Showing papers in "Strategic Management Journal in 2021"

Work-from-anywhere: The productivity effects of geographic flexibility

Abstract: An emerging form of remote work allows employees to work-from-anywhere, so that the worker can choose to live in a preferred geographic location. While traditional work-from-home (WFH) programs offer the worker temporal flexibility, work-from-anywhere (WFA) programs offer both temporal and geographic flexibility. WFA should be viewed as a nonpecuniary benefit likely to be preferred by workers who would derive greater utility by moving from their current geographic location to their preferred location. We study the effects of WFA on productivity at the United States Patent and Trademark Office (USPTO) and exploit a natural experiment in which the implementation of WFA was driven by negotiations between managers and the patent examiners’ union, leading to exogeneity in the timing of individual examiners’ transition from a work-from-home to a work-from-anywhere program. This transition resulted in a 4.4 percent increase in output without affecting the incidence of rework. We also report results related to a plausible mechanism: an increase in observable effort as the worker transitions from a WFH to a WFA program. We employ illustrative field interviews, micro- data on locations, and machine learning analysis to shed further light on geographic flexibility, and summarize worker, firm, and economy-wide implications of provisioning WFA. Keywords geographic flexibility, work-from-anywhere, remote work, telecommuting, worker mobility ABOUT THE AUTHOR/S Prithwiraj Choudhury Harvard Business School pchoudhury@hbs.edu Prithwiraj (Raj) Choudhury is the Lumry Family Associate Professor at the Harvard Business School. He was an Assistant Professor at Wharton prior to joining Harvard. His research is focused on studying the Future of Work, especially the changing Geography of Work. In particular, he studies the productivity effects of geographic mobility of workers, causes of geographic immobility and productivity effects of remote work practices such as ‘Work from anywhere’ and ‘All-remote’. Cirrus Foroughi Harvard Business School cforoughi@hbs.edu Barbara Larson Northeastern University b.larson@northeastern.edu New Future of Work 2020, August 3–5, 2020 © 2020 Copyright held by the owner/author(s)

Shareholder activism and firms' voluntary disclosure of climate change risks

Abstract: Research Summary This article examines whether—in the absence of mandated disclosure requirements—shareholder activism can elicit greater disclosure of firms' exposure to climate change risks. We find that environmental shareholder activism increases the voluntary disclosure of climate change risks, especially if initiated by institutional investors, and even more so if initiated by long‐term institutional investors. We also find that companies that voluntarily disclose climate change risks following environmental shareholder activism achieve a higher valuation postdisclosure, suggesting that investors value transparency with respect to firms' exposure to climate change risks. Managerial Summary Climate change poses increasing risks to companies. Yet, despite the growing importance of climate change risks, little is known about companies' exposure to climate change risks, their disclosure of these risks, and what strategic actions they take to manage and mitigate these risks. In this study, we examine whether—in the absence of mandatory disclosure—shareholders can elicit greater corporate transparency with respect to climate change risks. We find that shareholder activism is effective, especially if initiated by long‐term institutional investors. We also find that the stock market reacts positively to companies' climate risk disclosure following environmental shareholder activism, suggesting that investors value transparency with respect to firms' exposure to climate change risks.

Charting a path between firm-specific incentives and human capital-based competitive advantage

Abstract: Research Summary Scholars have long recognized the theoretical and practical implications of firm‐specific human capital. However, we highlight that firm‐specific incentives (i.e., worker incentives that provide more utility to workers in the focal firm than similar incentives available at other employers) provide an important pathway to competitive advantages that has not been comprehensively examined in the extant organizational research. We address this gap by (a) defining firm‐specific incentives and showing why they are different from incentive conceptualizations and typologies in the extant literature, (b) articulating potential origins of firm‐specific incentives, and (c) formally proposing the conditions under which firm‐specific incentives facilitate human capital‐based competitive advantages. In so doing, we develop a cohesive theoretical framework of incentive‐based competitive advantage that integrates across multiple literatures. Managerial Summary Just as companies differentiate their products by creating unique value for customers, they also create unique value for their employees. Some companies do this by offering employee incentives, perks, and benefits that are highly unique to the company and difficult for other companies to imitate. These unique incentives, perks, and benefits can help these companies to attract, motivate, and retain top talent at a financial discount and, accordingly, can help these companies realize competitive advantages over their rivals.

From necessity to opportunity: Scaling bricolage across resource‐constrained environments

Abstract: Research summary: Enterprises in low-resource contexts often rely on bricolage (i.e., making do by applying resources at hand to new problems). However, bricolage has traditionally been regarded as a way to temporarily get by, potentially constraining growth if continued over time. This has been explained by factors such as limited development of learning competencies. Surprisingly, we encountered a social organization appearing to use bricolage to scale extensively into a variety of locations. This puzzling observation prompted our research question: Can bricolage be scaled, and if so, how and why? We embarked on a process study of this organization, leading to a novel conceptual model of scaling bricolage: as a low-cost replication process of heuristics, enabling fit with a diversity of local environments, as well as cross-unit learning. Managerial summary: How do organizations emerge, survive, and scale in resource-scarce environments? Traditional scaling models tend to rely on considerable financial resources and companies often struggle to adjust to diverse contexts. In contrast, we identified and studied an organization in Sub-Saharan Africa that we argue used simple rules to scale bricolage—making the best out of what is at hand—successfully in diverse low-resource contexts. Our paper provides a novel conceptual model of scaling bricolage: a low-cost replication process of heuristics, enabling fit with a diversity of local environments, as well as cross-unit innovation and learning.

Strategic management during the financial crisis: How firms adjust their strategic investments in response to credit market disruptions

Abstract: This study investigates how companies adjusted their investments in key strategic resources—ie, their workforce, capital expenditures, R&D, and CSR—in response to the sharp increase in the cost of credit (the “credit crunch”) during the financial crisis of 2007-2009 We compare companies whose long-term debt matured shortly before versus after the credit crunch to obtain (quasi-)random variation in the extent to which companies were hit by the higher borrowing costs We find that companies that were adversely affected followed a “two-pronged” approach of curtailing their workforce and capital expenditures, while maintaining their investments in R&D and CSR We further document that firms that followed this two-pronged approach performed better post-crisis

Machine learning for pattern discovery in management research

Abstract: Supervised machine learning (ML) methods are a powerful toolkit for discovering robust patterns in quantitative data. The patterns identified by ML could be used for exploratory inductive or abductive research, or for post-hoc analysis of regression results to detect patterns that may have gone unnoticed. However, ML models should not be treated as the result of a deductive causal test. To demonstrate the application of ML for pattern discovery, we implement ML algorithms to study employee turnover at a large technology company. We interpret the relationships between variables using partial dependence plots, which uncover surprising nonlinear and interdependent patterns between variables that may have gone unnoticed using traditional methods. To guide readers evaluating ML for pattern discovery, we provide guidance for evaluating model performance, highlight human decisions in the process, and warn of common misinterpretation pitfalls. An online appendix provides code and data to implement the algorithms demonstrated in the paper.

CEO emotions and firm valuation in initial coin offerings: An artificial emotional intelligence approach

Abstract: Research Summary How emotions impact firm valuation is empirically understudied because affective traits are difficult to quantify. However, using artificial emotional intelligence, positive and negative affects can be identified from facial muscle contraction‐relaxation patterns obtained from public CEO photos during initial coin offerings, that is, blockchain‐based issuances of cryptocurrency tokens to raise growth capital. The results suggest that CEO affects impact firm valuation in two ways. First, CEOs' own firm valuations conform more to those of industry peers if negative affects are pronounced (conformity mechanism). Second, investors use CEO affects as signals about firm value and discount when negative affects are salient (signaling mechanism). Both mechanisms are stronger in the presence of asymmetric information. Managerial Summary The purpose of this paper is to advance our understanding of how CEOs' affective traits influence firm valuation by both, CEOs themselves and investors. The effect of CEO emotions is plausibly particularly pronounced for start‐up firms, whose success prospects critically depend on their leaders. My results suggest that CEO emotions impact underpricing in initial coin offerings twofold. First, negative emotions are associated with CEOs choosing an underpricing level that closely conforms to their peer firms' average. Second, investors react to negative CEO emotions by demanding higher discounts on firm value. These effects are more pronounced when there is relatively little public information about the ICO firm. My paper is accompanied by artificial emotional intelligence software for implementation in practice and future research.

The Janus face of artificial intelligence feedback: Deployment versus disclosure effects on employee performance

Abstract: Companies are increasingly using artificial intelligence (AI) to provide performance feedback to employees, by tracking employee behavior at work, automating performance evaluations, and recommending job improvements. However, this application of AI has provoked much debate. On the one hand, powerful AI data analytics increase the quality of feedback, which may enhance employee productivity (“deployment effect”). On the other hand, employees may develop a negative perception of AI feedback once it is disclosed to them, thus harming their productivity (“disclosure effect”). We examine these two effects theoretically and test them empirically using data from a field experiment. We find strong evidence that both effects coexist, and that the adverse disclosure effect is mitigated by employees' tenure in the firm. These findings offer pivotal implications for management theory, practice, and public policies. Managerial abstract Artificial intelligence (AI) technologies are bound to transform how companies manage employees. We examine the use of AI to generate performance feedback for employees. We demonstrate that AI significantly increases the accuracy and consistency of the analyses of information collected, and the relevance of feedback to each employee. These advantages of AI help employees achieve greater job performance at scale, and thus create value for companies. However, our study also alerts companies to the negative effect of disclosing using AI to employee that results from employees' negative perceptions about the deployment of AI, which offsets the business value created by AI. To alleviate value‐destroying disclosure effect, we suggest that companies be more proactive in communicating with their employees about the objectives, benefits, and scope of AI applications in order to assuage their concerns. Moreover, the result of the allayed negative AI disclosure effect among employees with a longer tenure in the company suggests that companies may consider deploying AI in a tiered instead of a uniform fashion, that is, using AI to provide performance feedback to veteran employees but using human managers to provide performance feedback to novices.

Out of character: CEO political ideology, peer influence, and adoption of CSR executive position by Fortune 500 firms

Abstract: Research Summary We consider the link between firms' decisions to adopt a CSR executive position and the political ideology of prior adopter CEOs. We theorize that firms are more likely to adopt a CSR executive position when it has been previously adopted by conservative‐leaning CEOs at other firms, as opposed to liberal‐leaning CEOs. This effect is due, we argue, to the increased perceptual salience and situational attributions associated with ideologically incongruent actions (i.e., actions that appear inconsistent with known political values). We further posit that these effects are stronger when the observing firms experience increased salience of CSR issues due to shareholder pressure and institutional equivalence between the referent and the observing firms. We find support for these ideas in a longitudinal sample of Fortune 500 companies. Managerial Summary How do CEOs' values affect industry‐wide appointments of senior executives in charge of Corporate Social Responsibility (CSR)? Prior research suggests that liberal political beliefs of CEOs predict their CSR commitments. Our study explores how the political beliefs of CEOs—in this case, CEOs who have created a new CSR executive position in their companies—influence the likelihood that peer CEOs will imitate their decisions. Specifically, we find that when conservative CEOs adopt a CSR executive position, other companies are more likely to follow than when liberal‐leaning CEOs do so. These effects are even stronger when companies are experiencing CSR‐related pressure from shareholders and when they belong to the same industry and community as the firms of the CEOs they are observing.

How media coverage of corporate social responsibility and irresponsibility influences cross‐border acquisitions

Abstract: Research Summary This study contributes to the growing strategic corporate social responsibility (CSR) literature by examining the intersection of acquisition studies and international expansion research and highlighting the unexplored impact of media coverage of CSR and corporate social irresponsibility (CSI) in shaping completion and duration outcomes of cross‐border acquisitions. A quantitative analysis of 4,087 cross‐border acquisition announcements by firms from Brazil, Russia, India, China, and South Africa (1990–2011) shows that while media coverage of CSR is not important, media coverage of CSI is associated with lower likelihood of and longer duration till acquisition completion. By theoretically and empirically distinguishing media coverage of CSR from CSI, this paper pushes the existing literature to acknowledge these distinct concepts and their varying effects. In sum, managers should beware media coverage of CSI when acquiring abroad. Managerial Summary Cross‐border acquisitions by firms from emerging markets often do not reach completion or are badly delayed, damaging the firms' attempts to expand. A key barrier to completing deals is that employees, customers, regulators, media, and other stakeholders in the target market are suspicious of these firms, fearing that they will be poor corporate citizens. I examine whether media coverage of acquirers' social activities helps overcome these suspicions. I find that media coverage of socially responsible activities does not facilitate deal completion. Strikingly, however, media coverage of irresponsible actions, such as labor or environmental issues, delays or blocks deal completion. The implication is that firms from emerging markets, which increasingly are expanding abroad, need to avoid activities that people outside their country will interpret as inappropriate.

Occupational, industry, and geographic exposure to artificial intelligence: A novel dataset and its potential uses

Abstract: We create and validate a new measure of an occupation’s exposure to AI that we call the AI Occupational Exposure (AIOE). We use the AIOE to construct a measure of AI exposure at the industry level, which we call the AI Industry Exposure (AIIE) and a measure of AI exposure at the county level, which we call the AI Geographic Exposure (AIGE). We also describe several ways in which the AIOE can be used to create firm level measures of AI exposure. We validate the measures and describe how they can be used in different applications by management, organization and strategy scholars.

Platform diffusion at temporary gatherings: Social coordination and ecosystem emergence

Abstract: Research Summary Software platforms create value by cultivating an ecosystem of complementary products and services. Existing explanations for how a prospective complementor chooses platforms to join assume the complementor has rich information about the range of available platforms. However, complementors lack this information in many ecosystems, raising the question of how complementors learn about platforms in the first place. We investigate whether attending a temporary gathering—a hackathon—impacts the platform choices of software developers. Through a large‐scale quantitative study of 1,302 developers and 167 hackathons, supported by qualitative research, we analyze the multiple channels—sponsorship, social learning, knowledge exchange, and social coordination—through which hackathons serve as a social forum for the diffusion of platform adoption among attendees. Managerial Summary A software platform such as Windows, iOS, or Amazon Web Services relies on third‐party developers to create applications that complement the platform and make it valuable for end users. However, developers face a wide range of possible platforms, and they may have limited information about which platforms would be worthwhile to develop for. A software platform business can educate and encourage developers to adopt their platform by supporting in‐person software development competitions, known as hackathons. Developers learn about prospective platforms that advertise at the hackathon. Developers also learn whether and how to use a platform by observing and teaching one other. Hackathons are particularly useful for spreading platform technologies: developers prefer to adopt widely used platforms, and hackathons permit developers to identify and join fashionable platforms.

Do university entrepreneurship programs promote entrepreneurship

Abstract: Abstract Recently, many universities have developed entrepreneurship programs. However, relatively little is known about their impacts. This paper examines how entrepreneurship initiatives affect entrepreneurial activity using a unique survey that asks about the entrepreneurship activities of Stanford alumni. We examine the two major initiatives that were established in the mid 1990s the Stanford Center for Entrepreneurial Studies at the Business School and the Stanford Technology Ventures Program at the Engineering School. OLS regressions find that program participation is positively related to entrepreneurship activities. We utilize the introduction of each school’s program as an instrument for program participation. Overall, the findings imply that university entrepreneurship programs may not increase entrepreneurship, but help students to better identify their potential as entrepreneurs and improve the quality of entrepreneurship.

Engineering serendipity: When does knowledge sharing lead to knowledge production?

Abstract: Research Summary We investigate how knowledge similarity between two individuals is systematically related to the likelihood that a serendipitous encounter results in knowledge production. We conduct a field experiment at a medical research symposium, where we exogenously varied opportunities for face-to-face encounters among 15,817 scientist-pairs. Our data include direct observations of interaction patterns collected using sociometric badges, and detailed, longitudinal data of the scientists' postsymposium publication records over 6 years. We find that interacting scientists acquire more knowledge and coauthor 1.2 more papers when they share some overlapping interests, but cite each other's work between three and seven times less when they are from the same field. Our findings reveal both collaborative and competitive effects of knowledge similarity on knowledge production outcomes. Managerial Summary Managers often try to stimulate innovation by encouraging serendipitous interactions between employees, for example by using office space redesigns, conferences and similar events. Are such interventions effective? This article proposes that an effective encounter depends on the degree of common knowledge shared by the individuals. We find that scientists who attend the same conference are more likely to learn from each other and collaborate effectively when they have some common interests, but may view each other competitively when they work in the same field. Hence, when designing opportunities for face-to-face interactions, managers should consider knowledge similarity as a criteria for fostering more productive exchanges.

Follow the smoke: The pollution haven effect on global sourcing

Abstract: Research abstract We examine whether and how foreign environmental standards influence global sourcing decisions. Taking a question‐driven approach, we find a negative association between the stringency of a country's environmental standards and its share in US imports for 82 manufacturing industries across 77 countries between 2006 and 2016. This pollution haven effect holds not only for sourcing from owned foreign operations (offshore integration), but also for sourcing from unrelated third parties abroad (offshore outsourcing), and is stronger in industries with high toxic emissions and low technological intensity. These results are robust across alternative measures of environmental stringency and to using the Kyoto Agreement as an instrumental variable. These findings shed new light on how firms use global sourcing, and especially offshore outsourcing, to arbitrage across institutional environments. Managerial summary Prior work has shown that multinational firms prefer to locate their plants in countries with weak environmental standards: the so‐called Pollution Haven Effect. We extend this research to show that firms not only source from countries with weak environmental standards from their own plants, but also from third‐party foreign suppliers. Using Census data on US manufacturing imports from 77 countries between 2006 and 2016 we show that when the stringency of environmental standards in a country decreased, sourcing from that country increased, and that this effect was just as strong for sourcing from third parties as from owned operations. Our study thus suggests that previous work may have substantially underestimated the pollution haven effect, by focusing on owned global sourcing rather than all global sourcing.

A database of CEO turnover and dismissal in S&P 1500 firms, 2000–2018

Abstract: Research Summary We introduce an open‐source dataset documenting the reasons for CEO departure in S&P 1500 firms from 2000 through 2018. In our dataset, we code for various forms of voluntary and involuntary departure. We compare our dataset to three published datasets in the CEO succession literature to assess both the qualitative and quantitative differences among them and to explore how these differences impact empirical findings associated with the performance‐CEO dismissal relationship. The dataset includes eight different classifications for CEO turnover, a narrative description of each departure event, and links to sources used in constructing the narrative so that future researchers can validate or adapt the coding. The resulting data are available at (https://doi.org/10.5281/zenodo.4543893). Managerial Summary This article describes the development of an open‐source database of all CEO dismissals and departures in the S&P 1500 between 2000 and 2018. Prior research on CEO turnover either does not capture the cause of departure or has coded the event independently, leading to inconsistencies and a lack of transparency in coding schemes. This has made it difficult to generate knowledge on the causes and consequences of CEO dismissal. We describe how we developed the database, and we explore how our dataset compares to prior CEO dismissal research. The resulting data are available at (https://doi.org/10.5281/zenodo.4543893).

Platform governance and the rural–urban divide: Sellers' responses to design change

Abstract: Platform companies use design changes to govern their sellers. The success of a design change depends on sellers’ responses, which are influenced by the local environment. Our study focuses on an important aspect of the local environment – rural versus urban. Using data from a leading e-commerce platform, we find that relative to urban sellers, rural sellers were particularly poor at adjusting to a major design change. This also resulted in a persistent performance gap. We attribute these misaligned responses to rural sellers’ lack of local access to rich information. This study shows that sellers’ local heterogeneity generates equivocal responses and carries unintended consequences for platform governance. It also enriches our understanding of digital inequality in the platform economy.

Optimal distinctiveness in platform markets: Leveraging complementors as legitimacy buffers

Abstract: Research summary Optimal distinctiveness theory highlights that firms need to balance opposing pressures for differentiation (to gain competitive benefits) and conformity (to gain legitimacy). Yet, extant optimal distinctiveness research rarely considers that the pressure for conformity can substantially vary between competing firms. Studying the positioning and growth performance of competing platforms in the market for Massive Open Online Courses (MOOCs), we find that platforms' access to high‐status complementors—a common source of legitimacy in platform markets—substantially shapes the relationship between platforms' distinctiveness and user growth. Our longitudinal models show that platforms only benefit from a (moderately) distinctive positioning once they have buffered a certain amount of legitimacy. Our findings strongly suggest that firms can alleviate conformity pressures by accessing alternative sources of legitimacy. Managerial summary When does differentiation pay off? We study this question in the increasingly important context of platform markets to explain differences in platforms' user growth. Our longitudinal study of competition in the market for Massive Open Online Courses (MOOCs)—in which platforms like Coursera and Udacity compete for online learners as users—shows that the performance implications of a distinctive positioning substantially depend on the legitimacy that a platform has gained from attracting high‐status organizations as complementors. Platforms only benefit from differentiation once they surpass a certain legitimacy threshold, and the legitimacy they gain beyond this threshold accelerates the benefits of a (moderately) distinctive positioning.

Experience base, strategy-by-doing and new product performance

Abstract: Strategy research views firms’ diverse experience base as critical to new product success. It also champions strategy-by-doing in entrepreneurial settings. This study juxtaposes and bridges these two perspectives to better understand product development. We propose that while a firm’s product portfolio diversity contributes to new product success only to a certain degree, design iteration—a post-launch strategy-by-doing approach—is positively associated with new product performance. Our core contribution points to a complementary relationship: strategy-by-doing helps mitigate the capacity constraints problem that prevents firms from successfully adapting product development capabilities to a dynamic market. Our analysis of a sample of 2,182 nascent mobile apps from 564 top producers in the US market supports our hypotheses. We discuss implications for product development, strategy-by-doing, and technology innovation literature.

Exploration and exploitation in complex search tasks: How feedback influences whether and where human agents search

Abstract: Exploration and exploitation in strategic decision‐making entails decisions about whether and where to search for new alternatives to improve the status quo. Prior research has not explored how decisions about whether to continue search (vs. stop search or satisfice) and where to search (near vs. far) are interrelated. We report laboratory experiment results on how individuals decide whether and where to search in a complex, combinatorial task. We find that different feedback variables influence the decision to stop search from decisions regarding how broadly to search. Our results suggest that not accounting for the decision to continue (or stop) searching, separately from breadth of search, can lead to incorrect predictions regarding how feedback influences search behavior. Managerial Abstract Managers concerned about the performance of their company face two challenges—they have to find out what potential performance is feasible given their business environment and which organizational policies to implement to realize it. We use a stylized laboratory experiment to better understand how feedback from experimentation informs such a learning process. We find that early‐stage feedback has a lasting impact on performance aspirations and managerial expectations about feasible performance. Superior early feedback thereby motivates more sustained experimentation with organizational policies. In contrast, more recent feedback guides the extent to which managers are willing to engage in more radical policy adjustments, especially in the latter stages of a learning process.

Innovation, short-termism, and the cost of strong corporate governance

Abstract: Research Summary Do the performance pressures of the capital market exacerbate short‐termism and stifle innovation? This longstanding question has doggedly eluded a conclusive answer due to conflicting empirical findings We revisit two studies that have been central to rejecting short‐termism: Atanassov (2013) and its replication by Karpoff and Wittry (2018) After revising some of the empirical choices by Atanassov (2013), we find the opposite result: antitakeover laws that insulate managers from the market for corporate control enhance innovation, driven by firms with significant ownership by short‐term oriented investors However, antitakeover laws do exacerbate the pursuit of value‐destroying acquisitions Our findings highlight corporate governance as a strategic variable that imposes a tradeoff in disciplining different agency conflicts and weak governance as a necessary evil to stimulate innovation Managerial Summary We present evidence that shareholder pressure indeed exacerbates short‐termism and stifles innovation, especially in firms with significant ownership by short‐term oriented investors One key implication is that calls to reduce managerial entrenchment and hold managers more accountable to shareholders warrant careful consideration While curbing other forms of agency conflict, such as managerial shirking and the pursuit of value‐destroying acquisitions, such reforms can exacerbate the myopic focus on short‐term profits and prevent long‐term value creation Our findings warn that it is misleading to look for universally “good” governance There are multiple forms of agency conflict that require diametric prescriptions, and designing corporate governance should carefully consider the tradeoffs based on a firm's ownership structure and the need for innovation

The liabilities of foreign institutional ownership: Managing political dependence through corporate political spending

Abstract: Research Summary The benefits of foreign institutional ownership (FIO) have been amply researched, but there are also potential downsides to such ownership. High FIO can subject a firm to heightened regulatory scrutiny and compliance, increasing its political dependence. Drawing on resource dependence theory, we argue that firms can manage the political dependence that arises from FIO by engaging in corporate political spending (CPS). We derive two moderating conditions from our theoretical argument, positing that the strength of the positive relationship between FIO and CPS hinges on the intensity of a firm's government contracting and on the political sensitivity of the industry. Our study advances strategic ownership research by highlighting that U.S. firms may need to manage the potential liabilities associated with FIO through nonmarket strategy. Managerial Summary Research suggests that firms can reap many benefits from equity investments made by foreign institutional investors. However, such investments may also have potential downsides. We posit that high levels of FIO may subject a firm to increased political and regulatory scrutiny, and that firms can manage this increased exposure to government by engaging in corporate political activities that allow them to monitor and influence the political landscape. To explore this question, we analyzed a large sample of publicly traded U.S. firms and find empirical support for our arguments. Our study highlights an unintended “liability” of FIO that firm executives should be aware of and has practical implications for how firms manage their investors and allocate resources between market and nonmarket strategies.

Social capital and entrepreneur resilience: Entrepreneur performance during violent protests in Togo

Abstract: Research Summary This study explores how entrepreneurs' social capital affects their resilience to localized shocks. Using a unique longitudinal survey of entrepreneurs during a surge of violent protests in Togo during 2017 and 2018, I explore how different kinds of relationships affect entrepreneurs' performance. Results show that proximity to violent protests caused entrepreneurs' profits to drop by 20%. This decrease, however, was mitigated by entrepreneurs' ties to their local communities and by their non‐colocated advice relationships, which were ties to geographically distant advisers. In contrast, colocated advisers, those who were spatially proximate, were harmful to their performance. These findings show that social capital can have conflicting effects on entrepreneurs' resilience, depending on the kinds of relationships they consist of and how those relationships are exposed to the shock. Managerial Summary Relationships are critical to entrepreneurs' performance. Yet, during local crises, such as violent protests, it can be difficult to know which relationships to rely on. Studying entrepreneurs in Togo during a sudden surge of violent protests, I found that two kinds of relationships reduced the negative impact of the localized shock: ties to local communities and advisers located outside the crisis area. In contrast, advisers located nearby, who were also affected by the crisis, amplified the protests' negative effects. These findings suggest that entrepreneurs who can afford to build stronger ties to their local communities and have more distant advisers may be better positioned to minimize losses during localized shocks.

The myth of the flat start-up: Reconsidering the organizational structure of start-ups

Abstract: There has been an ongoing debate over whether start-ups should be "flat" with minimal hierarchical layers. To reconcile this debate, this paper distinguishes between creative and commercial success (i.e., product novelty vs. profitability), and examines how these outcomes are variously influenced by a start-up’s hierarchy. This study suggests that while a flatter hierarchy can improve ideation and creative success, it can result in haphazard execution and commercial failure by overwhelming managers with the burden of direction and causing subordinates to drift into power struggles and aimless idea explorations. I find empirical support for this trade-off using a large sample of game development start-ups. These findings offer one resolution to the debate by sorting out the conditions under which hierarchy can be conducive or detrimental to start-ups.