Abstract:This paper reviews some critical issues associated with measuring and testing change and then reports on how strategy researchers have addressed those matters. We first discuss three key methodological requirements: reliability assumptions of change variables, correlations between the change variable and its initial measure, and selection of unbiased measurement alternatives. Next, we present data from a content analysis of 126 change studies which suggest that strategy researchers tend not to recognize those … Show more
“…The positive significant result for compensation to performance changes indicates that studies using change variables tend to identify stronger focal effects, which may well be a statistical artifact (cf. Bergh & Fairbank, 2002). The negative significant result for the lagged performance measurement variable suggests that pay is more sensitive to current than to past performance.…”
Section: An Institution-based View Of Executive Compensationmentioning
We offer a multilevel meta-analytic study of the firm performance -executive compensation relationship, comprising prior tests derived from 332 primary studies nested in 29 countries. Although our work modestly supports the optimal contracting theory-based expectation that compensation is positively associated with performance, it also reveals considerable cross-country variability in this relationship. We trace this variance to differences in the level of development of the formal and informal institutions protecting investors against managerial overcompensation and underperformance. In terms of intentionally devised and enforced formal institutions, we find significant positive moderating effects on the focal relationship of the rule of law and strength of investor protection variables. For self-enforcing informal institutions, we find similar effects for concentrated ownership and compensationrelated entries in codes of good corporate governance. We also find that formal and informal institutions function in a complementary manner in shaping the performance sensitivity of executive compensation. The focal relationship becomes stronger when concentrated owners have access to well-functioning courts, and when informal norms of good governance are supported by shareholder protection laws. Our study thus suggests that optimal contracting theory must be supplemented with an institution-based view, to account for the conditioning effects of institutions on national contracting environments.
“…The positive significant result for compensation to performance changes indicates that studies using change variables tend to identify stronger focal effects, which may well be a statistical artifact (cf. Bergh & Fairbank, 2002). The negative significant result for the lagged performance measurement variable suggests that pay is more sensitive to current than to past performance.…”
Section: An Institution-based View Of Executive Compensationmentioning
We offer a multilevel meta-analytic study of the firm performance -executive compensation relationship, comprising prior tests derived from 332 primary studies nested in 29 countries. Although our work modestly supports the optimal contracting theory-based expectation that compensation is positively associated with performance, it also reveals considerable cross-country variability in this relationship. We trace this variance to differences in the level of development of the formal and informal institutions protecting investors against managerial overcompensation and underperformance. In terms of intentionally devised and enforced formal institutions, we find significant positive moderating effects on the focal relationship of the rule of law and strength of investor protection variables. For self-enforcing informal institutions, we find similar effects for concentrated ownership and compensationrelated entries in codes of good corporate governance. We also find that formal and informal institutions function in a complementary manner in shaping the performance sensitivity of executive compensation. The focal relationship becomes stronger when concentrated owners have access to well-functioning courts, and when informal norms of good governance are supported by shareholder protection laws. Our study thus suggests that optimal contracting theory must be supplemented with an institution-based view, to account for the conditioning effects of institutions on national contracting environments.
“…We use a difference score to measure change over time, as a dependent variable, and thus these problems are not relevant to our study. Second, many change measures have low reliability as a result of high correlation with the level measures used to construct them (Bergh and Fairbank 2002). We have the opposite situation in which our measure of change in diversification has low correlation with the level of diversification (−.06 for shipbuilding, −.08 for robotics).…”
Strategic change is one of the most critical decisions that organizations make. We focus on the role of groups at the upper echelon of hierarchies and propose that concentrated power either in the CEO or the top management team is prone to be exercised, leading to a high rate of strategic change. We derive hypotheses on how formal and informal power concentration in top management teams have an effect on changes in corporate diversification. The findings suggest that power concentration strongly affects decision making.
“…We often find a close relationship between the past value of a variable and its future value. The change and the past score share variance and their correlation is generally negative because the variance of future scores of a variable is often smaller than the variance of past scores (Bergh and Fairbank 2002). Given that the value of the IJV ratio at t might be influenced by its prior value at t−1, we included the prior level of IJV ratio in the models.…”
0This study investigates the conditions under which environmental and firm-level factors affect MNe ownership strategy. 0 We theorize that these effects are related to changes over time, which we subdivide into the aspects of absolute and relative magnitude. 0 We develop and test four hypotheses using longitudinal data on Japanese foreign direct investment (FDi). 0 At the environmental level, the proliferation of FDI opportunities significantly increases the use of international joint ventures (IJVs). 0 At the firm level, increase in FDI experience has a significant positive effect on the use of IJVs.Keywords: Multinational enterprises (MNE) · Ownership strategy · Change · Resource-based view (RBV) · Transaction cost economics (TCE) · Foreign direct investment (FDI) Manag int Rev (2010) 50:267-296
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