Applying Random Coefficient Models to Strategy Research: Identifying and Exploring Firm Heterogeneous Effects

Juan Alcácer (), Wilbur Chung (), Ashton Hawk () and Gonçalo Pacheco- de-Almeida ()
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Juan Alcácer: Strategy Unit, Harvard Business School, Boston, Massachusetts 02163
Wilbur Chung: Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742
Ashton Hawk: Leeds School of Business, University of Colorado, Boulder, Boulder, Colorado 80309
Gonçalo Pacheco- de-Almeida: Strategy and Business Policy, École des Hautes Études Commerciales de Paris, 78351 Jouy-en-Josas Cedex, France

Strategy Science, 2018, vol. 3, issue 3, 533-553

Abstract: Strategy aims at understanding the differential effects of firms’ actions on performance. However, standard regression models estimate only the average effects of these actions across firms. Our paper discusses how random coefficient models (RCMs) may generate new insights about firm heterogeneity and its effects on performance in empirical settings in strategy. RCMs allow testing for and predicting firm-specific coefficients, thereby distinguishing between effects that have a significant mean versus significant variance. RCMs may also be used to explore the sources of firm heterogeneous effects. We develop a simulation test bed using synthetic data sets to show that RCMs are more precise at allocating firm heterogeneous effects to model slopes and intercepts than standard regression models. We also discuss RCMs’ possible limitations due to sample size requirements, nonconvergence problems, and potentially restrictive assumptions. Overall, RCMs allow strategy researchers to test and build new theories at a more granular level.

Keywords: competitive advantage; competitive strategy; corporate strategy; simulations (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:3:y:2018:i:3:p:533-553

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