Federica Pazzaglia

Normal Accident Theory versus High Reliability Theory: A resolution and call for an open systems view of accidents

We resolve the longstanding debate between Normal Accident Theory (NAT) and High-Reliability Theory (HRT) by introducing a temporal dimension. Specifically, we explain that the two theories appear to diverge because they look at the accident phenomenon at different points of time. We, however, note that the debate’s resolution does not address the non-falsifiability problem that both NAT and HRT suffer from. Applying insights from the open systems perspective, we reframe NAT in a manner that helps the theory to address its non-falsifiability problem and factor in the role of humans in accidents. Finally, arguing that open systems theory can account for the conclusions reached by NAT and HRT, we proceed to offer pointers for future research to theoretically and empirically develop an open systems view of accidents.

Earnings Quality in Acquired and Nonacquired Family Firms A Socioemotional Wealth Perspective

We develop a socioemotional wealth explanation for the differences in earnings quality between family firms. We argue that the process by which families obtain ownership of firms is a key contingency affecting earnings quality. Specifically, firms acquired by families through market transactions display lower earnings quality due to lower identification of family owners relative to firms still owned by the families that created them. Acquired family firms benefit with respect to their earnings quality from having a nonfamily CEO while nonacquired family firms benefit from having a family CEO.

Effect of Governance Reforms on Corporate Ownership in Italy: Is it Still Pizza, Spaghetti, and Mandolino?

This paper describes the logic that guides the implementation of corporate governance reforms and investigates the extent to which the logic leads to an increase in investor protection.We use the example of Italy, where major governance reforms were passed in 1998 to protect minority shareholders from the risk of expropriation. Our two-stage mixed-methods longitudinal study (1995–2005) reveals that the reforms were only modestly effective in improving governance practices. On the one hand, we document a greater alignment of cash flow rights and voting rights of ultimate owners after 1998, suggesting that minority shareholders face lower risk of expropriation. Yet, on the other hand, we find that the percentage of firms where control is fully contestable continues to remain low. Our qualitative analysis reveals both facilitators such as institutional investor activism and mandatory provisions, and impediments such as discretionary provisions, weak enforcement, and an ingrained culture of high control. This study elaborates extant theory on the effectiveness of reforms by adopting a longitudinal design that describes both their underlying logic and their actual effects on business practices. It also offers conceptual clarity to this literature by bringing attention to factors that act as facilitators and impediments to reform efforts. This study prompts lawmakers in countries endeavoring reforms to encourage participation of institutional investors, as also urges them to consider mandatory provisions, especially those which enhance disclosure and representation.

Large-Scale Events as Catalysts for Creating Mutual Dependence Between Social Ventures and Resource Providers

We examine the resource mobilization efforts undertaken by a social venture to organize the 2003 Special Olympics World Summer Games and bring about a change in social attitudes towards the cause of learning and intellectual disabilities. In contrast to previously advanced views of social ventures as powerless actors, we find instead that they are able to leverage the visibility afforded by large-scale events to create positions of mutual dependence, which allow them to access broad support bases and assert themselves in relationships with external parties. Specifically, we find that resource mobilization involves six distinct tactics rooted in the softer forms of power, namely, attraction and inducement. The use of these soft-power tactics depends upon the social venture’s goal at different moments of the relationship with its partners and the level of support available from each external party. Our elaborated theory highlights both the role and limitations of soft power in mobilizing resources and managing relationships.

Reconciliation can lead to better application: A rejoinder to Perrow (2009)

In his brief commentary, Perrow raises four issues. First, he alludes to how the misuse of bureaucratic power could explain some accidents. Second, he reiterates that normal accidents occur owing to the characteristics inherent in a system, and such accidents, irrespective of whether high reliability practices are followed or not, are inevitable. Third, Perrow asserts that complexity and coupling are independent of time of operation. The time dimension’s irrelevance, he claims, ought to be apparent from his analysis of normal accidents in systems such as the air transport and chemical industry (see Perrow, 1984). Fourth, Perrow implies that High Reliability Theory (HRT) cannot explain the sub-class of accidents that Normal Accident Theory (NAT) concerns itself with. He thus makes a case for retaining NAT alongside other theories and finds little value in our reconciliation. In fact, he finds the reconciliation inappropriate because we supposedly err in implicating time. We respond to the four issues in turn.

Choice of Organizational Form as a Trade-Off Between Fit and Market Timing

This paper proposes that a firms choice of organizational form is a trade-off between the fit with its investment opportunity set, and its attempt to exploit periods of favourable market valuations for a given organizational form. To test this prediction, we identify 272 firms that go public in Canada between 1995 and 2005. Of these, 128 choose the organizational form of public corporation, while 144 choose the alternative organizational form of income trust. We find that market timing affects the choice of organizational form. An increase in valuations for income trusts relative to public corporations increases the likelihood that a firm will go public as an income trust. Using propensity score matching, we also show how market timing driven choices allow firms to maximize the proceeds through reduced initial underpricing and reduced underwriting fees.

Loyal after the end: Understanding organizational identification in the wake of failure:

Prestige has traditionally been viewed as a primary explanation for individuals’ identification with organizations. Yet there are clues in the literature that some individuals identify with organizations that have lost their prestige owing to failure. We use data from a survey of former employees of a defunct technology firm to test a proposed model of identification with failed organizations. We find that the extent to which the perceived identity of a failed organization fulfills former members’ self-enhancement and belongingness motives has a positive relationship with their identification with it. Identification, in turn, inclines former members to socially interact with each other and participate in alumni associations. Further qualitative analysis reveals the organizational identity work practices by which former members recast a failed organization’s identity in positive terms. These findings suggest the merit of relaxing assumptions about prestige as a necessary precursor to organizational identification, and augment scholarly understanding of the cognitive and relational mechanisms that facilitate individuals’ identification with organizations in the wake of events that injure their reputations.

Keeping up with the Joneses: Industry rivalry, commitment to frames and sensemaking failures:

Drawing on a qualitative study of the banking crisis in Ireland, we examine how a cognitive frame of environmental conditions that is shared among industry rivals constrains their ability to act on the cues of slowly incubating threats. We find that shared frames are reinforced through social comparisons that prompt imitation and through their enactment that prompts a reconfiguration of internal control structures and power relationships. The reinforcement of a shared frame dulls the emerging cues of changing market conditions and weakens perception of the risks of staying the course. A core contribution of this study is to highlight the cognitive and political processes by which a shared frame solidifies within an industry, trapping organizations in their enacted environment and resulting in their collective failure.

Family Ownership and Earnings Quality: Evidence from Different Institutional Environments

This study combines insights from the socioemotional wealth perspective and institutional and resource-based theories to examine the earning quality of family and nonfamily firms operating in countries characterized by different levels of institutional development. Results based on a cross-sectional sample of firms from 12 European countries show that family status and a country’s level of institutional development are positively related to earnings quality. They also show that institutional development moderates the relationship between family status and earnings quality. Comparing insider-oriented countries that are characterized by lower regulatory and financial development with outsider-oriented countries that are characterized by higher regulatory and financial development, we found that family firms have a higher earnings quality in insider-oriented countries than in outsider-oriented ones. Thus, our study finds support for a substitution effect, whereby family status compensates for the limited capacity of less developed regulations and markets to induce virtuous financial reporting behaviors. Forthcoming in Journal of Management and Governance