Abstract
PurposeThe purpose of this paper is to use tenets of the complexity theory in order to study the effect of various determinants of firm’s performance, such as CEO’s compensation and age, for the case of 72 insurance companies.Design/methodology/approachThe authors identify the asymmetries in the data set by creating quantiles and using contrarian analysis. Instead of ignoring this information and use a main effects approach, all the available information in the data set is taken into account. For this purpose, the authors use qualitative comparative analysis to find alternative equifinal routes toward high firm performance.FindingsFive configurations are found which lead to high performance. Every one of the five configurations is found to be sufficient but not necessary for high firm performance.Originality/valueThe research findings contribute to a better understanding of the determinants of firm’s performance taking into account the asymmetries in the data set. The authors identify alternative paths toward high firm performance, which could be vital information for the decision maker inside a firm.
Highlights
The performance of a firm is affected by a variety of factors including organizational aspects such as the size, the history and the structure of the firm; environmental aspects such as socioeconomic background and technological framework; and human aspects such as individual characteristics, motivation and skills
The results revealed that compensation of inexperienced chief executive officer (CEO) with under three years in the office was related to firm performance, while there was no relationship for more experienced CEOs
Instead of using multiple regression analysis (MRA) or other symmetrical approaches, we identified the asymmetries in the data set using contrarian analysis
Summary
The performance of a firm is affected by a variety of factors including organizational aspects such as the size, the history and the structure of the firm; environmental aspects such as socioeconomic background and technological framework; and human aspects such as individual characteristics, motivation and skills. The neoclassical economic theory considers top managers as homogenous and perfect substitutes with each other (Bertrand and Schoar, 2003), while the managerial talent hypothesis indicates that managers affect the performance of the firm (Hubbard and Palia, 1995). The top ranked manager of the firm is the chief executive officer (CEO) or managing director who is responsible for the firm’ overall operations and performance. According to managerial talent hypothesis, the effect of the CEO’s individual performance should greatly influence the performance of the firm.
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