Why Are Firms Rigid? A General Framework and Empirical Tests

Rui J. P. de Figueiredo (), Evan Rawley () and Christopher I. Rider ()
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Rui J. P. de Figueiredo: Haas School of Business and Department of Political Science, University of California, Berkeley, Berkeley, California 94720
Evan Rawley: Columbia Business School, Columbia University, New York, New York 10027
Christopher I. Rider: McDonough School of Business, Georgetown University, Washington, DC 20057

Organization Science, 2015, vol. 26, issue 5, 1502-1519

Abstract: We present a general framework for understanding why firms are slow to make major strategic changes in a wide range of empirical settings. We then apply this framework to investigate, more specifically, the relationship between firm age and scope in hedge funds. Our empirical analyses demonstrate that younger hedge funds outperform older hedge funds both before and after the launch of a new fund. Based on our framework, these results suggest that age-based rigidity in hedge funds is more attributable to internal political frictions that influence project selection than to constraints associated with exchange partners or implementation costs. We conclude by discussing how our framework can be used to identify the dominant source of rigidity in other contexts.

Keywords: organizational economics; organizational capabilities; strategy and firm performance; organizational change; firm scope; diversification (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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