Contributions in Merlin

We study the role of peer groups in determining the structure and the total amount of executive compensation. Our analysis is based on a standard agency model in which the agent's reservation utility is related to the peer group used for performance evaluation. Our main result is that the informativeness criterion proposed by Holmström (1979) is neither a necessary nor a sufficient condition for the optimality of a relative performance evaluation. Whenever the relative performance evaluation is positively related to the agent's reservation utility, the principal faces a trade-off between the benefits from improved risk sharing and the total cost of compensation. If the peer group effect is strong, it can be optimal to evaluate the agent on her own firm performance only. If the relative performance evaluation is negatively related to the agent's reservation utility, it can also prove useful to reward the agent on the basis of uninformative signals. We also study the optimal weighting and composition of the performance index and find that the principal puts lower (higher) weight on an index and on peer firms that are positively (negatively) related with agent's reservation utility. In case of a negative relation it can even be optimal to include firms with uncorrelated cash flows into the index in order to reduce the total compensation.

This paper analyzes the use of transfer pricing as a strategic device in divisionalized firms facing duopolistic price competition. When transfer prices are observable, both firms' headquarters will exclude their marketing division from the external input market and charge a transfer price above the market price of the intermediate product to induce their marketing managers to behave as softer competitors on the final product market. When transfer prices are not observable, strategic transfer pricing is not an equilibrium, and the optimal transfer price equals the market price of the intermediate product. As an alternative, the firms can signal their competitor a transfer price above the market price of the intermediate input through a proper choice of their accounting system. The paper identifies conditions under which the choice of absorption costing is a dominant strategy for both firms. Moreover, when the firms' products are close substitutes, the strategic benefits of full cost based transfer pricing can provide incentives to maintain a production department that would not be able to survive as a separate firm in the long run.

This paper evaluates individuals’ ability to avoid investment mistakes and analyzes how investment competence is related to the propensity to seek or rely on professional advice. To address these issues, we use novel survey data collected from a representative sample of Swiss households. We find that investment competence is characterized by significant age and gender gaps, and that individuals who rely less on price movements as a source of information about investments are more likely to show above-the-average investment competence. We also find that individuals with relatively extensive investment experience and those who rely relatively strongly on their own judgment in making investment decisions are more likely to make investment decisions autonomously. In addition, we find that investment competence is positively related to the demand for financial advice. Thus, it appears that the individuals who most need financial advice are those who are least likely to seek such advice and rely on it.

Based on an in-depth case study, this paper examines how framing contests between proponents and opponents of the Diesel particulate filter (DPF) in Germany evolve over time to affect institution creation. Our results suggest that the emergence of institution passes through three cumulative phases: necessary opening, organizing-mobilizing, instrumentalization of channels. This development is characterized by specific framing contests where the precedent phase is a necessary condition for the next to occur, a process which we conceptualize as cumulation. Our data indicate that framing contests were resolved when collective action frames which have a motivational task were crafted by the social movement with the effect of mobilizing customers, thereby creating a de facto standard i.e. the Diesel particulate filter. We argue that the motivational frame resonated because it features negative individualized evidence-based consequences and because it built on the framing contests of previous phases. Finally, we observed that framing contests tend to polarize over time, thereby reflecting the intensity of the conflict.

We argue that development of dynamic capabilities theory into a fully dynamic theory of strategy is inhibited by the operation of an incomplete set of perspectives on human action. Clarifying how human action is conceptualized, particularly as regards creativity and learning, might help strategy scholars to develop theory in ways that adequately address action at all levels of engagement in dynamic contexts, thereby turning existing contradictions into complementarities whilst accounting for issues of both content and process. By reorganizing existing literatures along action theoretic lines the paper reframes some of the difficulties in current theorizing, illustrates the value of this reframing by applying action theory to recent work on dynamic capabilities and proposes a rules-based framework as a potential integrating device for the field. The paper closes by highlighting the need for interdisciplinary research in strategy.

Replicating a successful “template” or best practice across time (“temporal replication”) or across a number of different economic settings (“spatial replication”) is an important strategy for organizational growth and performance improvement. In this paper, we use an NK landscape model to examine how organizations may innovate and adapt to their environment through “inaccurate replication”. We identify conditions under which inaccurate replication can result in higher long-run performance than accurate replication. We also uncover the specific mechanisms through which replication errors may affect organizational performance. In that, our study also sheds a new light on how organizations may learn from (replication) errors.

This paper develops a simulation model to compare the performance of two stylized manufacturing networks: the lead factory network (LFN) and the archetype network (AN). The model identifies the optimal network configuration and its implications for coordination mechanisms. Using an NK simulation model to differentiate between exogenous factors (configuration) and endogenous factors (coordination), we find low complexity of the production process, low transfer costs and high search costs, as well as a larger number of manufacturing plants benefit LFN compared to AN. Optimally coordinating the chosen network configuration of LFN might require to fully transfer knowledge in the short run but to transfer nothing in the long run. Moreover, a late knowledge transfer from the lead factory to the plants increases the pre-transfer performance of LFN but results in a larger performance drop, yielding a lower short-run but a higher long-run performance of LFN.

In the wake of progressive globalization and accelerating speed of change, corporations are increasingly faced with so-called meta-problems, whose complexity tends to outstrip the sensemaking capacities of individual organizations. As a response to that, organizations are increasingly engaging in inter-organizational sensemaking activities in order to develop a collective understanding of these meta-problems to inform their intra-organizational attempts at dealing with them. In this paper, we propose to conceptualize such inter-organizational strategizing processes as scaffolding of sensemaking capacities. Based on a longitudinal case study of a multi-sector industry initiative concerned with the meta-problem of water as an environmental resource constraint, we explore the different practices and patterns in which individual organizations extend their respective sensemaking capacities. We identify three categories of extension practices (scaffolding practices, conduct practices, transfer practices) and three patterns of extension (extension for triggering sensemaking, complementary extension, selective extension). Overall, we contribute to the literature on strategy-as-practice, the wider sensemaking literature and the literature on inter-organizational strategy.

Corporations are operating in complex business environments. The globalization of markets has transformed the division of labor between governments and corporations and today, corporations are expected to take over a political role in global governance processes and provide public goods such as standards for safe work places or environmental protection. Corporations that assume economic and political responsibilities are, however, confronted with heterogeneous, often contradictory, demands of a highly diverse range of stakeholders. Managing these demands poses new organizational challenges for the corporation. In this paper, we explore how corporations respond to complex stakeholder environments and we analyze the legitimacy strategies that corporations employ to maintain their license to operate. In particular, we study the organizational prerequisites for managing legitimacy and how they are changing over time. We draw on the literature on institutional theory and organizational paradoxes and conduct an empirical case study at the sportswear manufacturer PUMA. The results of our qualitative longitudinal study show that managing corporate legitimacy is a dynamic concept and corporations learn over time to adequately adapt organizational capacities, structures and procedures. Based on the findings of our explorative case study, we conclude our article by formulating testable hypothesis

This paper considers changes in market comovement of merging US firms. Comparing the expected to the actual post merger comovement, we find that the post merger beta exhibits excess comovement with the acquiring firm. This suggests that the firm’s comovement is at least partly determined by its investors. We find that the excess comovement is significantly greater in cash transactions, when target shareholders tender their entire stake, than in pure stock transactions. Additionally, we document that the excess comovement is greater when the target is included in the S&P 500 as a result of the merger.