Session 239

Risk, Uncertainty and Behavior

Track H

Date: Monday, November 7, 2011

 

Time: 11:00 – 12:15

Paper

Room: NY Sands


Session Chair:

  • Philip Bromiley, University of California, Irvine

Title: How M&A Valuations Differ as Knightian Uncertainty and Controversy Vary

Authors

  • Hyoung-Goo Kang, Hanyang University
  • Will Mitchell, University of Toronto
  • Richard Burton, Duke University
  • Wonseok Woo, Ewha Womans University

Abstract: Valuation of mergers and acquisitions (M&A) is a critically important undertaking in corporate finance and competitive strategy. The most visible recommendations for M&A valuation draw on standard financial capital budgeting models of net present value and its variations, but actual M&A valuations exhibit higher variance than the financial models would suggest. This paper studies the extent of heterogeneity in M&A valuation, arguing that differences reflect systematic variation in the degree of two types of social factors that arise in the behavioral theory of the firm – uncertainty and controversy – that a potential acquisition creates for a firm. The paper applies recent research concerning organizational capital budgeting to M&As, while helping to extend the behavioral theory of the firm to the M&A context.

Title: Knowledge, Recent Performance, and Risk Taking Under Performance Pressure

Authors

  • Yu Zhang, China Europe International Business School
  • Philip Bromiley, University of California, Irvine

Abstract: We examined how knowledge and recent performance of risk activities affects firms’ risk taking behavior under performance pressure. Specifically, we differentiated between firms’ taking of known vs. unknown risks. We proposed that firms’ taking of unknown risk will depend on their recent performance of the risk activities, while their taking of known risks will be less so. We tested our hypothesis with the bank holding companies (BHCs) in the U.S. from 2001 to mid-2007. We found that recent performance of risk activity amplified BHCs’ holding of mortgage-backed securities (unknown risks) when they were under performance pressure, but not their holdings of risk-based assets (known risks) under performance pressure.

Title: Organizational Structure, Timing of Information Flows and Attitude Change

Authors

  • Luís Almeida Costa, Nova School of Business and Economics
  • João Amaro de Matos, New University of Lisbon

Abstract: The alignment of collective goals and individual behavior has been extensively studied by economists under a principal-agent framework. Two main solutions have been presented: explicit incentive contracts and monitoring. These solutions correspond to changes in the objective situation faced by individuals. However, an extensive literature in social psychology provides evidence that behavior is influenced, not only by situational constraints, but also by attitudes. Attitudes are summary evaluations of persons, objects, or ideas along a dimension ranging from positive to negative. Therefore, an important dimension of organization is to choose the structures and procedures that best contribute to the alignment of attitudes. This paper uses a dynamic model to study the relationship between organizational structure, the timing of information flows and the process of formation of attitudes.

Title: Theorizing Unimagined Events: The Embodied Imagination Approach

Authors

  • Ivano Cardinale, University of Cambridge

Abstract: Organizations sometimes run up against events they had not imagined before their occurrence. This paper outlines a theory of unimagined events. I begin with Bourdieu’s idea that thought and action rely on pre-reflexive mental categories, which agents develop by internalizing the objective conditions in which they are socialized. I then propose that when mental categories correspond to objective conditions, agents are able to anticipate both routine and “predictably novel” events; but when such correspondence is reduced, agents might not imagine events that can indeed occur. This idea suggests that unimagined events occur when the objective conditions in which mental categories are developed are different from those in which categories are deployed. In a multi-polar, increasingly interdependent world, those differences will arise more and more frequently.

All Sessions in Track H...

Sun: 09:30 – 10:45
Session 325: Strategy Process and Practice Research in Perspective and Future Directions
Sun: 11:15 – 12:30
Session 326: Systems Perspective to Strategy Process Research
Sun: 13:45 – 15:00
Session 327: Strategy Process, Acquistion Process and Activity Sequences
Mon: 08:00 – 09:15
Session 238: Processes for Adaptation and Change
Session 244: TMT Traits, Characteristics and Roles
Mon: 11:00 – 12:15
Session 239: Risk, Uncertainty and Behavior
Mon: 13:30 – 14:45
Session 237: Dynamic Capabilities, Evolution and Change
Mon: 15:15 – 16:30
Session 242: Managerial Levels and Roles in Processes
Tue: 11:15 – 12:30
Session 241: Perspectives on Strategy Making and Planning
Tue: 14:15 – 15:30
Session 246: Processes of Resource Management
Tue: 16:00 – 17:15
Session 243: Understanding Decision Making Processes
Wed: 08:00 – 09:15
Session 304: Alliances and Cooperation Processes
Wed: 09:45 – 11:00
Session 240: Organizational Structures and Processes


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