Testable Propositions Research Articles

Determinants of capital structure: an empirical study of manufacturing firms in India

PurposeThe purpose of this paper is to explore the most significant determinants of capital structure of manufacturing firms in India and to investigate whether the capital structure models derived from foreign research provide convincing explanations for capital structure decisions of Indian firms by using multiple regression model.Design/methodology/approachDifferent conditional theories of capital structure like trade off theory, pecking order theory and agency theory are reviewed to formulate testable propositions concerning determinants of capital structure of manufacturing firms. Multiple regression model and correlation matrix have been used as statistical tools to investigate the most significant determinants of capital structure of manufacturing firms in India with the help of SPSS Software for a sample of top 100 manufacturing firms listed in BSE.FindingsThe results suggest that variables like asset composition, business risk and return on assets are positively related to debt ratio whereas firm size and debt service capacity are negatively related to debt ratio. The asset composition, business risk and return on assets appear to be significant determinants of capital structure, while firm size and debt service capacity are insignificant determinants.Research limitations/implicationsThe findings of this study are consistent with predictions of trade off, pecking order and agency theory of finance which helps in understanding financing behaviour of firms in India.Practical implicationsThis study has laid some ground work to explore the determinants of capital structure of Indian firms upon which a more detailed evaluation could be based. Furthermore, empirical findings should help corporate managers to make optimal capital structure decisions.Originality/valueTo the authors’ knowledge, this study is the first that explores the most significant determinants of capital structure of manufacturing firms in India by using the most recent data. Moreover, this study also confirms that same factors affect the capital structure decisions of firms in developing countries as identified for firms in developed economies.

An abductive approach to qualitative built environment research

PurposeQualitative researchers are often confronted with a dilemma of selecting an appropriate approach within which to situate their research. This has led to successive attempts by qualitative researchers in the built environment (BE) to combine two dominant approaches – deductive and inductive; in the conduct of their inquiry. Such attempts can be traced to the poor comprehension of the abductive approach. The purpose of this paper is to elucidate the principles of the abductive approach and illustrate its applicability within the context of BE qualitative research.Design/methodology/approachIn this study, an illustrative case study is used to depict the usefulness of the abductive approach in BE research. The case relied upon is a recently completed study of an infrastructure delivery system and an assessment of the system’s ability to deliver on socio-economic sustainability objectives.FindingsIt was established that extant theories, particularly those with a history of provenance, could be used as a basis for the development of testable propositions for assessing certain phenomena, qualitatively. However, the manner in which these propositions are utilised under an abductive approach is pivotal to the generation of credible findings.Research limitations/implicationsIt is expected that the findings of this paper would create awareness among researchers on the relevance of an abductive approach to qualitative research.Originality/valueThis study makes an authentic contribution towards resolving the challenge confronting qualitative researchers within the BE discipline as it pertains to selecting between deductive and inductive approaches. In this case, an abductive approach is suggested and its modalities shown through a comprehensive study.

Supply network resilience: a systematic literature review and future research

PurposeThe purpose of this paper is to investigate the knowledge existing in the literature on supply chain resilience for identifying the supply chain practices adopted for securing resilience in given uncertain event.Design/methodology/approachA systematic literature review is conducted to identify 84 conceptual and empirical studies. The research findings are synthesized in categories of uncertain events, supply chain practices and outcomes.FindingsA set of propositions linking the uncertain events, mechanisms and supply chain resilience improvement is developed. It was found that the sufficient conditions for resilience under unexpected disasters are substantially different from those required for resilience against disruptions caused by internal practices or complexity.Originality/valuePractitioners can benefit from the knowledge of interventions and mechanisms to improve their supply chain resilience in the face of different unpredictable situations. The contribution of this paper is twofold: first, it develops an actionable theory of supply chain resilience by developing testable propositions in the context of supply chains exposed to uncertainties resulting from unexpected disruptions, complexity of supply chains and adoption of certain internal practice; second, the paper highlights the key shortcomings of existing literature and provides opportunities for further research and improvement.

Needed B2B marketing capabilities: Insights from the USA and emerging Latin America

Firms from all parts of the world are expanding operations globally in a turbulent economic context, requiring the understanding of nontraditional markets. Much attention has been focused on China and India, but researchers have neglected Latin America, a region economically as important as Germany, India, Japan, and South Korea. Latin America, as is true of many developed and emerging markets, has a strong presence of industrial − or business to business (B2B) − transactions. The configuration and convergence-divergence of marketing capabilities are relevant for the understanding of the globalization phenomenon. This study aims to examine B2B marketing capabilities of firms in Chile, Mexico and Peru (as Latin American countries), seeking conceptual issues in order to comprehend their business perspectives and contribute to the almost nonexistent body of research in this region. How do the results from Latin America compare with the USA? While the study shows directional convergence between Chile and Peru, there also is interesting divergence between all Latin American countries and the USA. The findings offer a portfolio of marketing topics that we believe are worthy of practitioner and academic consideration. We propose a model of convergence-divergence of B2B marketing capabilities across nations and state propositions for hypothesis testing.

Internationalization as an evolutionary process

The Johanson and Vahlne model of internationalization has been the main foundation of process research in international business since 1977. This model, also known as the Uppsala model, provides a useful general framework for interpreting firm-level processes increasing (and occasionally decreasing) resources committed to international operations. However, the model does not provide theoretical explanations of non-linear and discontinuous dynamics of the process over time, nor does it offer testable propositions. We focus on the longitudinal dimension of internationalization, specifically path-breaking commitments that increase a firm’s exposure to risk. On this basis, we examine the idea that the IP model represents an evolutionary process. By emphasizing the role of novelty and introducing selection mechanisms, we explain non-linear and discontinuous dynamics of internationalization processes. Path-breaking resource commitments create novelty and deviate from a gradual path of growth as firms take higher risks, and hence face more intensive selection pressures. In consequence, firms are more likely to experience outstanding performance – but are also more likely to experience failure. This variation of outcomes is moderated by the resources a firm can draw upon in its ecosystem and by the volatility of its environment. Based on these ideas, we develop testable propositions to advance the internationalization process model.

Capital Structure of Foreign Direct Investments: A Transaction Cost Analysis

Transaction cost theory (TCT) plays a major role in theorizing about the boundaries of the multinational enterprise (MNE), and is increasingly being applied to intra-MNE governance. We apply TCT to capital structure decisions for MNE subsidiaries. According to TCT, equity and debt are not just financial instruments, but alternative governance structures. Equity is useful for projects involving specific assets that do not serve well as collateral, and for knowledge intensive activities where information asymmetry and public good issues make external financing more costly. We study under what conditions MNE headquarters may wish to partially re-introduce market mechanisms inside the MNE through the use of external or internal debt to finance subsidiaries. This can allow economizing on governance costs and strengthen subsidiary manager incentives, but may be inappropriate if subsidiary assets are MNE-specific or subsidiary-specific. Empirically testable propositions are developed.

Team-bonding and team-bridging social capital: conceptualization and implications

PurposeThe paper aims to propose a conceptualization of two types of team social capital: team-bonding and team-bridging social capital. Throughout the conceptual effort, the paper provides suggestions for future research avenues that link team social capital, as a distinct team-level construct, with other team research topics.Design/methodology/approachThe conceptualization of team social capital is based on a review and synthesis of prior research about social networks. The propositions about the relationships of team social capital with other team process and effectiveness variables are developed within the classical input-mediator-output framework.FindingsThe conceptualizations of team-bonding and team-bridging social capital and the common measures for each are provided. Moreover, a series of testable propositions regarding the associations between team social capital and team process, the influence of team social capital on team effectiveness and the antecedents of team social capital are made.Research limitations/implicationsBecause of the chosen research approach, the research results may lack generalizability. Therefore, researchers are encouraged to test the proposed propositions further.Originality/valueThis paper elaborates the concept of team social capital and specifies its implications to various team phenomena. With this conceptual effort, this paper has advanced our knowledge about the nature and role of team social capital in team research.

Competing in business-to-business sectors through pay-per-use services

PurposeDespite the opportunities provided by pay-per-use (PPU) services, product companies in business-to-business sectors often fail to compete systematically by using them. The purpose of this paper is to explain how companies can avoid failures when it comes to PPU services. The paper describes the “seizing” capabilities needed to achieve the strategic objectives of PPU services.Design/methodology/approachThe research process is divided into a pilot and an in-depth study. Altogether, 17 companies participated in the study.FindingsThe findings reveal that the seizing capabilities depend on the strategic objectives of PPU services. To expand the market share with PPU services, companies need to broaden the customer portfolio for PPU services, to align individual services within the entire service portfolio and to balance profits made by PPU services and other business lines. For strategic objectives such as rapid sales growth early in the market development and new market creation other seizing capabilities are required.Research limitations/implicationsThe findings are not generalizable, due to the use of a qualitative study. The study is restricted to product companies in the business-to-business sector.Practical implicationsManagers often believe that extending and modularizing the service portfolio is beneficial. When achieving sales growth during the market development phase, these capabilities are in fact sometimes counterproductive. Practitioners have to look into the costs and benefits of setting-up their own financing company and working with banks.Social implicationsPPU services contribute to a more sustainable consumption and make product design more resource-efficient.Originality/valueThe study is original by virtue of systematically studying PPU services, providing a microfoundation for seizing capabilities and developing testable propositions for future research.

Toward understanding outcomes associated with data quality improvement

Business analytics is driving the way organizations compete. However, the decisions made as a result of any analytics process are greatly dependent on the quality of the data from which they are based. Scholars suggest several data quality improvement methods, and commercial software is now available that can help improve data quality. Although organizations are motivated to find ways to improve analytic capabilities and using these methods has been shown to improve some measures of data quality, there is little understanding of the tangible and intangible outcomes of employing these methods. In this study, we explore outcomes that arise from a data quality improvement process implementation in an operations management environment. Over a three-year period, we conducted a longitudinal single case study at an organization that maintains a large fleet of aircraft, collecting and analyzing qualitative interviews and observations. The findings suggest outcomes (both positive and cautionary) associated with the implementation of data quality improvement processes. These include increased stakeholder commitment to data quality and business analytics, as well as an over-emphasis on program metrics to the peril of operational outcomes, among others. From the basis of our findings, we construct a research agenda, which includes testable Propositions regarding outcomes of data quality improvement.

Regime Type and FDI: A Transaction Cost Economics Approach to the Debate

A debate exists in international political economy on the relationship between regime type and foreign direct investment (FDI). The central point of contention focuses on whether multinational firms generally prefer to pursue business ventures in more democratic or autocratic countries. A considerable amount of theory has been developed on this topic; however, the arguments in previous studies lack consistency, and researchers have produced mixed empirical findings. A fundamental weakness in this literature is that while FDI has largely been treated conceptually as a homogeneous aggregate, in reality, it features divergent characteristics on multiple dimensions. Three possible dimensions that FDI can be decomposed on are: greenfield vs. brownfield, ownership type (wholly owned vs. joint venture), and horizontal vs. vertical. The most relevant dimensions to the problem at hand are: greenfield vs. brownfield, and horizontal vs. vertical. Five propositions, based on the notion of asset specificity, other investment attributes, and host nation domestic factors, are derived to predict how regime type might affect four types of FDI: vertical-greenfield; vertical-brownfield; horizontal-greenfield; and horizontal-brownfield. Depending on the type of FDI, multinational corporations may have no regime preference, an autocratic preference, or a democratic preference. This research contributes to empirical international relations theory by providing a useful example on how to resolve a scholarly debate, theoretically, and by laying out testable propositions for future empirical research.

Why Shrinking Cities Are Not Mirror Images of Growing Cities: A Research Agenda of Six Testable Propositions

I advance six propositions regarding the features of urban decline processes that distinguish them from those in growing cities. First, they are demographically selective, as population losses are disproportionately comprised of more advantaged households. Second, they are dynamically nonlinear, as population changes exceed thresholds where socially problematic behaviors and residential disinvestment jump sharply. Third, they are asymmetrically scalable for technological, financial, physical, and political reasons. Fourth, they are minimally controlled by traditional land-use policies of zoning and building permits. Fifth, they are informally decentralized, as individuals and groups supplement the atrophied local public sector with “do it yourself” activities. Sixth, they are psychologically conservative, as residents try to conserve threatened physical, social, and psychological resources. The article synthesizes extant theory and evidence from multiple disciplines, although ultimately the propositions are advanced as working hypotheses commanding varying degrees of support, which collectively comprise a research agenda for further investigation.

Do European Parliament Elections Impact National Party System Fragmentation?

Why have European large parties lost electoral ground in recent decades? Whereas most explanations draw on theories of dealignment, this article advances a novel, institutional, argument by focusing on the introduction of direct elections to the European Parliament (EP) in 1979. Archetypes of second-order elections, EP elections are characterized by lower vote shares for (a) large and (b) incumbent parties. Bridging the second-order elections theory with theories of political socialization, we posit that voting patterns in EP elections spill over onto national elections, especially among voters not yet socialized into patterns of habitual voting. In so doing, they increase the national vote shares of small parties. This proposition is examined using an instrumental variables approach. We also derive a set of testable propositions to shed light on the underlying mechanisms of this pattern. Our findings show that EP elections decrease support for big parties at the national arena by inculcating voting habits.

Legitimacy and institutional change in international organisations: a cognitive approach

AbstractWhy are some institutional designs perceived as more legitimate than others, and why is the same institutional design sometimes perceived as legitimacy-enhancing in one setting and not in another? In a world in which most international organisations (IOs) do not fully embody societal values and norms, such as democratic participation and equal treatment, why do legitimacy deficits in some organisations lead to pressure for institutional change while in others they are tolerated? These are important questions given that many analysts have diagnosed a ‘legitimacy crisis’ of IOs, but we argue that existing approaches are ill equipped to answer them. We show that the existing legitimacy literature has an implicit model of institutional change – the congruence model – but that this model has difficulty accounting for important patterns of change and non-change because it lacks microfoundations. We argue that attributions of legitimacy rest on perceptions and this implies the need to investigate the cognitive bases of legitimacy. We introduce a cognitive model of legitimacy and deduce a set of testable propositions to explain the conditions under which legitimacy judgments change and, in turn, produce pressures for institutional change in IOs.

The effect of organizational structure on absorptive capacity in single and dual learning modes

Structural theories of absorptive capacity (ACAP) usually aim to specify organizational design characteristics that lead to a high level of ACAP. Drawing on the theories of organizational design and knowledge management, this paper reviews how organizational structure relates to ACAP in single and dual learning modes. This study analyzed the structure of the ACAP relationship in management and organization studies based on a literature review of ACAP research. This study contributes to the ACAP literature in five ways: (1) it investigates the role of ACAP as an independent variable; (2) it focuses on the behavioral domain of ACAP; (3) it relates structural variables to ACAP in single and dual learning modes; (4) it establishes a link between structural variables and ACAP using a two-stage model, comprising initiation and implementation stages; and (5) it predicts ACAP by identifying several testable propositions and deriving two predictive contingency models. Several propositions and two predictive contingency models are recommended as directions for future research and theory construction.

Risk-type preference shifts in response to performance feedback

The behavioral literature examines how performance feedback drives risky change. In this conceptual article, I incorporate the overlooked alternative to risky change: not changing and the risk associated with such omission. After all, both commissions and omissions can have extensive outcome variability. I propose that firms alter their preference for the type or risk, depending on how well they fared with their previous preference. I then further qualify these shifts in two ways: I discuss the extent of risk that firms are likely to take in the form of omissions and commissions, respectively, and I consider the frequency and magnitude with which the shifts are likely to occur. Theory of risk-type preference shifts may explain and reconcile seemingly disparate prior findings on risk-taking in response to performance feedback. To facilitate future research on firm behavior and resource allocation in dynamic environments, I provide three testable propositions and suggest ways to operationalize the new constructs.

Organizational crisis: emotions and contradictions in managing internal stakeholders

PurposeLittle research has focused on the impact of organizational crisis on their internal stakeholders – the employees. This paper aims to fill this void by examining the impression management strategies used by senior managers in managing their employees during organizational crisis and the impact of these strategies on employees.Design/methodology/approachThe authors collected qualitative data from three organizations and used multiple analytical lenses (such as thematic, content and trope) to explore patterns in senior managers’ management of employees during crisis.FindingsEmerging patterns in the data revealed that the emotional state and reactions of employees (individual and collective) during crisis include anger, fear, shame, depression and shock. Additionally, data revealed two major contradictions (tensions) in managing employees during crisis: maintaining and compromising standard and managers’ wants versus employees’ desire in the way organization crisis is managed. Based on these preliminary findings and using affective event theory and the theory of collective emotions as a frame, the authors built a conceptual model that depicts the relationship between organizational crisis, impression management and emotion-driven employee attitudes and behaviors.Research limitations/implicationsA major limitation in the current research is that authors’ data are largely composed of text (e.g. from newspaper and websites). Nevertheless, the textual data were based on actual interviews with stakeholders and victims and have more than compensated for the limitation. Theoretically, by examining the emotional states and reactions of internal (rather than external) stakeholders to organizational crisis, the authors extend the literature in the area of organizational crisis and crisis management, while the testable propositions in this conceptual model have a potential to open up new pathways for studying organizational crisis. Practically, it is imperative for managers to have skills to identify and manage key employees’ emotional states and reactions to crisis. Managers should align their words and actions during crisis management to increase employees trust. Also pre-crisis planning should include specific guidelines on how to identify and manage employees’ individual and collective emotions during crisis.Practical implicationsThe results show that inappropriate impression management strategies may worsen employees’ emotional states and reactions (individual and collective) during crisis; therefore, it is imperative for managers to have skills in identifying key employees’ emotional states and reactions to crisis and the impression management strategies appropriate in managing them. A training that sharpens managers’ emotional intelligence will be helpful in managing the emotions of employees (individual and collective) during crisis. Also, pre-crisis planning should include specific guidelines on how to identify and manage employees’ individual and collective emotions during crisis, while senior managers’ words and actions during crisis need to be synchronized to engender employees’ trust.Originality/valueThis study demonstrates that beyond emotions of employees during crisis, there are contradictions and tensions in the senior manager’s management of their employees during crisis. Also, outcomes of a quantitative test of the conceptual model developed from the current study should improve the generalizability of the results and open up new pathways for future research in this area.

A bricolage perspective on service innovation

Service innovation is often viewed as a process of accessing the necessary resources, (re)combining them, and converting them into new services. The current knowledge on success factors for service innovation, such as formalized new service development (NSD) processes, predominantly comes from studying large firms with a relatively stable resource base. However, this neglect situations in which organizations face severe resource constraints. This paper argues that under such constraints, a formalized new service development process could be counter-productive and a bricolage perspective might better explain service innovation in resource-constrained environments. In this conceptual paper, we propose that four critical bricolage capabilities (addressing resource scarcity actively, making do with what is available, improvising when recombining resources, and networking with external partners) influence service innovation outcomes. Empirical illustrations from five organizations substantiate our conceptual development. Our discussion leads to a framework and four testable propositions that can guide further service research.

A balance theory approach to stakeholder network and apology strategy

Apology is an important area of research in crisis communication. Scholars have largely explored apology from an organization-centric, dyadic approach. We argue that this type of research has made unrealistic assumptions about a much more complex social system and may be challenged by increasingly interconnected social reality. This paper uses Structural Balance Theory and Stakeholder Network Management Theory to develop a model and several testable propositions to guide the way organizations respond to a crisis.

When Service Customers Do Not Consume in Isolation

In many service contexts, customers share the service setting with other customers. However, knowledge about the influences of fellow customers’ copresence remains largely fragmented. We address this deficiency by introducing the integrative concept of customer copresence influence modes (CCIMs) and investigate its potential consequences for service perceptions and evaluations. Following a grounded theory approach and drawing on in-depth, qualitative interviews with both managers and customers of a leading service company, we develop a typology of CCIMs, categorizing the various ways— interactions (reactive/proactive and social/instrumental), observations (information-seeking/comparative), and spillovers (spatial/behavioral)—in which fellow customers might influence the focal customer. Building on this typology, we propose a conceptual framework with a set of testable propositions about consequences of CCIMs for the focal customer’s service experience and the service provider’s image. The CCIM typology and propositional inventory, in addition to offering directions for further research, emphasize the need for service managers to pay special attention to customer copresence because (1) its influence on service experience is contingent on a variety of factors, including some within the managers’ control, and (2) customers might assign responsibility to the service provider for both desirable and detrimental effects of customer copresence.

The Internationalization of African Small and Medium Enterprises (SMEs): A South-North Pattern

Despite the growing internationalization of small and medium enterprises (SMEs) from Africa, related research remains limited. Adopting a qualitative approach, this study investigates three SMEs in the African coffee subsector that internationalized rapidly beyond the continent. The case studies, based on interview and secondary information, shed light on the antecedents, timing, strategies, modes and consequences of the SMEs’ South-North internationalization. The cases also generate understanding of how various elements of SMEs’ foreign expansion compare with those of previously studied firms. Our analysis reveals that an understanding of SME internationalization is attainable by integrating multiple theoretical foundations (i.e., the Uppsala model, Linkage-Leverage-Learning framework, and Network theory). We develop testable propositions and conclude by providing managerial and policy implications, highlighting limitations, and suggesting directions for future research.