Jean McGuire

Management Theory Applications of Prospect Theory: Accomplishments, Challenges, and Opportunities

The authors review management research drawing on prospect theory, focusing primarily on studies in strategic management and organizational behavior/human resource management. These studies have made valuable contributions to several prominent research streams. However, they commonly underutilize or misconstrue central arguments from prospect theory. Furthermore, they illustrate that applying prospect theory in organizational settings poses several theoretical and methodological challenges. Thus, the authors review these studies, critically analyze them, and make suggestions to enrich future work.

Too Risky to Hold? The Effect of Downside Risk, Accumulated Equity Wealth, and Firm Performance on CEO Equity Reduction

Although the alignment effect of equity ownership is often studied with emphasis on changes in firm strategy, the exposure of CEOs firm-specific wealth to firm risk is more easily controlled by changing their level of equity holdings than by changing firm strategic risk. We rely on prospect theory and the behavioral theory of the firm to examine the antecedents of CEO equity reduction and investigate whether it serves to decouple CEO wealth from firm risk. Given its central role in loss avoidance, we underline the effect of the firms downside risk and distinguish the total loss potential on equity holdings from the loss potential due to firm-specific factors. Allowing for own-performance referents, we also consider firm performance and the value of a CEOs equity holdings in the analysis. Based on a sample of 208 U.S. CEOs for the years 1997--1999, we find empirical support for the role of downside risk and firm performance in CEO equity reductions. Implications on incentive alignment through equity ownership are presented.

Multimarket Competition, Mobility Barriers, and Firm Performance

This study develops and tests a theoretical framework which suggests interactive dynamics, with strong performance implications, between the height of mobility barriers surrounding strategic groups and the extent of within-group multimarket competition. Empirical analysis drawn from a longitudinal sample of pharmaceutical firms indicates that within-group multimarket competition has strong positive effect on firm performance for strategic groups surrounded by high mobility barriers. As we move lower on the mobility barriers hierarchy, this effect decreases, becoming non-significant for groups surrounded by moderate mobility barriers and negative for groups surrounded by low mobility barriers. These findings highlight the conditions under which mobility barriers and multimarket competition have significant performance implications. In addition, our results suggest that mobility barriers and multimarket competition are not substitutive but complementary devices promoting mutual coordination within strategic groups. Finally, our findings point to the need to consider multimarket contacts as an aggregate property of strategic groups.

Family Matters?: A Cross‐National Analysis of the Performance Implications of Family Ownership

Manuscript Type Empirical Research Question/Issue This study makes use of a large multi-country sample to examine how the market performance of family firms is affected by national context. Research Findings/Insights We find that Tobins Q among family firms is significantly lower than that of non-family firms across 33 countries. In examining these effects, results suggest that legal context and national culture influence the performance implications of publicly traded family firms, serving to mitigate some of the generally negative impact. Theoretical/Academic Implications We find that national context is an important contingency in determining the familys ability and willingness to exploit minority shareholder wealth. Building upon our results, future research can focus on how formal and informal institutions may be substitutes for each other. Our results help explain why prior empirical research provides conflicting results regarding the impact of family governance on firm valuation. Practitioner/Policy Implications Our findings suggest that the performance implications of family firms are contingent on legal protections, belief in the impartiality of the legal system, and culture. Given wide variations in these measures across countries, the appropriate mechanisms to strengthen investor protection will not follow a one-size fits all approach. [ABSTRACT FROM AUTHOR]

Lehman's and Lemons: A Study of Institutional Investment in U.S. Firms

We examine the impact of institutional investment on Tobin’s Q for the period 2004 to 2008. We provide further evidence of the heterogeneity of various institutional owners’ willingness to monitor by examining their corporate holdings. We isolate a special role for the four failed banks: Lehman’s, Bear Stearns, Merrill Lynch, and Wachovia. We find that these banks pursued investment strategies that favored risky firms and entrenched management, although this is less certain for Merrill Lynch. We conclude that for the most part these banks pursued short-term profits and that failures in corporate governance were important in fueling the 2008 financial crisis.