Firm-level Management Research Articles

Do CEO risk-reducing incentives affect operating leverage? Evidence from CEO inside debt holdings

Purpose The purpose of this paper is to investigate the relationship between CEOs' inside debt holdings (pension benefits and deferred compensation) and the operating leverage of the firms they manage, with the aim to examine whether CEO incentives play a role in corporate risk-taking. Design/methodology/approach The authors investigate the relation between CEO inside debt holdings (CIDH) (pension benefits and deferred compensation) and the operating leverage (DOL) of the firms they manage. Using a sample of 11,145 US firm-year observations over the period 2006–2017, the authors find a strong negative association between CIDH and DOL. Additional analyses reveal that the relationship between CIDH and DOL is more pronounced in firms with heightened agency issues, powerful CEOs and for CEOs with stronger professional networks. The results are robust to various sensitivity and endogeneity tests. Findings The authors find strong evidence confirming the expected negative association between CEO inside debt and DOL suggesting that firms with higher inside debt tend to maintain lower levels of operating leverage. These findings continue to hold with the alternative measure for the inside debt and operating leverage, and across a range of tests designed to rule out the possibility that the primary findings are in any way driven by potential endogeneity. In addition, the findings demonstrate that the presence of manager-shareholder agency conflicts can strengthen the inside debt–DOL relationship suggesting the strong role of inside debt in reducing firm risk. Research limitations/implications Findings in this paper have implications for design of compensation structures so that corporate boards can establish incentives as a tool for risk management. A limitation of this study is that it is focused on one market, i.e. US listed companies, so the findings may not be applicable on a global scale. Originality/value To the best of the authors’ knowledge, this is the first study that links firm-level management of operating leverage through design of CEO inside debt incentives (two obvious choices for risk-reduction at the CEOs’ disposal include reducing financial risk through reduction of firm leverage and reducing operating risk through reduction of operating leverage). While use of firm leverage as an instrument of choice has been explored in the past, use of operating leverage to achieve risk reduction when CEO possess high inside holding, has received very little attention.

Outcomes of talent identification in economically liberalized India: Does organizational justice matter?

Organizations in economically liberalized India face substantial challenges regarding the engagement and turnover of talent. By exploring the outcomes of the firm-level management practice of talent identification, we uncover the effects of identifying valuable employees as high potential. Adopting an organizational justice lens, we consider the social exchange consequences of talent identification for those identified either as high potential or non-high potential, examining how perceived organizational justice moderates the relationship with employee engagement/turnover intention. Based on data from 331 employees in two large organizations in India, perceptions of distributive, procedural, and interactional justice in this highly competitive labor market are found to moderate the relationship between talent identification and work engagement, while distributive justice moderates the relationship with employee turnover intention. The study identifies novel conditions under which talent identification might avoid the negative outcomes associated with an exclusive approach to talent management, commonly adopted in Indian organizations.

How a Flexible Matrix Structure Could Create Ambidexterity at the Macro Level of Large, Complex Organizations Like MNCs

It is difficult to make large, complex organizations like MNCs ambidextrous—to make them efficient so that they succeed in the short run and in sync with their changing environments so that they succeed and survive in the long run. The two types of learning activity that support ambidexterity, exploitation and exploration, are fundamentally different (March 1991). The well-known structural approach to creating organizational ambidexterity employs separate subunits for exploitation and exploration (O’Reilly and Tushman 2011). We argue that this approach cannot take full advantage of the high levels of product, geographic, and functional diversity that exist in large, complex firms to create ambidexterity at a more macro level. Firms facing this kind of complexity often address it by using a matrix structure. For such firms, we argue that a more flexible form of matrix structure can facilitate the creation of a new form of ambidexterity at the macro level of such firms. As developed in Egelhoff and Wolf (Egelhoff and Wolf 2017), a flexible matrix structure is one which can vary its mode of decision making between balanced decision making, where decisions are jointly made by both dimensions of a matrix, and rule-based decision making, where it is pre-specified which dimension of a matrix will unilaterally make certain types of decision. We argue that rule-based decision making tends to facilitate exploitation and the refinement of existing knowledge while balanced decision making tends to facilitate exploration and the development of new knowledge. By specifying one mode of decision making or the other, firm-level management can deliberately steer important strategic decisions (e.g., new product technology development) into either exploitation or exploration and strategy renewal, creating a new form of ambidexterity at the macro level.

JEEA-FBBVA LECTURE 2013: THE NEW EMPIRICAL ECONOMICS OF MANAGEMENT

Over the last decade the World Management Survey (WMS) has collected firm-level management practices data across multiple sectors and countries. We developed the survey to try to explain the largeandpersistenttotalfactorproductivity(TFP)differencesacrossfirmsandcountries.Thisreview paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively for performance at the level of the firm and the nation. Competition, governance, human capital, and informational frictions help account for the variation in management. We make some suggestions for both policy and future research. (JEL: L2, M2, O14, O32, O33)

A new insight into environmental innovation: Does the maturity of environmental management systems matter?

Technological innovation has recently become more essential than ever. To examine the factors that might induce environmental technological innovation, we focus on ISO 14001, a voluntary approach to environmental management, and scrutinise how the proficiency or maturity level of ISO 14001 in facilities influences environment-related research and development (R&D) expenditures that promote environmental technological innovation. We measure the maturity level based on the length of time since a given facility adopted ISO 14001. Using Japanese facility-level data from “Environmental Policy Tools and Firm-Level Management and Practices: An International Survey” (OECD Survey), we estimate two Tobit models by addressing an endogeneity issue in ISO 14001. The estimation results provide empirical evidence that as the ISO 14001 is improved in facilities, those facilities are likely to spend more on environmental R&D. The facility age and market concentration also positively affect environmental R&D. These findings suggest that the maturity level of ISO 14001 is an important factor influencing the investment in environmental R&D.

CONCEPTUALIZING THE CO-CREATION OF COMPETITIVE ADVANTAGE IN TECHNOLOGY-INTENSIVE B2B MARKETS: AGENT-BASED MODELING APPROACH

The importance and challenges of supplier–customer cooperation has been widely recognized in the academic literature but the dynamics of such relationship remain understudied. We do not yet fully understand how customer–supplier relationship should be pursued in order to co-create mutual competitive advantage. Our simulation results show that there are differences in absolute profitability and profit distribution between cooperation partners when moving from individual firm-level management to holistic system-based management. We further find that if the supplier manages cooperation from individualistic perspective it is able to achieve the highest short-term profits by sacrificing the profitability of its customer. However, when the supplier acknowledges the profitability logic of its customer, the long-term overall profitability of the cooperation as a whole, i. e., the system, becomes significantly higher than with opportunistic individually-oriented (short-term) management. In described cases, it is actually profitable for the supplier to limit the distribution of its unique resources (e. g., technology).

Development of Transnational Media Management Research From 1974–2009: A Propositional Inventory

This article reviews the development of transnational media management research. Building on a review by Hollifield (2001) and applying propositional inventory, this survey analyzes 62 publications between 1974 and 2009 according to distinct dimensions to map the research field and assemble the 2 time periods. Articles can be categorized into 7 research topics: firm-level management, market entry strategies, corporate-level strategies, internationalization process, leadership and organization, functional management, and management of cross-border co-operations. Along these topics, research results are synthesized into theoretical propositions to summarize central findings. The conclusion discusses the results and derives an agenda for future research.

The mythology of learning-by-doing in World War II airframe and ship production

Between the 1940s and 1960s, studies of aircraft and ship production during World War II (WWII) gave rise to the concept of 'learning-by-doing'. This proved to be an influential and long lived idea. It has been embedded in micro-level analyses concerned with firm level management and in macro analyses underpinning numerous fields of policy – ranging trade and industry policy in developing countries to policy options for addressing global climate change. While its empirical basis has been questioned, the basic features of the idea continue to be widely used, and the claimed validity continues to be sustained by reference to the WWII studies. This paper reviews those studies. It demonstrates that they provide little empirical support for these policy applications. A long overdue effort should be made to develop a much more empirically grounded understanding of the various innovation and technical change processes that have been obscurely bundled together in the learning-by-doing idea.

Internal Business Organisation in the Private Garment Industry in Vietnam: The Roles of Ethnicity, Origin and Location

This paper pinpoints important differences within the private sector in Vietnam. It shows that the country's private sector is much more heterogeneous than is often suggested, and attempts to reveal some of the causal mechanisms that cause this diversification. Theoretically, the paper draws on business system theory, particularly on that aspect of it that deals with internal business organisation, in order to examine the nature of and trends in relation to firm-level management and control. On this background, the paper uncovers a Vietnamese-owned segment in Hanoi, two different Vietnamese-owned segments in Ho Chi Minh City distinguished by the origins of their owners, and a Vietnamese Chinese-owned segment in Ho Chi Minh City.

A multi-division efficiency evaluation of U.S. electric power companies using a weighted slacks-based measure

Prior to the 1990s, the electric power industry was highly regulated across the world. Under a liberalization policy to open markets and to grow competition commenced in the early 1990s, efficient management has become a necessity for companies in this industry. The current study examines the divisional efficiencies of multi-functional, vertically integrated companies seeking to optimize their overall management efficiency. For this purpose, divisional cost data are used as input into a slacks-based measure (SBM) model. This provides divisional efficiency indices based on slacks, as well as one for the larger firm-level management function. Further, given the important role of cost structure, we introduce a modified SBM, named the weighted SBM (WSBM), which directly incorporates division-specific weights into the objective function. Results reveal that the power generation divisions of the companies studied have significant influence on the overall cost, whereas the impact of the other four divisions – transmission, distribution, sales and general administrative – is limited.

Environmental policy, management and R&D

The authors would like to thank Chris Heady (OECD Directorate for Financial and Enterprise Affairs) and Dirk Pilat (OECD Directorate for Science, Technology and Industry) for valuable comments on an earlier draft of the paper. In addition, the contributions from all of our colleagues on the OECD Project on “Environmental Policy and Firm-Level Management” are gratefully acknowledged. (See Johnstone 2006 for a full list of contributors and other outputs from the project.) In particular the insights of Toshi Arimura (Department of Economics, Sophia University, Japan) in the area of research and development have been extremely valuable.

Environmental Policy Tools & Firm-Level Management Practices in the United States

The purpose of this study is three-fold. First, it offers preliminary advice regarding different U.S. environmental policies and programs that encourage environmental innovation. Second, this report will help the U.S. manufacturing facilities that participated in our study to benchmark their environmental management against similar companies. Finally, the U.S. study was created to contribute to the dialogue of the different types of environmental innovation policies and how they might vary across OECD countries. This report addresses three broad research questions: 1. Why do facilities introduce environmental management tools and systems? 2. Why do facilities undertake specific types of environmental investments and innovations? 3. What are the links between facilities' financial performance and their environmental management practices? To answer these questions, the U.S. study evaluated the internal factors, financial incentives, and external pressures that shape organizations' environmental behavior in a mail survey of 3,746 U.S. manufacturing facilities. A summary of the results is provided in the following sections.

At the Cutting Edge? Financialisation and UK Clothing Retailers' Global Sourcing Patterns and Practices

This paper examines the relation between financialisation and firm-level management decision-making in a specific sector and in relation to a specific area of decision-making (sourcing), drawing on evidence from interviews, unpublished UK trade data and company annual reports. It argues that, while requirements for higher returns on capital employed have been internalised at firm-level, these are compatible with a variety of general strategic responses and more practical decisions. Firms have selected between these largely on the basis of considerations that are best described as ‘retailerist’, as opposed to strictly ‘financialist’. Thus while financialisation matters, it only does so in ways that are highly mediated.

Environment and innovation: The case of the small entity

Scholarship on innovation has an extensive history, including research on national technological output, national systems to generate innovation, and the firm-level management of new product planning and development. This piece unites these strands, opening discussion on how national innovation systems affect management behavior, resulting in differences in the output of new technologies. By concentrating on one idiosyncracy of the United States, the disproportionate participation by small entity innovators, and one piece of its innovation environment, the patent system, the study is able to bring together the macro and micro evidence and analysis. Because national innovation systems, by definition, vary by country, there are important implications for managing the R&D process for optimal new products according to environmental circumstances.