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Dissertation Papers

    1. Delegation of decision rights and inertia in capital reallocation (with Tomasz Obloj)

      • Revise & Resubmit at Strategic Management Journal
      • Best Paper Proceedings, Academy of Management Annual Meeting 2022
      • Academy of Management Annual Meeting 2022 (scheduled)
      • Presented at Strategy Science Doctoral Workshop 2021

       Abstract: In this paper, we investigate the antecedents of inertia in capital allocation decisions in organizations. Despite the importance of flexible capital reallocation, empirical evidence points to remarkably high levels of stability in these decisions. Adopting a behavioral perspective, we focus on information processing demands faced by boundedly rational decision makers as a driver of such inertia. In particular, we argue that centralization of decision rights, which increases the information processing demands on relevant decision makers, results in an increased inertia in capital reallocations. To empirically test our proposition and explore the causal effect of centralization on reallocation flexibility, we take advantage of an exogenous variation in decision rights among municipalities located in the state of Illinois in the US. Our findings indicate that the delegation of decision rights for capital allocation significantly decreases inertia in reallocation decisions. Additional analyses further provide evidence that a likely mechanism explaining our findings is that of decentralization reducing information processing load on relevant decision makers.

    2. Performance feedback and strategic change by resource reallocation: is short-term horizon always bad? 
      (Job Market Paper)
      • Strategic Management Society Annual Conference 2022 (Scheduled)

      Abstract: Performance feedback theory suggests that poor performance compared with aspirations may provide a stimulus to undertake a change in strategic direction of the firm. Existing studies have pointed to the influence of interpretation of performance feedback, slack resources, and hierarchical level of decision makers in conditioning the effect of performance feedback. This paper explores the role of a hitherto unexplored mechanism i.e., heterogenous demands of institutional owners in influencing the managerial decision to change a firm's strategy in response to negative performance-aspiration discrepancy. Building on the logic of motivation to undertake change, I propose that ownership by short-term institutions is more likely to influence managers to break strategic inertia after performance falls below aspirations because these owners are more sensitive to negative feedback. On the other hand, long-term institutional owners may feel less pressured by their clients to change strategy when the performance-aspiration gap is still small. Further, I examine institutional owners’ behavior when performance is well below aspirations. Specifically, long-term institutional owners are likely to drive a change in firm strategy to initiate corporate turnaround when the performance-aspiration gap becomes severe. In contrast, owners with short term orientation are focused on the liquidity of their investments and will choose to reduce risk because of enhanced uncertainty. The above influence of institutional owners on the managerial response is likely to be stronger when there is a higher ratio of inside directors because the latter are more likely to engage with strategic issues. Using an instrumental variable approach to identify exogenous increase in short term versus long-term institutional ownership, I find results consistent with these predictions.

    3. Betting on strategic initiatives?! Human capital and insider trading (with Russell Coff, John Mawdsley, and Philipp Meyer-Doyle)

      Abstract: We explore how the nature of human capital (generalist vs. specialist) shapes insider trading behavior and performance – an important manifestation of managerial foresight in a firm’s senior management. Examining insider trading associated with firms’ product announcements, we find that generalists engage in more insider trading before product announcements than specialists, and this effect is stronger when generalists hold greater firm-relevant knowledge. Yet, the insider trading of generalists is associated with lower abnormal returns than that of specialists, although this difference is smaller when generalists have greater firm-relevant knowledge. Our results highlight important human capital tradeoffs regarding managerial strategic foresight and suggest firm-relevant knowledge enhances generalists’ ability to apply their broad knowledge to the firm. Our study offers fresh contributions to research on strategic human capital.