Managerial Risk Taking in Diversified Firms: An Evolutionary Perspective

Robert E. Hoskisson, Michael A. Hitt and Charles W. L. Hill
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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

Organization Science, 1991, vol. 2, issue 3, 296-314

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.

Keywords: diversification; managerial risk taking; strategic control (search for similar items in EconPapers)
Date: 1991
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