Looking Backward Instead of Forward: Aspiration-Driven Influences on the Efficiency of the Capital Allocation Process

Arrfelt, Mathias; Wiseman, Robert M.; Hult, G. Tomas M.

doi:10.5465/amj.2010.0879

Cited by 132 publications

(186 citation statements)

References 66 publications

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“…A wide range of studies have examined the role of performance relative to historical and/or social aspirations on risk taking. In this literature, managerial risk taking has been operationalized as acquisitions (Audia & Greve, 2006;Greve, 2008Greve, , 2011Iyer & Miller, 2008;Kim, Finkelstein, & Haleblian, 2015), entrance into new markets (Barreto, 2012), innovation (Chen, 2008;Chen & Miller, 2007;Gaba & Bhattacharya, 2012;Gaba & Joseph, 2013;Greve, 2003;O'Brien & David, 2014;Vissa, Greve, & Chen, 2010), illegal behavior (Baucus & Near, 1991;Harris & Bromiley, 2007;Madsen, 2013), and organizational change (Arrfelt, Wiseman, & Hult, 2013;Baum & Dahlin, 2007;Greve, 1998;Labianca, Fairbank, Andrevski, & Parzen, 2009;Lant, Milliken, & Batra, 1992;Massini, Lewin, & Greve, 2005;Park, 2007). Most of these studies have found evidence supporting BTOF main-effect predictions of greater managerial risk taking after underperforming and lower levels of risk taking when over performing.…”

Section: The Behavioral Theory Of the Firm And Prospect Theorymentioning

confidence: 99%

Managerial Risk Taking

Hoskisson

Chirico

Zyung³

et al. 2016

Journal of Management

275

132

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Managerial risk taking is a critical aspect of strategic management. To improve competitive advantage and performance, managers need to take risks, often in an uncertain environment. Formal economic assumptions of risk taking suggest that if the expected values for two strategies are similar but one is a greater gamble (uncertain), managers will choose the strategy with a more certain outcome. Based on these assumptions, agency theory assumes that top managers should be compensated or monitored to achieve better outcomes. We review the theory and research on agency theory and managerial risk taking along with theories that challenge this basic assumption about risk taking: the behavioral theory of the firm, prospect theory, the behavioral agency model and the related socioemotional wealth perspective, and upper echelons theory. We contribute to the literature by reviewing and suggesting research opportunities within and across these theories to develop a comprehensive research agenda on managerial risk taking.

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Section: The Behavioral Theory Of the Firm And Prospect Theorymentioning

confidence: 99%

Managerial Risk Taking

Hoskisson

Chirico

Zyung³

et al. 2016

Journal of Management

275

132

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“…This approach reflects the largest quantity of perspectives as reflected by the greater density and complexity of the network (Figure 2a), and the highest quantity of integrated theories (20 supporting theories). Such network density/complexity is not surprising in light of the complexity of forming strategic decisions within highly uncertain organizational environments (Arrfelt et al, 2013).…”

Section: Strategic Leadershipmentioning

confidence: 99%

“…Strategic leadership refers to a leader's ability to "anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes" (Ireland & Hitt, 2005: 63); these are skills that facilitate an organization's capacity to adapt to rapid environmental changes (Arrfelt, Wisemank, & Hult, 2013). Hence, strategic leadership is focused on "leadership of" organizations, as opposed to "leadership in" organizations (Boal & Hooijberg, 2001).…”

Section: Strategic Leadershipmentioning

confidence: 99%

A Network Analysis of Leadership Theory

Meuser

Gardner

Dinh

et al. 2016

Journal of Management

132

122

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We investigated the status of leadership theory integration by reviewing 14 years of published research (2000 through 2013) in 10 top journals (864 articles). The authors of these articles examined 49 leadership approaches/theories, and in 293 articles, 3 or more of these leadership approaches were included in their investigations. Focusing on these articles that reflected relatively extensive integration, we applied an inductive approach and used graphic network analysis as a guide for drawing conclusions about the status of leadership theory integration. All 293 articles included in the analysis identified 1 focal theory that was integrated with 2 or more supporting leadership theories. The 6 leadership approaches most often appearing as the focal theory were transformational leadership, charismatic leadership, strategic leadership, leadership and diversity, participative/shared leadership, and the trait approach to leadership. On the basis of inductive reflections on our analysis, we make two key observations. First, the 49 focal leadership theories qualify as middle-range theories that are ripe for integration. Second, drawing from social network theory, we introduce the term “ theoretical neighborhood” to describe the focal theoretical networks. Our graphical inductive analyses reveal potential connections among neighboring middle-range leadership theories that merit investigation and, hence, identify promising future directions for achieving greater theoretical integration. We provide an online supplement with 10 additional leadership theory graphs and analyses: leadership in teams and decision groups, ethical leadership, leader and follower cognitions, leadership emergence, leadership development, emotions and leadership, implicit leadership, leader-member exchange, authentic leadership, and identity and identification process theories of leadership.

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“…Field research built upon this insight by showing that managers' failure to respond appropriately to the threat of new technologies due to their cognitive biases limits their abilities to allocate capital efficiently within the multi-business firms they run (Christensen and Bower 1996, Sull 1999, Gilbert 2001. Even more recently, studies have productively taken steps towards more precisely unpacking the contingencies in which managers make efficient versus inefficient capital allocation decisions (Khanna andTice 2001, Maksimovic andPhillips 2002), particularly by developing new frameworks that analyze how the tradeoff between growth and profitability influences these decisions (Bardolet et al 2010, Vierreger 2012 and by introducing the ideas of historical and social aspiration levels and how they might affect capital allocation decision-making (Arrfelt et al 2013, Arrfelt et al 2015.…”

Section: Capital Allocation In Diversified Firmsmentioning

confidence: 99%

“…Chief among these is the capital allocation process, a central strategic function in which the managers of a diversified firm must decide how to divide a pool of financial resources among their business units based on the available investment opportunities (Scharfstein 1998, Ozbas andScharfstein 2009), as well as various social and political considerations within their firms (Scharfstein and Stein 2000, Bardolet et al 2010, Vierreger 2012, Arrfelt et al 2013, Arrfelt et al 2015. Because businesses can only pursue opportunities when they have the financial means to do so, the capital allocation process is a critical mechanism by which firm strategies are enacted.…”

Section: Introductionmentioning

confidence: 99%

Corporate Spin-Offs and Capital Allocation Decisions

Feldman

2016

Strategy Science

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This paper investigates how spin-offs affect capital allocation decisions in diversified firms. The sensitivity of capital expenditures to investment opportunities, representing the efficiency of capital allocation decisions, improves when firms undertake spin-offs. The improvement in the efficiency of capital allocation decisions is most pronounced immediately following the completion of spin-offs (though it attenuates thereafter) and in companies that operate in a moderate (as opposed to a high or a low) number of businesses pre-spin-off. Together, these findings uncover a novel benefit that is associated with spin-offs, an improvement in the process by which managers allocate capital in the divesting firms. These results also suggest that an important theoretical mechanism that may be driving this improvement is that spin-offs enable managers to devote more attention to the capital allocation process within their remaining businesses. AbstractThis paper investigates how spinoffs affect capital allocation decisions in diversified firms. The sensitivity of capital expenditures to investment opportunities, representing the efficiency of capital allocation decisions, improves when firms undertake spinoffs. The improvement in the efficiency of capital allocation decisions is most pronounced immediately following the completion of spinoffs (though it attenuates thereafter), and in companies that operate in a moderate (as opposed to a high or a low) number of businesses pre-spinoff. Together, these findings uncover a novel benefit that is associated with spinoffs, an improvement in the process by which managers allocate capital in the divesting firms. These results also suggest that an important theoretical mechanism that may be driving this improvement is that spinoffs enable managers to devote more attention to the capital allocation process within their remaining businesses.

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Looking Backward Instead of Forward: Aspiration-Driven Influences on the Efficiency of the Capital Allocation Process

Cited by 132 publications

References 66 publications

Managerial Risk Taking

Managerial Risk Taking

A Network Analysis of Leadership Theory

Corporate Spin-Offs and Capital Allocation Decisions

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