Direct and complementary effects of knowledge and governance mechanisms on firm outcomes: A transition economy context

Mona Bahl, Purdue University


The first essay is primarily a literature review that explains the organizational and economic perspectives of firm knowledge and explores the corporate governance mechanisms that are likely to influence firm knowledge. This study aims to review the emerging thoughts on knowledge based complementarities between economics and organization theory. Organization economics emphasizes organizational boundaries as determined by the minimization of transaction costs subject to the assumption of rational thought, opportunistic behavior, and bounded rationality. Organization theory on the other hand emphasizes the importance of internal organization and explains firm heterogeneity as a function of firm specific resources and capabilities. Such divergence in viewpoints of the two theories naturally led to a debate with each claiming to be more "complete" in explain the theory of the firm and its outcomes. However, this view has been challenged in favor of a more holistic understanding of the firm and its outcomes. Firm knowledge is generally used to uncover and explain complementarities between the two literatures. This review examines theoretical viewpoints of respective literature streams and the possible complementarities between organization economics and organization theory. The review explains the relevance of examining possible complementarity between the two literatures in the context of CEE based firms. It also includes propositions that predict the complementary effect of knowledge and governance mechanisms on firm performance in transition economies. The second essay considers the direct and joint influence of knowledge transfer processes and ownership form on success of strategic change in transition economies. This study classifies firms into three types based on their ownership form namely, state owned firms, privatized firms and privately founded firms. It is argued that the ownership form moderates the positive relationship between knowledge transfer processes used by top managers and strategic change due to the managerial incentives offered by the three forms of ownership. It is hypothesized that the relative strength of the relationship between knowledge transfer processes and strategic change is stronger for state owned firms compared to privatized firms and privately founded firms. A unique database from four transition economy countries is used to test the hypotheses. The results support most of the hypotheses and suggest that while privatized and privately founded firms perform better than state owned firms, the state owned firms experience greater strategic change than privatized and privately founded firms when ownership form is interacted with the knowledge transfer processes used in the firm. The third essay argues that firms based in transition economies such as the Central and Eastern Europe (CEE) are expected to gain from advisory services of board of directors for achieving organizational transformation and competitive advantage. It is based on the premise that transition economy firms are shown to rely more on personal exchange of information and resources as compared to their counterparts in developed economies that are characterized by impersonal exchange in transactions. The first hypothesis predicts an inverted U shaped relationship between board size and firm performance. The next two hypotheses predict a positive relationship between the proportion of outside directors and board busyness, respectively, and firm performance in CEE countries. This study also develops competing hypotheses which predict the moderating effect of ownership type on the relationship between proportion of outside directors and performance of firms based in CEE countries.




Kriauciunas, Purdue University.

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