Jingoo Kang

Balance Within and Across Domains: The Performance Implications of Exploration and Exploitation in Alliances

Organizational research advocates that firms balance exploration and exploitation, yet it acknowledges inherent challenges in reconciling these opposing activities. To overcome these challenges, such research suggests that firms establish organizational separation between exploring and exploiting units or engage in temporal separation whereby they oscillate between exploration and exploitation over time. Nevertheless, these approaches entail resource allocation trade-offs and conflicting organizational routines, which may undermine organizational performance as firms seek to balance exploration and exploitation within a discrete field of organizational activity (i.e., domain). We posit that firms can overcome such impediments and enhance their performance if they explore in one domain while exploiting in another. Studying the alliance portfolios of software firms, we demonstrate that firms do not typically benefit from balancing exploration and exploitation within the function domain (technology versus marketing and production alliances) and structure domain (new versus prior partners). Nevertheless, firms that balance exploration and exploitation across these domains by engaging in research and development alliances while collaborating with their prior partners, or alternatively, by forming marketing and production alliances while seeking new partners, gain in profits and market value. Moreover, we reveal that increases in firm size that exacerbate resource allocation trade-offs and routine rigidity reinforce the benefits of balance across domains and the costs of balance within domains. Our domain separation approach offers new insights into how firms can benefit from balancing exploration and exploitation. What matters is not simply whether firms balance exploration and exploitation in their alliance formation decisions but the means by which they achieve such balance.

Curbing Managerial Myopia: The Role of Managerial Overconfidence in Owner-Managed Firms and Professionally Managed Firms

We develop and test a model in which managerial overconfidence offsets the underinvestment problem arising from managerial myopia. Using a three-period investment model in which we capture managerial myopia by hyperbolic discounting, we show that both overconfident owner-managers and professional managers who have myopic preferences can enhance firm value (up to a point) by increasing investment. This value-enhancing role of overconfidence is more evident for professional managers than for owner-managers. The results from simulation and empirical analyses support the model’s predictions. Thus, while managers’ cognitive biases, when considered separately, negatively impact firm performance, they can be beneficial when considered jointly.

Investment and Firm Value Under High Economic Uncertainty: The Beneficial Effect of Overconfident CEOs

In this paper we investigate whether managerial overconfidence benefits shareholders when economic uncertainty is high. Consistent with managerial overconfidence mitigating the underinvestment problems exacerbated by high economic uncertainty, we find that during periods of import tariff cuts and the global financial crisis, investment and firm value are higher for firms managed by overconfident CEOs than for those managed by non-overconfident CEOs. Moreover, overconfident firms’ M&A announcements are associated with more positive abnormal returns when market uncertainty as measured by the CBOE Volatility Index is higher, and overconfident firms are more likely to undertake value-increasing M&A deals.

The Relationship Between CEO Media Appearances and Compensation

Why do chief executive officers (CEOs) seek media appearances and what benefit do they gain from it? Using a sample of 2,666 U.S. firms from 1997 to 2009, we found that a CEO’s appearance in CNBC interviews and major news articles has a positive relationship with his or her compensation in the following year, after controlling for firm performance and other confounding factors. We further found that the positive relationship is weaker when the CEO is with a large company and is stronger when the CEO is with a company demonstrating strong stock market performance. Finally, we found that when the CEO has a high equity ownership or is a founder CEO, the positive relationship disappears.

How Does Visibility in the Labor Market Influence Compensation

What is the benefit to the CEO of appearing in the media? Does a CEO’s media appearance engender benefits other than boosting the firm’s stock price and satisfying the CEO’s emotional needs? In thi...

Can FDI Location Choice and Operating Mode Choice Complement Each Other

We explore how firms approach the joint decision on location choice and operating mode choice when they are making an FDI, and evaluate its performance implication, using a panel data on industrial firms in China. In order to address the endogeneity issue inherent in comparing post-entry performances, we employ the propensity score matching in conjunction with difference-in- differences approach. Our findings suggest that firms perceive locating in a high-agglomerated location and operating with a local partner firm as substitutes in gaining local knowledge. When we investigate the post-entry financial performance, however, our findings suggest the complementary nature in these two sources of local knowledge.