How does organizational slack affect firm performance? Organization theory posits that slack, despite its costs, has a positive impact on firm performance. In contrast, agency theory suggests that slack breeds inefficiency and inhibits performance. The empirical evidence, largely from developed economies, has been inconclusive. Moreover, little effort has been made to empirically test whether such an impact (positive or negative) is linear or curvilinear. This article joins the debate by extending empirical work to the largely unexplored context of economic transitions. Specifically, two studies, based on survey and archival data (N = 57 and 1532 firms, respectively), are undertaken in China’s emerging economy. Our results suggest (1) that organization theory generates stronger predictions when dealing with unabsorbed slack, and (2) that agency theory yields stronger validity when focusing on absorbed slack. Furthermore, we also find that the impact of slack on performance is curvilinear, which resembles inverse U-shaped curves. Overall, our findings call for a contingency perspective to specify the nature of slack when discussing its impact on firm performance. Copyright © 2003 John Wiley & Sons, Ltd. How does organizational slack affect firm performance? Organization theorists typically argue that, despite its costs, slack buffers a firm’s technical core from environmental turbulence, and thus enhances its performance (Cyert and March, 1963; Pfeffer and Salancik, 1978; Thompson, 1967). In contrast, agency theorists often suggest that slack is a source of agency problems, which breeds inefficiency, inhibits risk-taking, and hurts performance (Fama, 1980; Jensen and Meckling, 1976). At present, evidence based on these two perspectives is still inconclusive, and the debate therefore calls for more conceptual and empirical probes. One aspect that unites virtually all empirical

: In this study, I explore the idea of "acceptable risk" at the organizational level of analysis in a sample of currency-trading rooms embedded in different national cultures, and develop and test a multi-level model of how national culture and the organizational context, in particular the control strategies and the norms of acceptable risk within risktaking units, shape their risk-taking behavior and performance. The results show that "acceptable risk" as defined within the micro-environment of the trading room does influence actual organizational risk-taking, though national culture does not. In addition, market control strategies were related to better risk-transformation in these trading rooms. This paper was presented at the Wharton Financial Institutions Center's conference on The Performance of Financial Institutions, May 8-10, 1997. 3 ACCEPTABLE RISK: A STUDY OF GLOBAL CURRENCY TRADING ROOMS IN THE US AND JAPAN The influence of context on risk-taking has begun to re...

Recent applications of real options theory in strategy research have examined investment decisions framed as the purchase or exercise of particular options, but research has yet to offer direct evidence on whether firms actually capture option value from such investments. In this paper, we estimate the proportion of firm value accounted for by growth options and link the growth option value to corporate investments that have been commonly viewed as providing valuable growth options. The empirical analysis examines internal and external corporate development activities of a panel of 293 manufacturing firms during 1989-2000. The results indicate that investments in research and development and in joint ventures contribute to growth option value, and that investments in tangible capital and in acquisitions have no effect in general. Notably among equity joint ventures of various ownership levels, only minority joint ventures have significant effects. Key words: real options; growth option value; corporate investments 2

Risk and return do not have the clearcut negative relationship that we assume in our textbook treatment. Industry level studies in different countries have shown that risk and return are positively related above industry median (rate of return) but negatively related below industry median (rate of return). These findings contradict any model along the line of capital asset pricing model. It also is inconsistent with arbitrage pricing model. However, these observations are consistent with the Prospect Theory. I view this phenomenon in the context of anomalies in finance. I explore practical implications in terms of investment strategies. 195 Relation entre Risque total et rendement: une analyse faite B la lumihre d’un nouveau paradigme R&urn6 Tapen Sinha

This paper evaluates the dynamic aspects of the UML in the context of inter-organizational workflows. Two evaluation methodologies are used. The first one is ontological and is based on the BWW (Bunge-Wand-Weber) models. The second validation is based on prototyping and consists in the development of a workflow management system in the aerospace industry. Both convergent and divergent results are found from the two validations. Possible enhancements to the UML formalism are suggested from the convergent results. On the other hand, the divergent results suggest the need for a contextual specification in the BWW models.

This paper studies the relationship between multinationality and performance under a real options lens. Based on a cross-sectional panel of multinational corporations (MNCs) that are likely to use real options reasoning for the management of their operations, we test the impact of operating and strategic options on firms ’ risk-returns parameters. Our evidence reveals that both multinationality and flexibility enhance corporate performance and reduce downside risk.

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1 How and when do firms translate slack into better performance? Different theoretical perspectives recognize both positive and negative consequences of organizational slack. Where agency theory emphasizes that organizational slack will mainly be used for empire building purposes, behavioral theories focus more on the positive impact of slack through facilitating innovation and growth, or providing a buffer to uncertainty. In this paper, I test circumstances under which slack is more likely to have a positive impact on firm performance, and which mechanisms cause this impact. From the empirical analysis, I find that slack has both a positive and negative impact on performance at the same time. It leads to higher overinvestment, which consecutively has a negative impact on performance, but also to more innovation which in a large part of the sample leads to higher performance. In addition, I find empirical evidence that slack has a more positive (or less negative) impact on performance when a firm can choose between many profitable projects. Organizational slack has been related to many forms of strategic firm behavior, such as increased growth initiatives (Mishina et al. 2004), more innovation efforts (Nohria and Gulati, 1996; 1997), more

Despite much research, debate continues about the impact of risk taking on a firm’s future performance. Unlike prior studies, we propose that risk-return relationships evolve as firms age and learn, particularly in high-velocity settings where accumulated knowledge affects how firms respond to technological change. Discerning this requires three things absent from prior analyses: (1) studying an entire population; (2) modeling evolutionary processes; and (3) using separate models to capture how a firm’s gains and losses (i.e., its strong and weak performances) unfold across time. Using this framework, we found that (a) risk-return relationships generally evolved from positive to negative as firms aged; because (b) firms learned to avoid large losses at younger ages than they learned to sustain large gains; yet (c) the risk taking that followed below-aspiration performance moderated those effects such that major setbacks prompted large future gains and large future losses among older firms and downward spirals among younger ones. 1 Relationships between risk and return are central to our lives. In the hope of emotional or monetary rewards, some people take risks by climbing mountains, changing employers, or switching careers. Some executives take risks in pursuit of better pay and enhanced reputations, and some firms pursue risky strategies in a quest for higher sales and profits.

This study examines the economic rationale for limiting firms ’ risk. We argue that risk increases the cost of doing business for two reasons. First, risk causes operating inefficiencies and imposes adjustment costs. Second, diverse stakeholders must be compensated for their risk-bearing. We find empirical support for positive risk-cost relations using various model specifications and risk measures, and across different manufacturing industries and time periods. We also examine the direct and moderating effects of bankruptcy risk.The relation of distance from bankruptcy to firms ’ costs depends on whether relations are contemporaneous or lagged and whether bankruptcy is an immediate threat or not. Key words • bankruptcy risk • contract theory • risk • risk management • stakeholder view Risk has long been recognized as a central construct in strategic management (Bowman, 1980; Bettis, 1983). Among strategic management researchers, risk generally refers to the variability or downside variability of firms ’ performances. The proxies used in empirical strategic management research (e.g. variance or standard deviation of accounting returns) reflect this understanding of risk