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Managerial Risk Taking in Diversified Firms: An Evolutionary Perspective

Author

Listed:
  • Robert E. Hoskisson

    (Department of Management, Texas A & M University, College Station, Texas 77843)

  • Michael A. Hitt

    (Department of Management, Texas A & M University, College Station, Texas 77843)

  • Charles W. L. Hill

    (Department of Management and Organization, University of Washington, Seattle, Washington 98105)

Abstract

The degree of risk taking by lower level (division) managers is expected to vary depending upon the extent and type of diversification. Limited diversification, when coupled with M-form adoption and decentralization, induces managerial risk taking . Notwithstanding, the control system elaborations (e.g., strategic business unit [SBU] structures) to facilitate information processing as firms increase diversification, extensively diversified firms reach limits such that control loss reduces managerial risk taking . Ultimately, this control loss may result in poor relative performance thereby triggering a threat of takeover. The threat of takeover creates incentives for restructuring and more focused diversification. Firms that reduce their diversified scope through restructuring may induce managerial risk taking . Thus, diversified firms experience periods that induce and other periods that reduce division manager risk taking depending on diversification and associated control system attributes.

Suggested Citation

  • Robert E. Hoskisson & Michael A. Hitt & Charles W. L. Hill, 1991. "Managerial Risk Taking in Diversified Firms: An Evolutionary Perspective," Organization Science, INFORMS, vol. 2(3), pages 296-314, August.
    • Handle: RePEc:inm:ororsc:v:2:y:1991:i:3:p:296-314
    DOI: 10.1287/orsc.2.3.296
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    Cited by:

    1. Hsien-Jui Chung & Chun-Chung Chen & Hsuan Lo, 2007. "Geographic market entry of Taiwan securities firms," The Service Industries Journal, Taylor & Francis Journals, vol. 29(5), pages 709-721, May.
    2. Maria L. Goranova & Richard L. Priem & Hermann A. Ndofor & Cheryl A. Trahms, 2017. "Is there a “Dark Side” to Monitoring? Board and Shareholder Monitoring Effects on M&A Performance Extremeness," Strategic Management Journal, Wiley Blackwell, vol. 38(11), pages 2285-2297, November.
    3. Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    4. Steven W. Floyd & Bill Wooldridge, 1999. "Knowledge Creation and Social Networks in Corporate Entrepreneurship: The Renewal of Organizational Capability," Entrepreneurship Theory and Practice, , vol. 23(3), pages 123-144, April.
    5. Peter Slade & Tor Tolhurst, 2019. "Job Security and Risk‐Taking: Theory and Evidence From Professional Football," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 899-918, January.
    6. Gang Wang & Linwei Li & Gang Ma, 2019. "Entrepreneurial Business Tie and Product Innovation: A Moderated Mediation Model," Sustainability, MDPI, vol. 11(23), pages 1-18, November.
    7. Shih-chi (Sana) Chiu & Azadeh Sabz, 2022. "Can Corporate Divestiture Activities Lead to Better Corporate Social Performance?," Journal of Business Ethics, Springer, vol. 179(3), pages 849-866, September.
    8. Shinwon Noh & Dongyoub Shin & Sunhyuk Kim, 2023. "Problemistic search and hybrid organizations: multiple sources of performance feedback in diversifications by corporate foundations in Korea," Asian Business & Management, Palgrave Macmillan, vol. 22(1), pages 188-216, February.
    9. Mo Chen & Aseem Kaul & Brian Wu, 2019. "Adaptation across multiple landscapes: Relatedness, complexity, and the long run effects of coordination in diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 40(11), pages 1791-1821, November.
    10. Humphery-Jenner, M., 2011. "Diversification in Private Equity Funds : On Knowledge-sharing, Risk-aversion and Limited-attention," Discussion Paper 2011-046, Tilburg University, Center for Economic Research.
    11. Linan Lei & Xiaobo Wu, 2022. "Thinking like a specialist or a generalist? Evidence from hidden champions in China," Asian Business & Management, Palgrave Macmillan, vol. 21(1), pages 25-57, February.
    12. Eero Lehto, 2007. "The Impacts of M&As on R&D investments," Working Papers 232, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    13. Humphery-Jenner, M., 2011. "Diversification in Private Equity Funds : On Knowledge-sharing, Risk-aversion and Limited-attention," Other publications TiSEM 3e22d8a9-6846-484f-a09e-7, Tilburg University, School of Economics and Management.
    14. Hamza Fadhila & Azouzi Mohamed Ali & Jarboui Anis, 2014. "CEO's commitment bias, ownership concentration, and innovation decision: Behavioral management of CEO's discretion," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-24, December.
    15. Iana Shaheen & Arash Azadegan & Samuel Roscoe, 2021. "Who Takes Risks? A Framework on Organizational Risk‐Taking During Sudden‐Onset Disasters," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 4023-4043, November.

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