Search behavior of the diversified firm: The impact of fit on innovation

Kim, Sang Kyun; Arthurs, Jonathan D.; Sahaym, Arvin; Cullen, John B.

doi:10.1002/smj.2038

Cited by 53 publications

(40 citation statements)

References 68 publications

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“…Here we adopted Palepu's entropy measure (Palepu, ), following studies like Kang () and Kim et al . (), and constructed this variable from the COMPUSTAT Segments database. Our results are substantially similar if we replace the entropy measure with either a count‐based or a Herfindahl‐type diversification measure.…”

Section: Methodsmentioning

confidence: 97%

“…Prior research has employed various measures of diversification (Robins and Wiersema, 1995;Speckbacher, Neumann, and Hoffmann, 2015). Here we adopted Palepu's entropy measure (Palepu, 1985), following studies like Kang (2013) and Kim et al (2013), and constructed this variable from the COMPUSTAT Segments database. Our results are substantially similar if we replace the entropy measure with either a count-based or a Herfindahl-type diversification measure.…”

Section: Explanatory Variablesmentioning

confidence: 99%

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When is cash good or bad for firm performance?

Deb

Polizzi

O’Brien

2016

Strategic Management Journal

110

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Research summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. We synthesize arguments from the behavioral theory of the firm, economic perspectives like agency theory, and the value‐creation versus value‐appropriation literatures to argue that the implications of cash for firm performance are context‐specific. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Managerial summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. While cash‐rich firms have higher performance on average, with those in the 75th percentile having a market‐to‐book value 15 percent higher than those in the 25th percentile, we find that the performance benefits of cash depend on the context. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Copyright © 2015 John Wiley & Sons, Ltd.

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Section: Methodsmentioning

confidence: 97%

Section: Explanatory Variablesmentioning

confidence: 99%

When is cash good or bad for firm performance?

Deb

Polizzi

O’Brien

2016

Strategic Management Journal

110

View full text Add to dashboard Cite

show abstract

“…Forward citations are highly correlated with the underlying value and importance of an innovation (Trajtenberg, 1990). The variable is calculated as the total number of citations from other firms (excluding examiner citations) received within 5 years on the patents filed in the given year (Kim, Arthurs, Sahaym, & Cullen, 2013). Citation data were collected through 2014.…”

Section: Variablesmentioning

confidence: 99%

Allocation of property rights and technological innovation within firms

Magelssen

2019

Strategic Management Journal

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Research Summary This paper examines whether ownership rights to strategic assets within firms affects innovation. Although existing research maintains that strategic assets can be leveraged freely within the firm, many firms allocate ownership rights to strategic assets to business units or subsidiaries. While scholars have examined strategic asset ownership rights as a tool for tax avoidance, scholars have yet to study its effects on innovation. In the context of multinational firms, I find evidence that subsidiaries with ownership rights produce more technological innovations and are more responsive to shocks to R&D opportunity than those without ownership rights. Additionally, the results provide evidence of the cost of tax avoidance strategies. When subsidiaries in technologically advantaged locations do not hold ownership rights, they produce fewer and less impactful innovations. Managerial Summary A key decision made by multinational firms is which subsidiaries should hold ownership rights to the firm's strategic assets. The choice often entails a trade‐off between allocating ownership rights to subsidiaries best positioned to innovate and manage the strategic asset versus to subsidiaries in income shielding locations to reduce the firm's tax bill. This paper examines whether subsidiary strategic asset ownership rights matter for subsidiary innovation. I find evidence that subsidiaries with ownership rights produce greater quantity and quality of innovations and are more responsive to changes in R&D opportunity than subsidiaries without ownership rights. This study highlights an important ramification of tax avoidance strategies: locating strategic asset ownership rights away from subsidiaries in regions of expertise can adversely affect innovation within the firm.

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“…We also emphasize that, when unrelated knowledge is recombined, the outcomes are more innovative than when related knowledge is integrated (Wanous and Youtz 1986;Miller et al 2007). However, while unrelated diversification supports crossfertilization and know-how blending (as occurs frequently in biotechnology and nanotechnology settings), as Kim et al (2013) argue, this phenomenon emerges only when firms promote a broad technological search strategy. On the other hand, Leten et al (2007) argue that high level of diversification may generate in turn high integration costs.…”

Section: Knowledge Cross-fertilization and Know-how Blendingmentioning

confidence: 94%

Revamping research on unrelated diversification strategy: perspectives, opportunities and challenges for future inquiry

Picone

Dagnino

2015

J Manag Gov

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With the aim of achieving an advanced understanding of current research on unrelated diversification and providing fruitful groundwork to foster active interchange between disciplinary traditions, this paper detects articles from two relevant research streams; i.e., strategic management and financial economics. We first provide a brief overview of management thinking on unrelated diversification strategy. Then, we present a conceptual map that offers a comprehensive appreciation of unrelated diversification strategy antecedents (i.e., environmental and institutional, organizational value-enhancing, and managerial drivers), implementation process (i.e., managerial complexity, misallocation of resources, and structural inertia), and consequences (i.e., diversification premiums and discounts). Finally, we unpack the major gaps in our current knowledge that may help refocus the research agenda on unrelated diversification strategy and revamp the apparent waning proclivity of this issue.

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Search behavior of the diversified firm: The impact of fit on innovation

Cited by 53 publications

References 68 publications

When is cash good or bad for firm performance?

When is cash good or bad for firm performance?

Allocation of property rights and technological innovation within firms

Revamping research on unrelated diversification strategy: perspectives, opportunities and challenges for future inquiry

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