| Managerial Discretion and Performance Variability: The Implications of Heteroskedasticity |
| | Misangyi, Vilmos F. | U. of Florida | misangvf@chip.cba.ufl.edu | (352) 392-3737 |
| | Elms, Heather | U. of Florida | elmsh@dale.cba.ufl.edu | (352) 392-0108 |
| | This study examines the implications of Hambrick and Finkelstein's (1987)
theory of managerial discretion for heteroskedasticity in analyses of the
relationship between managerial discretion and firm performance. While
Hambrick and Finkelstein posit a relationship between managerial discretion
and variability in firm performance, subsequent empirical tests have not
yet tested this relationship. Instead, these previous empirical studies
examine the relationship between managerial discretion and firm performance,
or between managerial discretion and performance conformity. Hambrick and
Finkelstein's proposition, however, suggests the presence of heteroskedasticity
in both relationships. We test for the presence of heteroskedasticity in the
relationship between managerial discretion and firm performance, find it, and
then go on to test for the sources of this heteroskedasticity. We find these
sources in both industry and organizational characteristics when performance
is measured as ROA or Tobin's Q, but can attribute heteroskedasticity only to
industry characteristics when performance is measured as ROE or a combined
measure of ROA, Tobin's Q, and ROE. We also provide an analysis of the
relationship between managerial discretion and firm performance using an
estimation procedure unbiased by heteroskedasticity (White's estimator), and
compare the results of this estimation procedure to those of an estimation
procedure which produces biased estimations in the presence of heteroskedasticity
(ordinary least squares). This comparison demonstrates that utilizing an
estimation procedure which does not address heteroskedasticity affects the
statistical significance levels associated with estimated coefficients. Our
results have methodological and empirical implications for both the past and
future study of managerial discretion. |
| | Keywords: Discretion; Performance; Heteroskedasticity |
| Perils of Failure, Perils of Success or ...? The Role of the Strategist's Personal Issues in Strategic Persistence |
| | Kisfalvi, Veronika | Ecole des Hautes Etudes Commerciales, Montreal | veronika.kisfalvi@hec.ca | (514) 340-6360 |
| | The survival and continuing prosperity of an organization depends on its ability to remain flexible and responsive to changes in its own performance levels as well as in its environment. However, some organizations persist instead in pursuing strategies that may no longer be appropriate and that can at times turn out to be disastrous. There exist two related streams of explanations for this phenomenon: those that see inappropriate strategic persistence as an outgrowth of failure (escalating commitment to a chosen course of action) and those that see it as a possible outcome of success (the perils of success or excellence). Based on findings from a case study, this paper argues that an exploration of the role of the strategist's character-based personal issues may shed further light on the phenomenon of strategic persistence. |
| | Keywords: escalation; simplicity; strategic persistence |
| The Influence of Executive Organizational Tenure on the Retention and Divestment of Acquired Companies |
| | Bergh, Donald Duane | Pennsylvania State U. | ddb2@psu.edu | 814-863-0740 |
| | Many acquired companies are divested, oftentimes shortly after their purchase. Current theoretical explanations
of the incidence of acquisitions-turned-divestitures focus on how industry, strategy, and organizational characteristics
influence whether an acquired company is retained or divested. This study directs attention to another factor, the
executives of the acquired company. Drawing from the upper echelons perspective, the study tests whether the
organizational tenure of acquired company top executive teams is related to the retention and divestment of
acquired companies. On the basis of a sample of 124 acquisitions followed over five-year periods, it is found that
acquired companies having teams with longer average and less heterogeneity (i.e., homogeneity) tend to be retained
while those having shorter average and more heterogeneity tend to be divested. These results suggest that acquired
company executives have a tenure effect that may contribute to present theoretical explanations of acquired company
retention and divestment. Implications for researchers and practitioners are provided. |
| | Keywords: Acquisition outcomes; Diversification; Upper echelons theory |
| The Relationships Between Top Management Demographic Characteristics, Rational Decision Making, Environmental Munificence, and Firm Performance |
| | Goll, Irene | U. of Scranton | ig354@tiger.uofs.edu | 717.941.4044 |
| | Rasheed, Abdul | U. of Texas, Arlington | abdul@uta.edu | (817) 272-3166 |
| | This study examines the relationships between top management demographics, rational decision making (RDM), munificence, and firm performance. According to the 'upper echelons' perspective, top management demographic characteristics are expected to influence how managers make decisions and subsequent firm performance. We hypothesize that age, tenure, and education of the top management team (TMT) will show a positive relationship between rationality and firm performance. We further hypothesize that environmental munificence moderates the relationship between decision rationality and firm performance. To test these hypotheses, we conducted a survey that measured RDM. Top management demographic characteristics, environmental munificence, and firm performance were collected from archival sources.
We examined the relationships between RDM and top management age, tenure, and education level using moderated regression analysis. The results show a significant positive relationship between RDM and tenure and between RDM and education level as hypothesized. Moderated regression analysis revealed that environmental munificence had a significant moderating effect on the RDM - profitability relationship. Further subgroup analyses suggest that the relationship between rationality and performance was significant and positive in high munificence environments but negative and not significant in low munificence environments.
The results of this study provide support for the assertion that top management demographic characteristics influence firm strategies and for the role of environmental munificence as a moderator in the relationship between strategy making and organizational performance.
|
| | Keywords: rational decision making; environmental munificence; top management team |
| Executive Commitment to the Status Quo: Some Additional Tests |
| | Gibbons, Patrick Thomas | U. College Dublin | pgibbons@tinet.ie | 353-1-706 8264 |
| | O'Brien, Mike | Kaiser Associates International | mobrien@kaiser.co.uk | 44 171 872 4001 |
| | EXECUTIVE COMMITMENT TO THE STATUS QUO:
SOME ADDITIONAL TESTS
This paper replicates and extends the studies completed by Hambrick, Gelatkanycz and Fredrickson on commitment to the status quo. The extension involves the specification of additional variables related to international experience of CEOs; variety of functional experiences of CEOs and number of external directorships as additional antecedents to the commitment phenomenon. These were chosen because of the expected relationships between variety of experiences and commitment. The sample was 92 CEOs and senior managers drawn from a population of smaller firms than the original study. In replication, the original study's findings were supported with respect to performance and environmental change effects on commitment. A number of interesting findings emerged in extending the study. Among the findings of interest is that international experience is significantly and positively associated with manager's commitments to the appropriateness of their managerial and leadership styles. Variety of functional experience is negatively related to commitment to current strategy. In addition, the number of external directorships held was significantly associated with commitment to strategy. A number of explanations are proffered for these findings.
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| | Keywords: commitment; CEO; status quo |