Management & Organization
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Item Essays on Entrepreneurship: The Role of Complexity of Innovation and Efficient Hierarchies(2023) Ding, Yuheng; Braguinsky, Serguey; Agarwal, Rajshree; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Entrepreneurial activities have been on the decline across a broad range of sectors in the U.S. during the past few decades. This decline (sometimes also called “declining business dynamism”) is reflected in the decreasing rate of new firm entry, the share of young firms (usually defined as those five years of age or less) in the total number of firms and/or the share of employment at young firms in total employment, and so on (e.g., Decker et al. 2014; Akcigit and Ates, 2021). All of the above have exhibited a secular decline, not just in the U.S. but in other advanced economies as well. The underlying causes of these trends, however, are not yet clear with a broad array of explanations suggested in the literature (Akcigit and Ates, 2019; 2021; Decker et al., 2016; Hopenhayn et al., 2018; Karahan et al., 2019; Andrews et al., 2016). There also appears to be a lot of heterogeneity in how strongly the decline in entrepreneurial activities (business dynamism) is pronounced in various industries and sectors of the economy. In particular, the evidence in Haltiwanger et al. (2014) suggests that high-tech industries could be affected more than other sectors of the economy. High-tech sectors have been the driving force of growth in recent decades, so uncovering the reasons for declining business dynamism in those sectors is a task of first-order importance. In the first chapter, I employ the restricted-use data on the science and engineering workforce in the U.S. to investigate whether the increasing burden of knowledge is a growing concern for science-based entrepreneurship. Results show that since 1997, the rate of startup formation has precipitously declined for firms operated by U.S. Ph.D. recipients in science and engineering. The decline in startup formation is accompanied by an earnings decline, increasing work complexity in R&D, and more administrative work for science-based founders. With limited access to efficient knowledge hierarchies, founders of science-based startups must shoulder the burden of knowledge by doing more tasks by themselves. Workers at established firms, on the other hand, could better mitigate the burden of knowledge by narrowing the span of control and increasing the depth of hierarchy. Moreover, less experienced founders were hit harder than more experienced founders as the increasing burden of knowledge led to increasing returns to labor experience. While in the first chapter I use individual-level work data, in the second chapter I utilize firm-level data from the U.S. Census Bureau to develop the analysis further. I adopt the abductive approach and leverage matched employee-employer Census data between 2000-2014 to investigate how a growing burden of knowledge (measured as knowledge interdependence) in the most innovative firms affects potential entrepreneurs’ decisions to start their own business ventures. I show that higher knowledge interdependence in incumbent firms is negatively associated with employee entrepreneurship, and the negative effect is pronounced even stronger among the highest-performing employees. Moreover, higher knowledge interdependence has a positive selection effect on the quality of “spinouts”, and this effect is significantly stronger if the startup is formed by individuals ranked highest in the human capital distribution. These results suggest that knowledge interdependence does not merely raise the barrier for entry into entrepreneurship by imposing higher costs of knowledge transfer. It also changes the functioning of the internal labor market inside the firms. In the third chapter, I further investigate the mechanism underlying the relationship between knowledge interdependence and employee entrepreneurship. I propose a formal theoretical framework that reconciles all empirical findings. The theory suggests firms that rely on higher knowledge interdependence should share “rent” with their employees by paying wage premia if the profit from higher knowledge interdependence is high enough. As a result, within-firm earning dispersion would always be larger in firms relying on higher knowledge interdependence. I find supporting evidence in the data for this alternative explanation. Overall, these findings have important implications for declining entrepreneurial activity, rising income inequality, and technological change in the U.S. economy. While the conventional wisdom might view the declining entrepreneurial activity in the U.S. as the demise of economic growth, it is possible that as innovation becomes more complex, large established firms start to substitute the role of start-ups in pushing forward the technological frontier and driving economic growth as the efficient knowledge hierarchy could better deal with complex knowledge needed in the production process (Garicano, 2000; Garicano and Rossi-Hansberg, 2004). If this is the case, the declining business dynamism might just be a reflection of technological change and efficient (re)allocation of resources but not necessarily detrimental to technological advancement and economic growth. Whether this is true remains an avenue for future research.Item ESSAYS ON MARKET TRANSFORMATION AND ENTREPRENEURIAL STRATEGIES: EVIDENCE FROM THE LITHIUM-ION BATTERY INDUSTRY(2023) ALGHAREEB, ALI; Kirsch, David; Goldfarb, Brent; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation uses an Inference to the Best Explanation approach for two essays on the evolution of the Lithium-ion battery industry (1991—2023). In the first essay, I consider an industry-level perspective and use quantitative and qualitative data to document the emergence and evolution of the Li-ion battery industry. The observations of multiple waves of new firm entry and more than one instance of sales takeoff highlight an empirical puzzle. Thus, I propose a conceptual framework of Market transformation (MT) that is qualitatively related to but distinct from the traditional frameworks of Industry Emergence and Disruption. By comparing the predictions of the Industry Emergence and Disruption approaches with those of the proposed MT framework, I argue that the proposed framework provides a better explanation for the observed evolutionary trajectory of the Li-ion battery industry. In the second essay, I consider the strategic choices of application markets and entrepreneurial strategies from a firm-level perspective to examine how did start-ups choose their entrepreneurial entry strategy when application markets are characterized by different sizes and levels of uncertainty. Assembling a dataset of 151 US-based battery start-ups founded in the Li-ion battery industry, I report on the start-ups’ choices of application markets and entrepreneurial strategies at entry across three distinct periods in the evolution of the Li-ion battery industry. The observation of only 16% of start-ups choosing a specialization-in-generality strategy while 84% of start-ups choosing alternative strategies during a period of increasing uncertainty (2006—2012) highlights an empirical puzzle. Thus, looking across the multi-decade history of the Li-ion battery industry, the uncertainty triggered by the successful commercialization of consumer electric vehicles (i.e., industry demand shock of the Tesla Roadster) spurred start-ups to enter with different strategic bets; it also triggered investors to support those bets. By elaborating and evaluating the list of possible explanations, I infer that the increasing levels of uncertainty associated with each application market generated uncertainty profiles that start-ups selected based on the preferences and beliefs of their entrepreneurs or their investors about the nature of uncertainty, resulting in different strategic bets, as the best explanation.Item Consequences of Winning: Evidence from Sell-Side Equity Research(2021) Yan, Liyue; Goldfarb, Brent; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation studies the impact of winning awards on individuals’ behaviors, as well as their consequential effects on organizational outcomes. Essay 1 studies when managers may knowingly make poor decisions. Specifically, we posit “reputational herding,” whereby decision makers herd to avoid being uniquely wrong even when they know this will make them less likely to be correct. We model this phenomenon and show that decision makers will be less likely to herd when they have higher reputations and when experts have less correlated information. The theory provides predictions that distinguish between learning and reputational herding. The theory is tested in the context of sell-side stock analysts. Using winning a performance-based awards as a shock, a difference-in-differences estimation compares award-winning analysts and runners-up with similar ability to identify the causal impact of a change in reputation on the likelihood of herding. The results suggest that analysts herd less after an increase in reputation, which is consistent with the reputational herding mechanism. Essay 2 studies the effect of winning professional performance awards on entrepreneurial entry. We propose that performance awards can increase professionals’ likelihood to become entrepreneurs through increasing their confidence and reputation. We examine the effect of winning a performance award on stock analysts’ likelihood to become entrepreneurs by comparing the winners with a control group with similar ability. Using LinkedIn data, we trace the careers for about 3,000 analysts and find award winners’ likelihood of becoming entrepreneurs is 30% to 40% higher than that of the non-winners. Additionally, we find that the effect of winning is driven by mid-career professionals and those who work at relatively bigger firms. The evidence suggests that winning awards complements existing resources in entrepreneurial entry decisions. Our study provides evidence that performance awards may be low-cost instruments that complement formal policy to encourage entrepreneurship. Essay 3 discusses the empirical challenges and opportunities in studying awards for management research. We argue that existing research do not provide sufficient empirical evidence on the topic or theoretical explanations for different empirical results. We discuss several major challenges: internal validity, external validity, and disciplinary differences in studying awards. We propose some measures to deal with these challenges and suggest potential research avenues.Item Competition and Prosocial Incentives: Essays on the Role of Gender When Choosing to Compete for Others(2021) King, Benjamin Charles; Agarwal, Rajshree; Starr, Evan P; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)My dissertation examines how prosocial and selfish incentives affect individuals' willingness to compete as a critical behavioral choice, and the role of gender in this relationship. Understanding more about this connection is key, as men are more competitive than women, on average, and higher levels of competitiveness are correlated with positive career outcomes. Using insights from economics and psychology, I test and expand theory that individuals become more willing to compete when the rewards benefit a charity or another individual. I suggest practical implications for organizational designers who seek to reduce gender gaps in wages and achievement.Item ESSAYS ON TECHNOLOGY CHANGE AND FIRM CAPABILITIES IN NASCENT MARKETS: EVIDENCE FROM THE BIONIC PROSTHETIC INDUSTRY(2021) Kim, Seojin; Agarwal, Rajshree; Goldfarb, Brent; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)My first essay examines how radical technological systems are created by economic actors that are heterogeneous in both their prior history and their experimentation efforts, and the implications for their value capture strategies. Defining radical technologies based on their effect on existing technological regimes, scholars have studied incumbent-entrant dynamics based on whether incumbents can offset the obsolescence of their technological capabilities by utilizing complementary capabilities or by adapting to technological change. I identify important limitations stemming from such a definition of radical technologies and utilize the alternative definition of radical technology as a technological system that utilizes new base principles at either component or system level. We utilize historical methodology to analyze rich quantitative and qualitative data on the incubation and commercialization of bionic prosthetics. We show that the component knowledge for the new technological system was created by diverse firms—startups, conventional prosthetic incumbents, and established firms in other industries. However, incumbents who invested in the new technology system were key to creating an integrated system for bionic prosthetics and dominated in commercialization efforts in the nascent industry. Startups captured value through licensing or being acquired by incumbents, and established firms in other industries were knowledge spillover conduits, given their focus on alternative nascent downstream markets to capitalize on their existing capabilities. The second essay examines how and why the sources of entrepreneurial knowledge, namely prior experience that founders gained in academic, user, and employee settings, may affect market strategies of new ventures. While prior studies did not examine the heterogeneity of pre-entry knowledge in predicting strategy and performance of startups, I argue that each firm type possesses a distinct comparative knowledge advantage regarding key elements of the industry’s technological system, thereby leading to firm differences in technological and value chain positioning. I assembled the quantitative and qualitative data of 106 prosthetic startups created between 1991-2017. My results indicate that academic startups were likely to choose component-level products based on nascent technology, while employee startups were likely to choose finished products based on established technology. Also, user startups were likely to choose niche, component-level products leveraging established technology. Through qualitative data, I interpret my findings to suggest that entrepreneurs’ strategic choices are constrained by their initial strengths and the cost of acquiring additional resources. Together, I suggest that entrepreneurial strategy can be better understood by considering the interaction of the types of entrepreneurial knowledge and the industry’s technological system.Item Essays on the Consequences of Market Democratization for Organizations(2019) Shi, Yuan; Waguespack, David M; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)My dissertation investigates how organizations’ boundary spanning decisions are impacted by the democratization of market mediation, which is defined as a shift in the balance of power from professional intermediaries to laypeople in the market and is often induced by crowd-based technologies and institutional changes. The first study examines how democratization affects boundary spanning in creative production through a quasi-experiment in the Billboard charts that shifted the power of influence from specialized intermediaries to lay consumers. I find that after genre radio stations’ power to define market hits is diluted by average consumers, producers are more likely to introduce offerings that traverse market boundaries to appeal to a broader audience, as is captured by a measure of crossover appeal based on the objective features of song recordings. Meanwhile, the democratization effect varies by organization and is weaker for specialists and those with moderate experience. These findings suggest that intermediaries who are specialized in a market may be more protective of the market’s boundaries than lay consumers due to their greater knowledge and larger stakes in the clarified boundaries. As such, the major impediment to boundary spanning may be intermediaries, not consumers. The second study investigates how professional intermediaries, such as venture capital (VC) firms, change their boundary decisions following democratization events, such as the legalization of equity crowdfunding. VCs may be attracted to the novel opportunities identified by crowdfunding investors, and thus diversify their investments. VCs may also seek to differentiate from the crowd by positioning as dedicated experts, and thus become more specialized in their investments. I test these ideas by leveraging the legalization of equity-based crowdfunding in more than twenty states in the US during 2009-2017. I find that VCs make more specialized investments after the crowdfunding policy shocks in their home states, but the effect is attenuated when VCs and crowdfunding investors share similar investment focus. Mechanism tests indicate that specialization is driven by a crowd-out effect, whereas diversification is explained by a lead-in effect. Taken together, my dissertation documents the causal effects of the increasing influence of the crowd on organizations’ strategic decisions.Item Employee Mobility, Employee Entrepreneurship, and Employee Value Capture: Labor Market Frictions and the Impact of Social Comparison Costs on Compensation(2018) Olson, Daniel; Agarwal, Rajshree; Waguespack, David M.; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Strategic human capital research explores heterogeneity in firm performance based on differences in firms’ abilities to leverage human capital. Much of the discussion in this literature focuses on how firms can exploit isolating mechanisms that limit the mobility of employees. This dissertation studies two important facets of strategic human capital research related to the mobility of employees. The first essay explores how a labor market frictions lens can connect the strategic human capital literature to the employee entrepreneurship literature, two complementary but largely disparate literatures. The examination of the impact of various labor market frictions on employee mobility to competitor firms and employee transitions to entrepreneurship suggests that the outcomes of some frictions are divergent across the two literatures, the outcomes of some are aligned, and the outcomes of some are ambiguous. The complex interplay of labor market frictions provides opportunities for future research specifically exploring the intersection of the strategic human capital and employee entrepreneurship literatures. The second essay of explores how multi-location firms facilitate the spread of compensation increases across labor markets. Prior research cites the threat of employee mobility as the primary mechanism for the spread of compensation increases across locations. Multi-location firms that straddle more than one labor market, however, must manage employees across labor markets. I propose that internal firm processes, including social comparison between employees of the firm in different locations, may lead firms to raise compensation for employees in other locations when addressing competitive pressure in a given location. In doing so, these multi-location firms put pressure on local labor market competitors to also raise compensation, leading to compensation increases across distinct labor markets without reference to mobility constraints that dominate the strategic human capital literature.Item Essays on Motives and Market Outcomes(2015) Stroube, Bryan Kaiser; Waguespack, David M.; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation examines the existence of heterogeneous motives in markets, particularly how a tension between profit motives and other utility can shape outcomes for organizations and individuals. I explore this tension in the context of biases, organizational identity, and investment behavior. Each of the three empirical chapters employs decision-level data from a different online crowdfunding platform. Academic researchers and the general public are increasingly interested in the phenomenon of "crowdfunding." The term, however, encompasses an incredibly diverse set of activities---ranging from the facilitation of for-profit start-up investments to the charitable funding of medical procedures. This diversity can make it difficult to generalize research insights from studies of any particular instance of the phenomenon. In the introductory chapter I develop a general framework for understanding the source of observed behavior on crowdfunding platforms given some simple assumptions about platform policies.The goal is to provide context for the subsequent chapters of the dissertation. The first empirical chapter examines biases against demographic groups, which are typically explained by one of two mechanisms: either decision makers have a taste for one demographic group over another, or demographics are employed as informational proxies for other unobserved but economically important traits. These mechanisms are difficult to empirically untangle despite the theoretical and practical importance of separating them. I attempt to do so in a Chinese peer-to-peer lending market by leveraging a loan guarantee policy that reduces the economic rationale for lenders to discriminate on borrower demographics such as gender and geography. Comparison of pre- and post-policy periods therefore provides a fruitful tool for measuring the degree of taste versus informational bias. I find that female borrowers appear to receive a preferential informational bias but a negative taste bias, while lenders' geographic bias toward borrowers located in the same province appears to be driven predominately by informational processes and not taste. These findings have implications for multiple sets of decision makers and underscore the theoretical importance of accounting for motives. Chapter two examines the potentially conflicting investment motives found on a non-profit hybrid identity crowdfunding platform, where simultaneous market-like and charity-like motives may lead lenders to respond differently to funding requests from entrepreneurs who appear to have high economic ability and high personal need. I survey actual lenders on the platform to measure their stated preferences for borrowers who fit each of these categories. I find that 1) lenders vary in their preference for these categories and this preference is correlated with their demographics, and 2) past loans made by lenders with an above-average preference for both need and ability were funded faster than loans in other categories. These results highlight how actors' preferences are largely endogenous to the market in which they are observed. In the final chapter I present the results of a simple online experiment conducted in conjunction with a peer-to-peer lending website. Potential lenders were presented randomized versions of the platform's lender registration web page. The content of the page varied in whether it promoted the potential social benefit of lending versus only the financial benefit. No difference was found between the treatment and control groups. The experiment provides some insight into how lenders self-select into crowdfunding activity and may serve as a model for similar experiments on other platforms.Item THE STRATEGIC NETWORKS AND PERFORMANCE OF ENTREPRENEURIAL FIRMS: IMPACT OF PRE-FOUNDING TIES.(2014) Gaonkar, Shweta; Agarwal, Rajshree; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation examines the effect of founders’ background in shaping alliance ties and firm performance of new ventures. In the first chapter, I examine how founders’ prior affiliations contribute to the formation of network ties for new ventures founded by employee entrepreneurs. Prior research on employee entrepreneurship attributes the success of new ventures founded by employees (called spinouts ) to knowledge inheritance from founders’ previous employers (parents). However, studies on new venture alliances suggest that the success of new firms stems from establishing strategic alliances with other firms. I bridge the gap between these two literatures by examining how the knowledge accumulated by the spinout’s founder influences the new venture’s alliance partner choice, using a panel data of pharmaceutical and medical device firms from 1986 to 2012. The findings suggest that a spinout that is similar to its parent in terms of technology and product markets is likely to form marketing, manufacturing, or funding ties with firms that have no parent ties. Conversely, a spinout that is not similar to its parent more likely to form commercialization ties with firms that have indirect ties to the parent, as a way to deal with the risk of collaborating with its parent and its partners. Finally, a spinout that has different technology but operates in a similar market, as its parent is likely to forge commercialization ties with the parent’s partners. In the second chapter, I examine how heterogeneity in the founders’ backgrounds affects the start–up ’s performance. I examine two types of founder backgrounds: employee and academic entrepreneurs. Employee entrepreneurs have relevant industry experience due to their founders ’ prior affiliation, whereas academically founded firms are endowed with research–related resources through their founders’ experience. I use the panel data of academic and employee start–ups in the pharmaceutical and medical device industry, 1986–2013. I find that academic start–ups have higher research output and smaller alliance networks than do employee start–ups. Further, the founders’ background has no impact on the start–up’s performance outcome; instead, it shapes the patents and alliance ties formed by them.Item PROFESSIONAL REFERRALS: KEEPING-WHILE-GIVING, RECIPROCATION, AND THE TRANSFER OF OPPORTUNITIES AMONG ENTREPRENEURIAL PROFESSIONALS(2013) Searcy, Deborah Woods; Stevens, Cynthia K; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Through inductive research, I explored the dynamic process between entrepreneurial professionals in sending and receiving professional referrals. I define a professional referral as an entrepreneurial professional advising a client to instead do business with a specific other professional within the same industry. While considering the needs of the client, these entrepreneurs involved in the professions must transfer a valuable opportunity to a competitor. Prior research indicates that entrepreneurial professionals should refer opportunities based on skill and specialty, should receive fees for referrals, and should select referral recipients based on tie formation mechanisms, trust, and reputation protection. Yet professional referrals involve unique complexities, as they occupy a vague conceptual space between economic and social exchange. This paper addresses the interplay of these obligations. By using a grounded theory methodology, I was able to generate an emergent model and mid-level theory. I interviewed 42 lawyers, using semi-structured interviews. The model is arranged into three transitional decisions: refer the opportunity, select a referral recipient, and establish (or terminate) a referral routine. For the first decision, in addition to referrals based on objective skill and specialty, I found that entrepreneurial professionals will refer business on subjective costs, including emotional toll and being morally compromised; I term this new dimension social referrals. Next, the entrepreneurial professional must decide to whom the referral will be sent. I found that entrepreneurial professionals are possessive of their clients, as each client represents a long-term revenue stream. Possessiveness results in reciprocity expectations, the most important of which is keeping-while-giving, or the expectation of the return of the same client relationship. Entrepreneurial professionals also set dependability expectations. Expectations directly impact selection, and these relationships are amplified by the presence of tie formation mechanisms. Finally, entrepreneurial professionals establish referral routines; they repeatedly send their referral business to no more than three individuals within a given dimension for exchange. Breaching reciprocity and dependability expectations can cause routines to be terminated, but overall, this final transitional decision occurs by default and can continue indefinitely. These interconnected steps combine to form a middle-range theory of professional referral dynamics.