Firm-specific Experience Research Articles

Learning by doing or catering: Firm-specific experience and analyst forecast accuracy

This article explores catering behavior among security analysts by examining how firm-specific experience impacts forecast accuracy. Using analyst forecasts on listed companies in China from 2014 to 2018, we find that firm-specific experience significantly reduces analyst forecast accuracy, which indicates the existence of catering behavior. Heterogeneity analysis reveals that catering behavior primarily exists for analysts employed by large brokerage firms or who issue forecasts for large companies. Further analysis shows that catering behavior is more prevalent when analysts make forecasts for SOEs. These findings suggest multi-faced implications of firm-specific experience and call for better regulations on refraining analysts' catering behavior.

Interactive Effects of CEOs’ Firm-Specific Experience and Versatile Experiences on Pursuit of New Growth Opportunity

Prior research has opposing views about the merits of firm-specific managerial experience, and empirical findings are mixed. To address this problem, we ask when firm-specific managerial experience is helpful versus harmful in pursuit of new growth opportunities. We propose that when CEOs’ firm-specific experience is combined with versatile managerial experiences, its growth-constraining effect is alleviated due to increased adaptability of CEOs' human capital to support growth in new business domains. We find support for this argument in a sample of U.S. food firms and their pursuit of the organic food opportunity during 1997 to 2007. We also find that CEOs’ versatile experience by itself is not sufficient for the pursuit of new growth, but it is when the two types of experience are combined synergistically that firms can achieve higher rates of opportunity pursuit. In this vein, our research reconciles the alternative theoretical perspectives on firm-specific experience and invites further consideration of experience combinations where both positive and negative synergies drive the ultimate impact of key managerial experiences.

Confirmation Bias in Analysts’ Response to Consensus Forecasts

This paper provides evidence of confirmation bias by sell-side analysts in their earnings forecasts. We show that analysts tend to put higher weight on public information when the current forecast consensus is more consistent with their previous forecasts. We further find that analysts with better past forecasting performance, longer firm-specific experience, or forecasting earlier, tend to be more subject to confirmation bias, consistent with some of the existing cognitive and social psychology theories. The results remain significant after controlling for analyst incentives. Finally, we distinguish evidence of confirmation bias from that of other important behavioral biases such as conservative bias.

The Interplay of Different Types of Founders’ Experience and Entrepreneurial Funding

Drawing on human capital theory, this study aims to explain how start-ups effectively signal prospects to acquire more financial capital. Based on early-stage start-ups that applied to 164 accelerators globally from 2013 to 2019, we examine the signals of three types of founders’ experience (i.e., task-specific experience, firm-specific experience, and general-purpose experience) and their interplay impact on entrepreneurial funding acquisition. We find that founders’ task-specific experience (i.e., prior entrepreneurial experience and CEO experience) positively affects entrepreneurial funding acquisition. Founders’ firm-specific experience (i.e., the tenure of the previous job) enhances the relationship between task-specific experience and entrepreneurial funding acquisition. However, founders’ general-purpose experience (i.e., education experience) doesn’t always significantly affect the link between task-specific experience and entrepreneurial funding acquisition. This study contributes to our scholarly and practical understanding of how different types of founders’ experience are associated with the success of acquiring financial capital.

The Fast Track to the Top in European Listed Firms: The Role of the Human Capital Mix

Drawing on human capital theory, this study contributes to the career literature by examining the role of ‘human capital mix’ in the speed of career advancement to a top management team (TMT) position, i.e. the so-called ‘fast track’. More specifically, the study analyzes the impact of education, tenure (firm-specific experience) and career variety (inter-functional, inter-industry, inter-firm and international experience) on the career history of more than 9,000 chief executive officers (CEOs) and non-CEO senior executives from European listed firms. The results show that the human capital mix differs for CEOs and non-CEOs and that the typical positive relationship between education and a fast-track career holds only for non-CEOs. Moreover, while tenure promotes a CEO fast-track career, it slows non-CEO career advancement. The results also reveal that career variety delays the speed of career advancement for both CEOs and non-CEOs but may act as a double-edged sword. Indeed, for CEOs, the positive effect of tenure is strengthened when they have higher inter-firm experience or lower inter-functional experience; while for non-CEOs, the negative effect of tenure is alleviated when they have greater career variety. Overall, these results indicate that the impact of the composition of the human capital mix on a fast-track career depends on the type of managerial position considered.

How classical and entrepreneurial brand management increases the performance of internationalising SMEs?

Research is limited on how accumulated international experience and decision-making style propel internationalising SMEs toward brand orientation. Our study builds a model of the process on classical and entrepreneurial brand management principles plus the firm's applied experience and decision-making logics. An online survey of 235 internationalising SMEs found that adopted decision-making logic mediated the relationship between cumulative international experience and international brand orientation. We conclude that managers and planners must select the most appropriate approach to international brand management permitted by available international firm-specific experience if they are to achieve strong international brand orientation and superior financial performance.

Workplace learning experienced by employees in information technology-enabled work environments – a developing country experiences

PurposeThe purpose of this paper is to present the findings of a study that investigated workplace learning activities and drivers that enhanced learning as experienced by employees in Sri Lanka.Design/methodology/approachThis study was conducted in the knowledge process outsourcing sector, where employees perform knowledge work in flatter team-based structures with information technology-enabled work environments. From the 17 firms that volunteered to participate in the study, 239 technical/professional employees volunteered for the survey. Multiple regression analysis was used to identify the association between drivers of workplace learning and learning activities experienced by employees and whether individual demographic characteristics and the number of employees in the firm are associated with workplace learning activities experienced by employees.FindingsThis study found that organisation-related, individual-related and team-related drivers significantly influence workplace learning activities experienced by employees. In addition, employees’ age, firm-specific experience and the number of employees in the firm significantly influence the same.Originality/valueThis paper presents learning activities experienced by employees in the completion of work-related job tasks at hand and drivers experienced by employees in the new normal that has existed since the Covid-19 pandemic.

Examining the Role of Homophily in the C-Suite for Strategic Decision-Making

How firms differentiate their products from competitors is a fundamental strategic decision for the performance of a firm. From the broader upper echelons perspective, a firm’s strategy is shaped by the Top Management Team (TMT), consisting of the Chief Executive Officer (CEO) and his top executives. The Chief Marketing Officer (CMO) is usually the driver of differentiation. We need to scrutinize CEO-CMO duos in terms of their demographics and experience to present the underlying drivers out of which differentiation emerges. According to homophily theory, executives prefer to work with others, which are similar to them. Therefore, we set out to examine differentiation decisions of homogenous CEO-CMO duos in terms of demographics and experience using a cross-industry panel of U.S. S&P 500 firms over 12 years. We show evidence, that homogenous duos, which are highly educated, marketing experienced or male positively influence differentiation. On the opposite duos, in which executives have limited firm-specific experience or less experience because of their age negatively influence differentiation. Based on this evidence we contribute to theory by stressing out the need to combine upper echelons and homophily theory to not neglect significant factors for decision making in TMTs. Furthermore, we contribute to practice by presenting so far unconsidered factors in recruiting and appointing CEOs as well as CMOs.

Can sell-side analysts’ experience, expertise and qualifications help mitigate the adverse effects of accounting reporting complexity?

We examine the relation between accounting reporting complexity and analysts’ performance and whether analysts’ qualifications, experience, and expertise in specific financial domains help them more effectively process complex information. We document an inverse relation between complexity and analysts’ performance. Further, we show that analysts’ firm-specific experience, industry focus, and CFA certification alleviate some of the adverse effects of complexity, whereas analysts’ general experience does not appear to do so. Using an XBRL-based approach, we also develop new measures of analysts’ expertise and find that expertise in the areas of fair value, derivatives and pension are more valuable than other analyst characteristics in attenuating the negative effects of complexity arising from transactions and events in these areas. Overall, this study underscores the importance of analyst characteristics and the need to simplify the complex disclosures in the notes to the financial statements.

When do forecasts fail and when not? Contingencies affecting the accuracy of sales managers’ forecast regarding the future business situation

Improving business forecasts is a major goal of many companies because of its strong positive impact on future performance and potential competitive advantages. Even though sales managers have been called to serve as a profound base for business forecasts from a theoretical perspective, this premise has not been subject to empirical testing to date. Addressing this research void, the authors analyze under which conditions sales managers’ business forecasts are reliable and when not. The authors conducted a cross-industry field study including two measurement points with 180 high-ranking senior sales managers. Results show that managers’ forecast accuracy fundamentally depends on contextual moderators. Sales managers predict future business situations 2.5 times more accurate when they exhibit a long firm-specific experience and high confidence-levels in their own forecast. Furthermore, a comparably long sales cycle improves forecast accuracy. Conversely, sales managers may make considerable misjudgments if the before mentioned conditions are not met.

Do Lottery Characteristics Matter for Analysts’ Forecast Behavior?

This study examines the effect of lottery characteristics on analysts’ earnings forecasts. We find that analysts are more optimistic for lottery firms. The optimism of earnings forecast decreases with analysts’ general and firm-specific experience. Information uncertainty would enhance the effect of lottery characteristics on analysts’ earnings forecast bias. Market states and investor sentiment positively affect the effect of lottery characteristics on analyst optimism. Moreover, the level of optimism on lottery stocks increases during economic expansion. Our findings suggest that behavioral biases, rather than rational incentives, explain the optimism of analysts’ earnings forecasts for lottery stocks.

The levels of base pay and incentive pay used by small firms to compensate professional employees with general and specific human capital

ABSTRACT Drawing on human-capital theory, we propose divergent associations of professional employees’ base pay and incentive pay with their levels of human capital in the small business context. Based on secondary data on 3,750 professional employees representing 65 small firms, we found that, whereas human capital has a positive relationship with base pay, the relationship between human capital and incentive pay is less apparent. Specifically, we found that the relationship between incentive pay and position-specific experience is negative. Our findings suggest that small firms may use higher incentive pay to initially attract talent. Yet, the incentive pay does not grow as professional employees gain firm-specific experience. Moreover, the incentive pay significantly falls as professionals gain more position-specific experience, and this negative relationship is stronger in small firms with higher sales productivity. Further, firm longevity shows a moderately significant positive relationship with base pay; however, the findings show that firm longevity is negatively related to incentive pay.

Investment as Bargaining Chip

Institutional environments are often considered exogenous in firms’ investment decisions. While the non-market strategy literature has discussed various approaches that firms may adopt to influence their interactions with institutions, such discussion is mostly absent in the analysis of market strategies. In this paper, we argue that in countries with significant government discretion, firms may obtain better treatment from the local institutions by locating R&D or manufacturing—the types of investments usually welcomed by the local governments—in the host countries. Using a sample of global patenting and litigation records of the Fortune Global 500 companies from 2007 to 2014, we find that firms tend to have a better chance at obtaining patents, or reversing unfavorable patenting decisions at patent authorities, after their increased local R&D or manufacturing presence. The results are only significant in countries with weak legal institutions, and in countries with relatively weak domestic industries. The effect of investment on firm-specific experience with local institutions thus offers an alternative explanation for location decisions that may seem suboptimal when environments are treated as exogenous.

Who Shall Leave? The Experience of Departing Executives and Firm Discontinuous Strategic Renewal

We examined how executive departure affected a firm’s discontinuous strategic renewal. We proposed that the team- and firm-specific experiences of departing executives would have contrasting effects on a firm’s propensity for discontinuous renewal. In addition, such effects would vary with firms’ prior experience with strategic renewal. We found support for our hypotheses in the U.S. wireless telecommunications service industry, which faced the challenge of transiting from analog to digital technology between 1991 and 1998. By implication, our study sheds some light on the practical choice of managerial reshuffle in a firm’s discontinuous strategic renewal.

Startup Responses to Unexpected Events: The impact of the relative presence of improvisation

This study seeks to advance the literatures on organizational improvisation and unexpected events. It tackles the question of whether the relative presence of improvisation during a startup’s response to an ordinary, unexpected event affects the value of that response, an issue of clear importance given the ubiquity of unexpected events in startups. Improvisation in practice typically involves varying degrees of predesigned and extemporaneously designed activity. The study explores the dangers of simultaneously mixing predesigned actions and improvisational activity. It develops theory in the context of startups’ action streams in response to 141 unexpected events identified by field informants. Results from hypothesis tests support theory that the relative presence of improvisation in an action stream in response to an unexpected event will have a U-shaped impact on its success resolving that event: a mixed presence shows relatively poorer outcomes than either concentrated predesigned action or a high presence of improvisation. The study also extends prior work by theorizing and finding evidence that two sources of organizational memory—firm-specific experience (proxied by organizational age) and nonfirm-specific experience (proxied by founders’ business experience prior to founding)—moderate the value of the presence of improvisation in response to unexpected events in different ways, consistent with greater challenges to rapidly integrating varied knowledge. Finally, it contributes to understanding of improvisation patterns in response to ordinary, unexpected events, suggests areas for additional research, and offers managerial implications for startups such as the value of deliberately raising shared awareness of shifts to organizational improvisation.

Do sentimental investors price rational information? Evidence from the Boston Celtics

PurposeMuch evidence exists that rational investors factor rational information into their valuation of shares. This paper aims to examine whether sentimental investors do the same.Design/methodology/approachTo investigate this issue, the author measures sentimental investors’ reaction to the surprise player transactions of the Boston Celtics, which traded on the New York Stock Exchange for 18 years. The team’s shares were bought mainly as souvenirs by sports fans, whose largely unwavering support makes them perhaps the least likely investors to be influenced by rational information. Thus, if the team’s share price changes because of the arrival of rational information, evidence that sentimental traders price rational information into their valuation of a stock will exist.FindingsAn acquired player’s salary, education and firm-specific experience with the Boston Celtics cause higher returns. This result provides evidence that sentimental traders factor rational information into their valuations of shares. On a broader scale, the findings underscore the importance of rational information to the valuation process, as even sentimental investors price rational information into a stock that is held for sentimental reasons. Moreover, the results are consistent with the nudge theory, in that the arrival of rational information encourages (i.e. nudges) sentimental investors to price the rational information as a rational investor world.Originality/valueThis study is the first to show that sentimental traders also factor rational information into the valuation process – an idea that was likely assumed prior to this study, but was never substantiated.

Beauty Is in the Eye of the Beholder: Toward a Contextual Understanding of Compensation of Information Technology Professionals Within and Across Geographies

This study provides new insights on compensation and human resources practices of multinational corporations (MNCs) and how they differ from those of domestic companies. The authors focus on cross-geography differences in compensation for IT professionals and take a closer look at returns on master of business administration (MBA) education and information technology (IT) experience. They analyze data on more than 20,000 IT professionals across the United States and India and compare practices of United States–based MNCs and India-based firms for IT professionals in India and of United States–based MNCs for IT professionals in the United States and India. The study finds that MNCs source IT talent from emerging markets because of the lower cost of IT professionals in these markets, coupled with the availability of a large pool of technically qualified professionals. For IT professionals in India, results indicate that United States–based MNCs pay a premium (compared with India firms) for each year of IT experience. By contrast, India firms pay a premium (compared with United States–based MNCs) for IT professionals in India with an MBA. Interestingly, whereas United States–based MNCs do not pay a premium for MBA education in India, they do pay a premium for MBA education in the United States. The findings are informative for IT professionals to decide whether to pursue an MBA or invest in gaining firm-specific experience. The results also provide indirect evidence that MNCs apply a portfolio approach to optimize their profits by using knowledge workers in various locations based on their skills and costs.

Steps to Multinationality- Foreign Influences before Becoming an MNC

While research has examined the role of foreign influences and experiences in the different stages of internationalization, less attention has been paid to firm-specific experiences that can influe...

New CEOs’ previous experience and acquisition performance

PurposeThis study aims to investigate how new CEOs’ previous experiences in other organizations and other industries create value in acquisitions. Drawing on the upper echelon perspective, this study theorizes that the multiorganizational experience of new CEOs is positively associated with acquisition performance and, in particular, that the multi-industry experience of new CEOs leads to better performance in diversifying acquisitions than in related acquisitions. While new CEOs without multiorganizational experience undergo a cognitive entrenchment in firm-specific experience, new CEOs with multiorganizational experience can lead acquisitions with more flexibility and agility.Design/methodology/approachAcquisition and organizational data were drawn from the US manufacturing industries (SIC 20-39) between 2008 and 2010. The event study method was used to test hypotheses. In 346 acquisitions made by 139 firms, acquisition performance was measured according to cumulative abnormal returns.FindingsConsistent with the hypotheses, the multiorganizational experience of new CEOs was positively associated with acquisition performance and, in particular, the multi-industry experience of new CEOs led to better performance in diversifying acquisitions than in related acquisitions.Originality/valueThis paper contributes to the CEO literature and acquisition literature by suggesting that the multiorganizational experience of new CEOs can be a valuable source of competitive advantages, particularly when implementing corporate strategies involving interorganizational integration processes.

Human Capital or Fixed Paradigm Problem? CEO Tenure, Contextual Influences, and CS(i)R

There are both benefits and costs of CEO tenure. CEO tenure is an indication of firm-specific knowledge and experience (i.e., the human capital view); however, long CEO tenure may lead to a lack of...