Julio O. De Castro

The Bind that Ties: Socioemotional Wealth Preservation in Family Firms

A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.

The fallacy of "only the strong survive": The effects of extrinsic motivation on the persistence decisions for under-performing firms

(WP 07/04 Clave pdf) According to economic theory, under-performing firms should be selected out of the market. However, research shows that these firms persist, often for long periods of time. In this article we explore the non-firm-performance factors that contribute to the decision to persist with an under-performing firm. Using the escalation of commitment literature we identify seven variables that are associated with the persistence decision. We reconcile the economic and psychological views by finding that the extent to which some of these non-firm-performance factors influence the persistence decision is, in part, dependent upon the owner-managers’ level of extrinsic motivation.

A Person-Organization Fit Model of Owner-Managers' Cognitive Style and Organizational Demands

Based on survey responses from 159 owner–managers in small high–technology firms, we examined the association among specific individual characteristics, firm characteristics, and the individual outcomes of satisfaction and intentions to exit. Regression analyses indicated higher satisfaction and lower intentions to exit for owner–managers whose dominant decision–making style complemented the levels of formalization and structure in their firms. In addition, we found that both satisfaction and intentions to exit were significantly associated with actual turnover over a 5–year period. The theoretical and practical implications of these findings are discussed.

The Achilles Heel of Firm Strategy: Resource Weaknesses and Distinctive Inadequacies

Two separately developed views within the strategic management literature elucidate the source of a firms competitive advantage based on the internal attributes of the firm: the resource-based view (Wernerfelt, 1984) and the distinctive competence view (Selznick, 1957). As developed in the literature, however, both views neglect important dimensions which inhibit the achievement of competitive advantage. These dimensions are resource weaknesses and distinctive inadequacies. Accounting for weaknesses and inadequacies exposes important choice-sets confronting management in making resource investments, and of time-related dimensions in developing sustainable advantage. Considering the effects of weaknesses and inadequacies provides insight on the limits to firm growth and to sustainability of competitive advantage. Theory on developing competitive advantage may lack explanatory and predictive power if it excludes these perspectives, which if included may also improve prescription for practitioners.

ENTREPRENEURIAL FIT: THE ROLE OF COGNITIVE MISFIT

The concept of fit is central to theories in both the fields of strategic management and organizational behavior. It is our contention that many key questions in the field of entrepreneurship might also be successfully addressed through a fit approach. For instance, why do entrepreneurs often make poor managers? And why must founders often be replaced by professional managers as their firms grow? The idea of misfit is implicit in both of these questions. A fit perspective may also be beneficial in better understanding specific entrepreneurial behaviors. For example, why does one entrepreneur start and grow multiple businesses over his or her career (serial) while another might be content with starting only one business (novice)? or Why does one entrepreneur continually strive to grow his or her firm while another is content to arrest development (lifestyle) at a certain level? All of these questions, and obviously many more, can be viewed and examined as questions of fit.

Incentive Alignment or Perverse Incentives? A Behavioral View of Stock Options

Agency theoretic models have been used in the past to justify the use of stock options as an effective incentive alignment mechanism to create a common fate between principals and agents. In this paper, we use behavioral theory to reach the opposite conclusion – namely, that the design characteristics of the typical stock option plan foster perverse incentives for loss‐averse agents, leading to decisions with detrimental consequences for principals. We also consider alternative stock option designs and other equity‐based executive compensation plans and argue that they may suffer from the same problems as traditional stock option plans – namely, that loss‐averse executives will try to protect the endowed value of that equity through self‐serving decisions that do not enhance shareholder wealth.

Entrepreneurs' Perceptions of Success: Examining Differences Across Gender and Family Status

Our study examines to what extent female and male entrepreneurs differ in the way they perceive and assess entrepreneurial success, measured by extrinsic or intrinsic dimensions. Our results indicate a number of similarities between men and women entrepreneurs but also reveal interesting gender-based differences related to family status. Rather than assuming that women entrepreneurs are a homogeneous group, we found that family factors, and especially parental status, play a key role in shaping fundamentally different perceptions of entrepreneurial success amongst different types of women entrepreneurs.

Indicators of entrepreneurship activity: some methodological contributions

Using a model-based approach, this paper reexamines the measurement of entrepreneurial activity at the national level. Our contribution centres on two main aspects. First, our study allows for the measurement of the likelihood of entrepreneurial behaviour, or entrepreneurial propensity. Second, utilising the social network theory, we introduce the social entrepreneurial environment as a key indicator of the likelihood of entrepreneurial activity. Using the data provided by the Global Entrepreneurship Monitor (GEM) project, we provide an alternative measure of entrepreneurial activity, which includes entrepreneurial social environment, assumes the existence of a continuum in entrepreneurial behaviour and provides a measure of entrepreneurial propensity. Results indicate that our model provides support for the combined use of entrepreneurial propensity and the entrepreneurs social context.

Learning by Hiring: The Effects of Scientists’ Inbound Mobility on Research Performance in Academia

This study investigates the effects of scientists’ inbound mobility on the research performance of incumbent scientists in an academic setting. The theoretical framework integrates insights from learning theory and social comparison theory to suggest two main mechanisms behind these effects: localized learning and social comparison. The authors propose several hypotheses about the conditions that might intensify or weaken such effects. Specifically, the arrival of new scientific personnel is likely to exert stronger positive effects on the performance of incumbent scientists with shorter (cf. longer) organizational tenure; in addition, academic departments with less diversified expertise and with higher levels of internal collaborations likely reap greater benefits from learning by hiring. The empirical findings, based on a longitudinal analysis of a sample of 94 U.S. academic chemical engineering departments, provide empirical support for these contentions.

Mismatch between Entrepreneurs and Their Firms: The Role of Cognitive Fit/Misfit

(WP 10/04 Clave pdf) This paper examines the relationship between cognitive fit/misfit, and burnout, satisfaction, and intentions to exit the firm in entrepreneurs. Given the disordinal (crossed) nature of the significant interactions, the results indicate when cognitive misfit in entrepreneurs (based on their dominant decision-making approach) is more likely lead them to experience negative outcomes, given the nature and degree of firm structure.