The Impact of CEO leadership Origin on Strategic Persistence
Date Issued
2008
Date
2008
Author(s)
Tien, Cheng-Li
Abstract
This study seeks to extend research on issues relating to firm behaviors, the influences of firm size and age, and executive leadership to clarify the relationship between the momentum effect and the leadership effect of Chief Executive Officers (CEO) origin. This study offers models predominantly based on behavioral, evolutionary, agency, and inertia theories, and tests hypotheses using panel data from 122 companies over six years in the high-technology sectors in the U.S. Results indicate that organizations do not always follow their routines, as organizational momentum fails to persist in some strategic indicators (e.g., in the overall analysis, organizations follow momentum on non-production overhead, financial leverage, and advertising intensity regardless of a CEO change, but fail to follow momentum on inventory, research and development (R&D) intensity and the composite strategic indicator; in the sub-group analysis, large firms follow momentum on plant and equipment (PE) newness, non-production overhead, financial leverage, advertising intensity, and the composite strategic indicator regardless of a CEO change, but fail to follow momentum on inventory, and R&D intensity; small to medium enterprises (SMEs) follow momentum only on financial leverage, but fail in all other strategic indicators; while old firms tend to follow momentum on PE newness, inventory, non-production overhead, financial leverage, R&D intensity, and the composite strategic indicator regardless of a CEO change, but fail to follow momentum on advertising intensity; young firms follow momentum only on financial leverage and the composite strategic indicator, but fail in all other strategic indicators). To sum up, firms do not always follow their momentum, and strategic persistence is not always prominent. Further interaction analysis finds that the momentum effect can be moderated by firm size in most single strategic indicators (e.g., PE newness, inventory, non-production overhead, advertising intensity, and R&D intensity), and by firm age in fewer single strategic indicators (e.g., PE newness, and non-production overhead). Contrary to conventional wisdom, executive origin only significantly moderates momentum on strategic persistence in financial leverage in most organizational structures (except for SMEs: executive leadership origin does not significantly matter in all strategic indicators of persistence in SMEs); while in larger firms, executive origin can also significantly moderate momentum on non-production overhead and the composite strategic indicator, and in older firms, executive origin can also significantly moderate momentum on the composite strategic indicator. To sum up, the impact of CEO succession origin is limited in moderating the momentous forces in a firm, but from these limited but significant findings, insider CEOs tend to strengthen the maintenance of past practices, while outsider CEOs tend to weaken such maintenance. he implications can be at least three-fold: first, organizations do not always follow routines that may encourage further discussion over routine-based arguments in analyzing firm behaviors. Second, although this study finds that insider CEOs tend to maintain the past practices more than outsider CEOs in some strategic indicators, CEO succession origin does not seem to matter in most of the strategic indicators. Furthermore, a change of CEO in a firm may disrupt the momentous forces only in the dimension of PE newness. These findings may provide boards of directors with evidence as to if a change of CEO matters, and how much and when successors’ origin matters from a multi-dimensional perspective when strategizing a succession event. Third, the findings reveal that organizational inertia varies with firm size and firm age in most dimensions that support the inertia perspective. However, firm age is not largely captured by firm size, and that larger firms are not generally older firms. The findings imply that firm size and firm age both can impact organizational inertia, but differently. Hence, this study makes two fundamental contributions to the literature as well as to business practitioners. First, this study focuses on strategic persistence and includes structural inertia in the study of organizational momentum and the leadership effect of CEO origin, so that related issues can be studied from multiple dimensions instead of just the single dimension of business activities. Second, this study elaborates arguments to further the debate on the relationship between the momentum effect and the leadership effect from both the overall level and sub-group level, in order to generate results convincing enough to deal with the succession issues and the impact of CEO origin. This study provides evidence-based findings to further understand how and when organizational momentum prevails and interacts with the leadership effect. The findings should enrich the literature in firm behaviors, structural inertia, and CEO successions, and provide boards of directors with advanced implications as to the knowledge of CEO succession events and the influence of CEO origin on firms from a multi-dimensional perspective.
Subjects
routines
path dependent
CEO origin
leadership
momentum
strategic persistence
Type
thesis
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