The impact of signal -based strategic leadership on research and development search behavior

Yoon-Suk Baik, Purdue University

Abstract

Firms need to possess the dynamic capabilities to adapt to turbulent technological environments, and hence, maintain competitive advantage over time. Frequent changes of industry leadership in the history of various industries, however, highlight the difficulty of large established firms in developing such innovative capabilities. An extensive body of research has investigated the impediments to established firms' expanding their technology domains. Considerably less is known about the processes by which firms make adaptation decisions. This dissertation investigates how a firm's strategic leadership can play an important role in a firm's building its capability to augment its technology domain. Specifically, pay arrangements of the chief executive officer (CEO) and top management team (TMT) can encourage employees to generate diverse patterns of new technologies by signaling executives' risk preferences. Since TMT members are major decision-makers on resource allocation, they are crucial for the successful implementation of new technologies generated by employees. The diversity of TMT pay arrangements can motivate employees to engage in different mixes of risky projects that are more likely to be appreciated by top managers. Firm-specific differences, such as growth opportunities or prior performance, will alter the effects of such signal-based interactions between top executives and employees on a firm's innovation processes. An empirical analysis of large public firms in the semiconductor industry provides support for the positive impact of top executive pay on firm capabilities to expand their technological domains. Such impact intensifies as growth opportunities and prior firm performance decrease. Contrary to the predictions, homogeneity among TMT pay arrangements affects positively a firm's capability to expand its technology domains. These findings imply that strategic leadership, in particular top management compensation, is an important mechanism to developing diverse innovative projects. The composition of the TMT, especially the homogeneity of its members can foster a firm's capabilities to adapt to fast-changing technological environments.

Degree

Ph.D.

Advisors

Shanley, Purdue University.

Subject Area

Management

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