The role of risk-taking capabilities plays on risk-taking behavior and performance
Date Issued
2010
Date
2010
Author(s)
Tsai, Hsiu-Fen
Abstract
The previous literature presents two different streams of research in explaining organization risk-taking behavior. One line of argument is associated with prospect theory (Kahneman and Tversky, 1979). It argues that when a firm is below a specific self-perceived reference point, then the firm will behave in a risk-taking manner. The second body of research is associated with the threat-rigidity hypothesis (Staw, Sandelands and Dutton, 1981; Ocasio, 1995), which suggests that organizations will behave conservatively under threat conditions (D’ Aveni, 1989; Fombrun and Ginsberg, 1990). Previous empirical studies have examined whether external threat stimulates risk-taking behavior. Less explored is the question of how change in internal capabilities stimulates risk-taking behavior. Therefore, we incorporate the concept of a resource-based viewpoint (RBV) into our analysis and highlight the role of risk-taking capabilities (Miller and Lessard, 2000) to answer two research questions. First, what influences drive a firm’s risk attitude and risk-taking behavior? Second, does risk-taking always lead to bad results? Could organizational characteristics moderate the relationship between risk-taking behavior and future performance?
We decomposed risk-taking capabilities into three dimensions, namely absorptive capacities, network resources and organizational slack. Results indicated that some aspects of risk-taking capabilities indeed drive firm’s risk-taking behavior and also moderate the relationship between past performance and risk-taking behavior. Thus, we asserted that firms equipped high level of risk-taking capabilities should embrace risk and benefit form risk-taking. Just as Miller and Lessard (2000; p201) argued that “sponsors gain comparative advantages not only through core competencies but also by embracing the risks over which they can achieve some degree of control by internalizing (endogenizing) them.
Subjects
Risk-taking capabilities
Risk-taking behavior
Absorptive capacity
Organizational slack
Network resources
Type
thesis
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