Abstract
Business transformation has become an important way of sustainable development of enterprises. However, the transformation performance is not ideal. Using data from Chinese listed companies from 2001 to 2016, this article employs the Heckman selection model to explore the impact of managerial cognitive bias on transformation strategy and firm performance. The results demonstrate that managerial cognitive bias plays an important role in inducing business transformation. The higher the degree of managerial overconfidence and overoptimism, the more the enterprise will tend to implement business transformation. An important contribution of the article is that it reveals the significant difference between overconfidence and overoptimism: The more overconfident the managers are, the more likely they are to adopt both internal cultivation and mergers and acquisitions (M&A) to realize firm business transformation, whereas the more overoptimistic the managers are, the more likely they are to adopt M&A rather than internal cultivation to realize firm business transformation. Furthermore, business transformation conducted by overconfident managers helps improve firm financial performance and market value, while transformation conducted by overoptimistic managers helps reduce both.
Highlights
Enterprises are increasingly conducting business transformation actively or passively amid the acceleration of economic globalization, the discontinuous progress of technology, the relaxation of government regulations, and ever-changing consumer preferences (Keiningham et al, 2020)
This article finds significant differences between the business transformation strategies adopted by overconfident managers and those adopted by overoptimistic managers and the moderating effects of the two kinds of cognitive bias on the relationships between business transformation and firm performance
The data show that the mean values of OCD and OOD are 0.213 and 0.712, respectively, and that the degree of managerial overconfidence and overoptimism is significantly positively correlated with whether the companies implement business transformation or not, which is consistent with the discussion above
Summary
Enterprises are increasingly conducting business transformation actively or passively amid the acceleration of economic globalization, the discontinuous progress of technology, the relaxation of government regulations, and ever-changing consumer preferences (Keiningham et al, 2020). In some Asian countries, the economic transition and market-oriented reforms have brought tremendous investment opportunities, encouraging many failing (and even some well-performing) firms to choose business transformation as their principal growth strategy Business transformation is not a common type of organizational change; rather, it strengthens a reform after business restructuring and process reengineering have occurred and represents a fundamental adjustment of a firm’s core business. Business transformation may lead to changes in many firm characteristics, such as organizational structure, resource structure, management mode, and enterprise culture, and is more systematic and less reversible than are business restructuring or process reengineering and more narrowly targeted, procedural, and revolutionary than is mere diversification (Ilic et al, 2017). The development history of corporations worldwide shows that firms, even industry leaders, can fade due to a failed business transformation
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