivations into their firm's stakeholder strategy and consider avenues to balance their perspectives for the sake of the firm.

Do firms use corporate social responsibility to insure against stock price risk? Evidence from a natural experiment

Abstract: Research Summary To examine whether firms use corporate social responsibility (CSR) to insure against stock price risk, we exploit an exogenous shock in stock price risk associated with Regulation SHO whereby the SEC randomly selected pilot firms for which the uptick restriction on short sales no longer applied. A difference‐in‐differences test reveals that pilot firms increased CSR more than nonpilot firms and that in particular they reduced CSR concerns and increased CSR that impacts stakeholders involved in direct resource exchange. We also find that pilot firm CSR reduced short positions against them and that the effect is stronger for CSR concerns and CSR that impacts directly connected stakeholders. Overall, we document a causal effect of stock price risk on managerial incentives to invest in CSR for risk management. Managerial Summary Corporate social responsibility has many purported benefits, one of which is that it can insure against the adverse stock price effects of negative events. But do managers purposefully use CSR in this way and do such investments provide intended insurance‐like benefits? By taking advantage of a natural experiment where a randomly selected set of pilot firms were exposed to elevated short‐sale risk unleashed by the SEC regulation, we find evidence that they do. Once the SEC initiated the regulatory change, firms that faced greater risk increased CSR more than firms that did not. In addition, increased CSR lowered short interests in pilot firms' stocks and this reduction is attributable to the insurance‐like effect of CSR rather than simply prevention of adverse events. A video abstract is available at https://youtu.be/zajeSbhlwhc

How do strategic leaders engage with social media? A theoretical framework for research and practice

Abstract: Research summary: Social media is a powerful medium for examining strategic leaders' novel interactions and influence within and outside the firm. But, while studies on social media are popping up like kettle corn across disciplines, no conceptual framework for organizing, guiding, and inspiring research on social media engagement among strategic leaders has yet appeared. Toward this end, we first clarify the construct and develop a typological conceptualization of strategic leaders' social media engagement behaviors. Next, we introduce a theoretical framework and corresponding propositions for explaining the variations, mechanisms, and consequences of social media engagements. We conclude with implications for future research, including data collection and measurement. Managerial summary: With the growing proliferation of social media platforms, today's executives are faced with a vast array of choices about how to use social media to engage with diverse stakeholders and online communities. Although avoidance continues to be a preference for many executives, the scale and scope of social media platforms offer executives unprecedented opportunities—as well as risks—to engage stakeholders. We develop and illustrate a framework of six archetypal engagement behaviors through which executives may leverage social media to reach, communicate, and interact with stakeholders in developing and executing strategy—for both good and ill. We then discuss the implications of these alternative playbooks for executive decision-making and firm outcomes.

The origins of firm strategy: Learning by economic experimentation and strategic pivots in the early automobile industry

Abstract: Research Summary We explore the effectiveness of economic experimentation as a learning mechanism through a historical exploration of the early automobile industry. We focus on a particular subset of economic experiments, called strategic pivots, that requires irreversible firm commitments. Our quantitative analysis suggests that strategic pivoting was associated with success. We then use historical methods to understand whether this association is reasonably interpreted as a causal link. We identify lessons that could only plausibly have been learned through strategic pivoting and document that those firms that were able to learn from the strategic pivots were most likely to succeed. We discuss the generalizability of our findings to build the hypothesis that strategic pivots and economic experiments originate firm strategy. Managerial Summary We explore the effectiveness of experimentation as a learning mechanism through a historical exploration of the early automobile industry. We focus on a particular subset of experiments, called strategic pivots, that requires irreversible firm commitments. Our analysis suggests that strategic pivoting was associated with success. We identify lessons that could only plausibly be learned through strategic pivoting and document that those firms that were able to learn from the strategic pivots were most likely to succeed. Even though firms may use lean techniques, market solutions may only be discovered through strategic pivots whose outcomes are unknowable ex‐ante. Therefore, successful strategies reflect an element of luck.

Decision weaving: Forming novel, complex strategy in entrepreneurial settings

Abstract: Research Summary Strategy formation is central to why some firms seize novel opportunities while others fail. We explore a core dilemma of strategy formation in entrepreneurial settings—whether to learn a novel strategy one domain at a time (modular) versus assemble a complex strategy of coherent activities across all domains at once (integrative). By studying six ventures, we develop a theoretical framework for how entrepreneurs effectively form novel, complex strategy: Decision weaving. They (a) employ sequential focus (not parallel), (b) pause at plateaus (not optima), and (c) deploy stepping stones (not leaps) in background domains. These behaviors enable both fast, effective learning and evolving yet holistic understanding of an emerging strategy. Overall, we contribute to the microfoundations of strategy by proposing a cognitively sophisticated, yet realistic strategist. Managerial Summary Strategy formation is central to why firms seize novel opportunities while others fail. By comparing three venture‐pairs, we develop a fresh framework for strategy formation in nascent markets where strategy is both novel and complex: Decision weaving. Effective strategists: (a) use sequential focus (not parallel) to learn about successive focal strategic domains, (b) pause at learning plateaus to consolidate that knowledge about a focal domain, and (c) use stepping stones to make progress in background domains without losing focus. These behaviors enable both fast, effective learning, and evolving yet holistic understanding of an emerging strategy. More importantly, these behaviors set the stage for rapid and profitable scaling (i.e., growth).

Investor experience and innovation performance: The mediating role of external cooperation

Abstract: Research Summary We add to the literature examining the ownership‐innovation relationship by examining two major investor types: corporate investors and family investors. We use organizational environmental scanning as a new perspective to understand how these investors' capabilities influence firms' external cooperation and innovation performance. We found that corporate investors with broad investment experience strengthen a firm's environmental scanning, enhancing innovation performance by increasing the number of external cooperation activities the firm engages in. Conversely, family investors' broad investment experience tend to be negatively associated with the number of external cooperation and with firm innovation. Our results show that investors influence firm innovation not simply through a monitoring role but also by affecting firms' abilities to innovate, once we factor in the types of investors and their capabilities. Managerial Summary We investigate how two different types of investors, corporate and family, influence the innovation performance of publicly‐traded high‐tech firms in Taiwan. We found that the presence of major corporate investors with broad investment experience enhances firms' innovation performance by increasing external cooperation activities firms engage in. Corporate investors appear to enhance organizations' environmental scanning abilities and, in turn, their innovation performance. Conversely, family investors' broad investment experience is negatively associated with firm innovation because such firms engage in fewer external cooperation activities. A focus on control and social cohesion in family firms appears to decrease the emphasis on external knowledge acquisition when family investors have broad investment experience. In summary, our results show that investors' breadth of investment experience influences firms' ability to innovate.