Flexible Production and Entry: Institutional, Technological, and Organizational Determinants

Sharon Belenzon (), Victor Manuel Bennett () and Andrea Patacconi ()
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Sharon Belenzon: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Victor Manuel Bennett: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Andrea Patacconi: Norwich Business School, University of East Anglia, Norwich, NR4 7TJ, United Kingdom

Strategy Science, 2019, vol. 4, issue 3, 193-216

Abstract: Academics, the media, and policy makers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms overcome uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital–labor substitutability by replacing “rigid” capital with “flexible” labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive data set on entry by stand-alone firms and group affiliates, we provide evidence in support of the model.

Keywords: entry; irreversibility; investment under uncertainty; real options; organizational forms (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:4:y:2019:i:3:p:193-216

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