Strategic Organization current issue

Information loss, knowledge transfer cost and the value of social relations

Bae, J., Jun Koo, — 2008-08-04

The literature on knowledge transfer has long recognized the importance of social relations as a conduit of knowledge transfer. Two distinct features of social relations have been examined extensively: their strength and structure. Their effects on knowledge transfer remain unclear, however, and researchers have attended to one or the other of two constraints — information loss and transfer cost — in efforts to elucidate them. Yet, few studies analyse the joint effects of these constraints on knowledge transfer in a network directly. To examine their interaction, this article develops an agent-based simulation and experiment with four different kinds of relations: a sparse network with weak ties, a sparse network with strong ties, a dense network with weak ties and a dense network with strong ties. At the individual level, the study finds that dense networks comprised of weak ties afford more valuable knowledge if information loss is trivial and the cost of initiating ties is larger than the cost of transfer, but that the value of density declines rapidly as information loss increases. At the organizational level, in contrast, sparse networks with strong ties appear optimal for knowledge transfer via social relations.

CEO ownership and effective boards: impacts on firm outcomes

Walters, B. A., Kroll, M., Wright, P. — 2008-08-04

We examine the impact of boards of directors on shareholder returns arising from acquisition announcements in the context of varying CEO ownership levels. Agency theory emphasizes the benefits of incentives pertaining to top managers and directors, whereas resource dependence theory focuses on directors' resource provision, advice and counsel. Drawing on both these perspectives, the authors describe effective boards as those that are vigilant (via incentives to monitor) and rich in human capital (via relevant experience). Such boards are able not only to monitor in the decision control sense, but also to provide strategic benefits to a greater degree than typical outside directors.The authors contend and find that moderate levels of CEO ownership, combined with appropriate incentives and human capital, increase returns to shareholders of acquiring firms. Although shareholders benefit less when CEO ownership is negligible or substantial, their welfare is still enhanced to the degree that the board has appropriate incentives and human capital.

Controlling for endogeneity with instrumental variables in strategic management research

Bascle, G. — 2008-08-04

This article offers a framework to understand how endogeneity arises and how to control for it with instrumental variables to estimate causal relations with observational data. It builds on the state-of-the-art research in applied and theoretical econometrics to highlight the importance of endogeneity and review the methods that can be used to address it with instrumental variables.The article also discusses when the Heckman two-step procedure can be used, as well as the tests, methods and assumptions that researchers should check when using instrumental variables.To ease implementation of the instrumental variables techniques, the author offers the STATA commands of the exposed tests and methods. Further, an empirical example is provided along with the utilized STATA codes. In the end, this article serves as a`toolkit' allowing scholars not only to understand whether endogeneity is present in their empirical setting, but also to assess the empirical validity of their work when using instrumental variables.

Stranger in a strange land: a brief journey into the realm of empirical corporate finance

Miller, D. — 2008-08-04