7. Coming from good stock: Career histories and new venture formation

Employee mobility networks and status transfer in U.S big law

Firms in organizational fields frequently hire and lose employees to competing firms. What is the impact of employee mobility on the status of organizations within a field? Unfortunately, empirical evidence is lacking about how hiring professionals from high or low-status actors, especially status that is obtained through third-party evaluation, impact the focal firm’s status. This research examines employee mobility across the largest law firms in the United States from 2010 to 2016 and employs fixed effects modeling to estimate associations among the status of firms from which partners were hired, network centrality, and the organizational status of hiring firms. Results showed that firms’ status increased when they hired, on average, from high-status firms, and that this association was stronger amongst more centrally located firms. Namely, we found that although the impact of sending firms’ status has a significant impact on the focal firms’ status, such an effect depends on network centrality of the sending firm. These results support the notion of status portability as well as the importance of the firm’s network position for status enhancement.

Executives’ Prior Employment Ties to Interlocking Directors and Interfirm Mobility

This paper explores how executives’ prior employment ties to interlocking directors, or those who hold additional board seats or executive positions at outside firms, influence individual executive interfirm mobility. As organizational boundary spanners, interlocking directors may be able to influence executive outcomes both within and outside of executives’ current firms. But given natural constraints on internal promotion for executives, we suggest most executives will tend to leverage ties to interlocking directors to access external opportunities, as manifested by movement to outside firms. Analysis of interfirm mobility among a sample of Standard & Poor’s 1500 executives between 2000 and 2014 offer support for this idea. We find a positive association between individual executives’ prior employment ties to interlocking directors and their hazard of movement to outside firms, including to the other firms where these directors serve. At the same time, we argue and find that the strength of this latter relationship will further depend on directors’ competing motivations owing to their specific positions in the focal and interlocking firms. Whereas holding a lead position on the focal firm’s board (i.e., as chairperson or lead independent director) weakens this relationship, holding the position of chief executive officer in the interlocking firm strengthens it. Our theory and findings highlight the unique and important role of interlocking directors in executive interfirm mobility and, in doing so, contribute novel insights regarding how ties to boundary spanners can influence individual outcomes for those to whom they are linked.

A Founding Penalty: Evidence from an Audit Study on Gender, Entrepreneurship, and Future Employment

There is both widespread interest in encouraging entrepreneurship and universal recognition that the vast majority of these founders will fail, which raises an important unanswered question: What happens to ex-founders when they apply for jobs? Whereas existing research has identified many factors that facilitate movement out of an established organization and into entrepreneurship, far less attention has been devoted to understanding what transpires during the return journey—most notably, how employers evaluate entrepreneurial experience at the point of hire. We propose that employers penalize job candidates with a history of founding a new venture because they believe them to be worse fits and less committed employees than comparable candidates without founding experience. We further predict that the discount for having been an entrepreneur will diminish when other stereotypes about the candidate, particularly those based on gender, will contradict the negative beliefs about ex-founders. We test our proposition using a résumé-based audit and an experimental survey. The audit reveals that founding significantly reduces the likelihood that an employer interviews a male candidate, but there is no comparable penalty for female ex-founders. The experimental survey confirms the gendered nature of the founding penalty and provides evidence that it results from employers’ concerns that founders are less committed and worse organizational fits than nonfounders. Critically, the survey also indicates that these concerns are mitigated for women, helping to explain why they suffer no equivalent founding penalty.

The Aggregation–Learning Trade-off

Organizational decision making that leverages the collective wisdom and knowledge of multiple individuals is ubiquitous in management practice, occurring in settings such as top management teams, corporate boards, and the teams and groups that pervade modern organizations. Decision-making structures employed by organizations shape the effectiveness of knowledge aggregation. We argue that decision-making structures play a second crucial role in that they shape the learning of individuals that participate in organizational decision making. In organizational decision making, individuals do not engage in learning by doing but, rather, in what we call learning by participating, which is distinct in that individuals learn by receiving feedback not on their own choices but, rather, on the choice made by the organization. We examine how learning by participating influences the efficacy of aggregation and learning across alternative decision-making structures and group sizes. Our central insight is that learning by participating leads to an aggregation–learning trade-off in which structures that are effective in aggregating information can be ineffective in fostering individual learning. We discuss implications for research on organizations in the areas of learning, microfoundations, teams, and crowds.

Adaptation or Persistence? Emergence and Revision of Organization Designs in New Ventures

How organization designs evolve between adaptation to changing conditions and the pressures toward persistence of the designs adopted at founding remains an understudied phenomenon. To fill this lacuna, we conducted a longitudinal, multicase study of eight young ventures. We find that, in these ventures, specific organization design solutions changed frequently, triggered by various internal and external developments, although the changes were typically incremental and myopic. However, the more abstract principles of design, captured in the founders’ logics of organizing, were less amenable to change. This explains why observations of imprinting effects in logics of organizing may be consistent with observations of dynamic change to organization designs.

Academic Teams and Commercialization in the Life Sciences

We review the literature on entrepreneurial team formation with a focus on data to study academic teams and summarize our empirical work on the life sciences industry. We consider how academics form teams to start new companies and the implications of various configurations on firm behavior with regards to patenting, survival and firm growth. We present several empirical challenges facing research on academic teams and conclude with suggestions for future research.

Converging Tides Lift All Boats: Consensus in Evaluation Criteria Boosts Investments in Firms in Nascent Technology Sectors

Although previous studies show that the emergence of evaluation criteria for a new technology improves the life chances of well-performing firms, we theorize that consensus in such criteria among technology experts increases investments to all firms in the new sector. We provide a variety of supportive evidence for this claim. First, in an experiment with 80 Chinese investors (Study 1), we provide evidence of a causal relation between evaluation consensus and investments. We follow this with a second experiment with 412 U.S. participants (Study 2), showing that evaluation criteria consensus increases participants’ propensity to view a firm as technologically competent and to expect others to favor investing in the firm. Analyses of longitudinal archival data on investment in artificial intelligence technology firms in the United States (Study 3a) and China (Study 3b) support the generalizability of our findings. By exploring the social-cognitive processes that link evaluation criteria consensus to investors’ decisions to invest in firms in nascent technology fields, this paper advances the scholarly understanding of the microfoundations of the institutionalization processes in new market sectors.

From Host Country Nationals to Entrepreneurs: Insights from Professional Service Ventures in Vietnam

Working for multinational companies (MNCs) is often viewed as a privilege for host country nationals (HCNs) in emerging economies. This raises the question: Why do HCNs leave their jobs to pursue the hardship of establishing their own business? This article addresses this question by adopting a phenomenon-based approach to study 12 professional service firms in Vietnam. We explore why HCNs initially become entrepreneurs and identify how they make this transition. We reveal several idiosyncratic motivations and identify four types of migration pathways: MNC returnee, committed hybrid, transitional hybrid, and direct spin-off. Our findings address the shortcomings of the existing HCNs literature that centers on MNCs’ view and employee entrepreneurship literature that overlooks the context of emerging markets. We find evidence that institutional voids often promote, rather than suppress, entrepreneurship in emerging markets. Importantly, by taking a local perspective, our findings help MNCs increase their awareness that in the fast-growing market of Vietnam, a brain drain might occur as a result of HCNs becoming entrepreneurs.

Do Startup Employees Earn More in the Long Run?

Evaluating the attractiveness of startup employment requires an understanding of both what startups pay and the implications of these jobs for earnings trajectories. Analyzing Danish registry data, we find that employees hired by startups earn roughly 17% less over the next 10 years than those hired by large, established firms. About half of this earnings differential stems from sorting—from the fact that startup employees have less human capital. Long-term earnings also vary depending on when individuals are hired. Although the earliest employees of startups suffer an earnings penalty, those hired by already-successful startups earn a small premium. Two factors appear to account for the earnings penalties for the early employees: Startups fail at high rates, creating costly spells of unemployment for their (former) employees. Job-mobility patterns also diverge: After being employed by a small startup, individuals rarely return to the large employers that pay more.

Evaluating the Investment Projects of Spinal Medical Device Firms Using the Real Option and DANP-mV Based MCDM Methods

In an era of global aging, spinal and other joint degeneration issues have become a major problem for many elders. Bone-related operations have become the largest percentage of surgeries, accounting for 40% of the top 10 operations in the United States. Further, these spine-related operations are now ranked second among all bone-related operations. Due to this enormous and daily increasing market demand, more and more firms have started to pay closer attention to related medical devices and products. The global venture capitalists (VCs) have also started to follow the mega trend and will continue to invest heavily in this industry. Although most VCs recognize that investing in firms that produce innovative spinal products or devices is a must, very few practical managers or research scholars have defined the appropriate evaluation methods for these firms to use. The traditional net present value (NPV) method, which does not consider operation flexibility and changes in strategy, is far from the reality. The real option method can reveal the vagueness and flexibilities of the values being embedded in the investment projects at spinal medical device firms. However, the real option method is strictly quantitative. Usually, the evaluation aspects contain qualitative factors or local criteria which are hard to quantify in monetary terms. Thus, the adoption of multiple criteria decision making (MCDM) methods that can manipulate both quantitative and qualitative factors will be very helpful in evaluating and selecting investment cases like the spinal medical device firms, where both quantitative and qualitative factors should be considered. An analytical framework that consists of hybrid MCDM methods and the real option method will thus be very useful to evaluate the newly established firms producing spinal medical devices. Therefore, the authors propose a real option valuation as well as the Decision-Making Trial and Evaluation Laboratory (DEMATEL) based analytic network process (DANP) and the modified VIšekriterijumsko KOmpromisno Rangiranje (VIKOR) method (DANP-mV) based MCDM framework for evaluating the investment projects offered by these firms of spinal medical devices. An empirical study based on three newly established spinal medical device companies specializing in vertebral compression fracture (VCF) surgical devices was used to demonstrate the feasibility of the proposed analytical framework. Sensitivity analysis is performed to determine the influence of modeling parameters on ranking results of alternatives. This analytical framework can thus serve as a tool for VCs to use to determine the value of a potential candidate for investment. The proposed method can also serve as an effective and efficient tool for investment projects in other fields.

Predicting success in the worldwide start-up network

By drawing on large-scale online data we are able to construct and analyze the time-varying worldwide network of professional relationships among start-ups. The nodes of this network represent companies, while the links model the flow of employees and the associated transfer of know-how across companies. We use network centrality measures to assess, at an early stage, the likelihood of the long-term positive economic performance of a start-up. We find that the start-up network has predictive power and that by using network centrality we can provide valuable recommendations, sometimes doubling the current state of the art performance of venture capital funds. Our network-based approach supports the theory that the position of a start-up within its ecosystem is relevant for its future success, while at the same time it offers an effective complement to the labour-intensive screening processes of venture capital firms. Our results can also enable policy-makers and entrepreneurs to conduct a more objective assessment of the long-term potentials of innovation ecosystems, and to target their interventions accordingly.

Does the Role of Media and Founder’s Past Success Mitigate the Problem of Information Asymmetry? Evidence from a UK Crowdfunding Platform

Crowdfunding is an innovative concept for a new start-ups seeking financial support for their distinctive and novel projects. Despite their popularity, crowdfunding platforms face several key challenges amongst which is information asymmetry between entrepreneurs and influential backers, where credible information must be disclosed by the founders (entrepreneurs) to the potential “backers” in order to assess the potentiality of the project. In order to fill this gap, we developed and tested a model that examines the signaling interaction between the founder and a potential backer through media and the founders’ past success. This model also examines how these two signals (i.e., media and past success) interact so as to mitigate the problem of information asymmetry and to make the project successful. A total of 14,887 projects were extracted from a reward-based platform named Crowdfunder. The data was analyzed by performing Tobit and logistic regression and the model was validated by using the robustness technique. The results strongly mitigate the problem of information asymmetry which improves the rate of success in projects floated on the Crowdfunder platform. We believe that our study will significantly contribute to this nascent yet developing research area by probing for information mechanisms to succeed in crowdfunding.

Tether or Stepping Stone? The Relationship between Perceived External Reputation and Collective Voluntary Turnover Rates

Signaling theory suggests that resources such as firm reputation can send multiple signals that create dual pressures on stakeholders. These tensions are apparent when examining the relationship between a firm’s reputation and the collective voluntary turnover rates it experiences. On the one hand, a favorable reputation may tether employees to the firm due to the perceived desirability of working for a reputable company, resulting in lower voluntary turnover rates. On the other hand, a favorable reputation may make employees believe they are more marketable and thus may serve as a stepping stone relating to higher voluntary turnover rates. The purpose of this study is to investigate whether and when reputation acts as a signal of desirability or a signal of ease of movement in predicting collective voluntary turnover rates. We find some evidence for an overall tethering effect for more reputable firms. In addition, our findings demonstrate that reputation is more likely to result in stepping stone effects in certain signaling environments including when firms are in more munificent industries, are younger, and have higher pay levels. Tethering effects are observed when firms are in less munificent industries, are older, and have lower pay levels.

The expat-preneur: conceptualizing a growing international career phenomenon

Purpose

– The purpose of this paper is to introduce the emerging international career phenomenon of the “expat-preneur,” an individual temporarily living abroad who initiates an international new venture (self-employment) opportunity in a host country.

Design/methodology/approach

– This analysis is based on the authors’ observance of developing trends that also are showcased in the international management and IHRM literatures.

Findings

– Two general types of expat-preneurs are proposed: first, pre-departure expat-preneurs who move abroad with a preconceived entrepreneurial purpose; and second, transitioned expat-preneurs who, only while abroad, recognize and pursue a new venture opportunity, either from the status of self-initiated expatriates (SIEs) looking for local employment or while serving as organization-assigned expatriates and leaving the organization at the end of the assignment or midstream.

Research limitations/implications

– Distinctions between expat-preneurs and typical business SIEs are explored, and important contributions that expat-preneurs may provide in strengthening local host country economies are considered. Directions for further systematic and empirical research on the expat-preneur international career phenomenon are discussed.

Practical implications

– Important mutually beneficial implications are noted for multinationals in supporting expat-preneurs’ long-term success in host country environments.

Originality/value

– This conceptual study provides a valuable recognition and analysis of an important and growing international career category that has received scant attention in the literature. This research has important implications for the understanding of new international career dynamics associated with the growing trend of international entrepreneurship, especially valuable for emerging markets and of interest to multinational firms interested in the movement of their human capital.

Career histories and managerial performance of health care chief executive officers: an empirical study in the Italian National Health Service

BACKGROUND

Organizational studies widely acknowledge the importance of the relationship between CEO's career histories and managerial performance. Although the health care management literature largely explores the role of CEOs, whether and how top managers' career histories affect their own performance remains still unknown in this industry.

PURPOSE

The aim of this study was to investigate the career histories of health care CEOs and to explore their impact on managerial performance.

METHODOLOGY

Primary data were collected from a sample of 124 CEOs leading health care organizations in the Italian National Health Service in 2008. Biographic data were accessed to gather information about relevant CEOs' demographics and their career histories. The relevance of CEOs' prior experience was considered, taking into account the prominence of health care organizations in which they passed through in their career histories. Regression analyses were employed to assess the impact of CEOs' career histories on their managerial performance.

FINDINGS

Top managers already appointed as CEOs were more likely to achieve higher levels of performance. Careers with long tenure within the National Health Service appear to increase managerial performance. Those CEOs who accumulated prior experience in a large number of health care structures and who spent time working at the most prominent hospitals were also more likely to achieve higher levels of managerial performance.

IMPLICATIONS

In health care, a CEO's career history does impact his or her managerial performance. Specifically, patterns of career that imply higher mobility across health care organizations are important. Although interorganizational mobility is significant for CEO performance, the same does not hold for mobility across industries. These findings contribute to the current debate about the need for management renovation within health care organizations.