Top Management Team Intrapersonal Functional Diversity and Adaptive Firm Performance: The Moderating Roles of the CEO–TMT Power Gap and Severity of Threat

While usually argued to be improving firm performance, the effect of top management team (TMT) functional diversity on firm performance is mixed. Bridging the TMT diversity, team adaptation, and threat-rigidity literature, we present a contingency model in which the relationships between intrapersonal functional diversity (at both CEO and TMT levels) and adaptive firm performance depend on the CEO–TMT power gap and severity of threat. To test our hypotheses, 270 firms, which have been severely affected due to the COVID-19 pandemic, were selected from China's A-share listed companies. Multiple regression analyses have shown that a moderation of CEO intrapersonal functional diversity's effect on adaptive firm performance by the CEO–TMT power gap is moderated by the severity of threat. However, no significant main or interaction effect of TMT intrapersonal functional diversity was found. The findings of this study have implications for the recovery or improvement of firm performance in threat situations.

Thriving on adversity: entrepreneurial thinking in times of crisis

Purpose The paper provides evidence-based managerial advice for preparing the organizations to find successful pathways through crises by priming the managerial decision-making towards either entrepreneurial thinking or resource conservation, and hence cascading the inventive or rigid state of mind through all management levels. Design/methodology/approach The general review is based on summarizing the peer-reviewed academic studies of organizational decision-making and acting in crisis situations, illustrated using the turnaround cases of Corticeira Amorim (reinventing itself when faced with emerging technological threats) and Kiddiegarten School (adjusting to the pandemic shock of social/human nature) Findings This study reveals that a set of dimensions in the crisis situation’s cognitive framing determines the firm’s response to adversity, freezing it in a rigid state or unfreezing it to stimulate an organization-wide entrepreneurial search for turnaround strategies. If managers sense having a lack of time to deal with adversity, or a lack of predictability, they become paralyzed with threat-rigidity mechanisms, stubbornly pursuing the established methods of doing business, which often were the cause of crisis in the first place. Hence, in situations requiring an immediate response, the dual threats of urgency and unpredictability become cognitive blinders, preventing organizations from pursuing new opportunities, exposing firms to the risk of being too slow, eroding their competitive advantage and, ultimately, going out of business. Originality/value Integrating the insights of three decades prior research of the topic of managerial decision making in crisis situations, this study proposes the novel leadership framework allowing to stimulate entrepreneurial behavior in adverse contexts.

Does cultural distance energize employees? The moderating role of psychological safety

The increasingly globalized workforce and the growing need for boosting employee energy have engendered both practical and research interest in stimulating employee energy in intercultural interactions. Yet neither the culture research nor the energy literature has explored the link between cultural distance and employee relational energy—the heightened level of psychological resources in social relations. This paper presents empirical evidence of cultural distance stimulating relational energy. Further, building upon the threat-rigidity theory, I propose that cultural distance stimulates relational energy more when employees perceive high levels of psychological safety. Two studies were conducted to test these two hypotheses. One laboratory experiment on 202 international students at a Dutch university provided causal evidence of the positive relationship between cultural distance and relational energy. Next, a two-wave field study on 373 international employees was conducted to replicate this main effect of cultural distance and further investigate the moderating role of psychological safety. Results supported that employees with higher levels of psychological safety are more prone to experience enhanced relational energy as a result of cultural distance. These findings contribute to the scarce research on possible positive influence of cross-cultural communication at work, and also advance the growing research on the antecedents of employee relational energy. The implications for practitioners to energize employees are also discussed.

Tourism Firms’ Vulnerability to Risk: The Role of Organizational Slack in Performance and Failure

This study explores the influence of political risk on firms in the tourism industry. It addresses a research gap regarding the impact of political risk on firm-level performance and failure and uncovers the role of organizational slack in this relationship. Firm-level political risk is estimated from 2002 to 2019 financial data for firms across six tourism sectors in a developed economy, the United States. Such risk is found to be significantly associated with firm performance and business failure. From the perspectives of the resource-based view and the threat-rigidity hypothesis, the results support the moderating effects of absorbed and unabsorbed slack on links between risk, performance, and business failure. Given that the COVID-19 pandemic has highlighted the tourism industry’s vulnerability, this study will be of interest to tourism firms seeking to improve business sustainability and resilience.

The threat of bankruptcy and financing strategy in learning-intensive industries

PurposeThe authors investigate whether firms in learning-intensive industries are more prone to bankruptcy and how this shapes a firm's financing choices.Design/methodology/approachIndustry learning estimates based on US manufacturing firms are obtained from the study of Balasubramanian and Lieberman (2010; 2011), who collected these estimates from the US Census Bureau. Merging the learning estimates with data from Compustat gives us a final sample of 6,138 publicly-traded US manufacturing firms (56,930 firm-years) between 1973 and 2000. The authors use both OLS and IV estimation approaches to test the hypotheses.FindingsThe findings confirm that firms operating in learning-intensive industries have a higher threat of bankruptcy. The authors also find that a debt-intensive capital structure exacerbates the threat of bankruptcy; therefore, firms in such industries have a significantly lower reliance on debt financing.Practical implicationsIn the current turbulent business environment, managers operating in learning-intensive industries need to be more careful while making financing choices between debt and equity, and they can explore sources of financing that go beyond the capital markets.Originality/valueNo study so far has examined how industry learning intensity, a key industry characteristic, makes firms more prone to bankruptcy, and how this threat of bankruptcy results in more conservative financing choices. By integrating the theoretical perspectives from the structure–conduct–performance (SCP), transaction cost economics (TCE) and threat rigidity paradigms, this paper contributes to the literature by adding the industry learning environment as a novel determinant of firm financing choices and the threat of bankruptcy.

An Examination of Whether and How Prevention Climate Alters the Influence of Turnover on Performance

Recent meta-analytic studies imply that groups often find ways of neutralizing turnover’s harmful effects and that important moderators of the turnover–performance relationship must be missing from the literature. Building on theory and findings related to the threat–rigidity effect, we suggest that groups tend to respond maladaptively to turnover when group norms promote the idea that turnover is threatening. Specifically, we suggest that prevention climate—that is, a climate focused on minimizing mistakes and costs—largely determines the degree to which group norms encourage members to view turnover as threatening and, in turn, the degree to which groups become less adaptive and perform worse in response to turnover. Across a sample of 232 groups, we found evidence that turnover is indeed more negatively related to performance for those groups with a strong prevention climate. Further, in a controlled laboratory context where we manipulated turnover and prevention climate, we found causal evidence supporting our full conceptual model. Our work advances research on turnover by identifying an important moderator and an underlying mechanism of the turnover–performance relationship.

Risk framing and business model adaptation: A conceptualization based on threat-rigidity theory

Firm leaders’ inclination to adapt their business model is sensitive to how risk is framed (as an external threat or an opportunity) in the macro-economic environment. We apply threat-rigidity theory to examine the relationship between risk framing and business model adaptation. We also investigate if emotionality has explanatory value for how managers adapt to business models. We test our hypotheses in a field experiment involving 134 Scandinavian managers. Here, we relate managers’ inclinations to adapt to different business models to different risk scenarios. The results reveal that, in general, managers are more risk seeking in gain scenarios than in loss scenarios. This finding is in line with the threat-rigidity theory. Emotionality was found to relate more to risk aversion than to risk seeking in the domain of potential gain. We argue that emotionality has explanatory value for how managers adapt to business models, because emotions are key influences on risk perception.

Addressing sustainable development goals for confronting climate change: Insights and summary solutions in the stress stupidity system

We employ the concept of stupidity to address why more has not been done to address climate change and sustainable development. While the ‘new’ science of stupid has long existed in organizational studies, academicians have been too polite to call it that and organizational researchers historically labeled it the ‘threat-rigidity effect.’ With Alvesson and Spicer’s ‘stupidity-based theory of organizations’ management researchers overcame this reluctance. In this work we explore what we will call the ‘stress-stupidity system.’ Building on the threat-rigidity effect, we outline the elements of the stress-stupidity system and look at how we may be able to ‘fix stupid’ to address issues of sustainability.

Innovation in the aftermath of downsizing: evidence from the threat-rigidity perspective

PurposeThe purpose of this paper is to study how job reductions affect product innovation and marketing innovation in a sample of 2,034 Spanish manufacturing firms in the period 2007–2014.Design/methodology/approachPoisson and logistic regression models with random effects were used to analyse the impact of downsizing on some innovation outcomes of firms.FindingsThe results of this research show that the stressful measure of job reductions may have unexpected consequences, stimulating innovation. However downsizing combined with radical organisational changes such as new equipment, techniques or processes seems to have a negative impact on product and marketing innovation.Originality/valueThis research has two original features. First, it explores the unconventional direction of causality from the planned elimination of jobs to innovation outputs. Secondly, the paper looks at the combined effect of downsizing and other restructuring measures on different types of innovation. Following the threat-rigidity theory, we assume that this combination represents a major threat for survivors that leads to lower levels of product and marketing innovation.

The Consequences of Accounting Failure for Innovation: A Multi-Level Analysis

SYNOPSIS In this study, we investigate the relation between accounting failure and innovation at multiple levels in an organization by developing and testing a model for how top executives and functional managers might change their risk preferences and their innovation investments in response to public disclosures of financial misconduct. At the firm level, we find that accounting failures reduce subsequent investments in R&D, as predicted by a threat rigidity (“play it safe”) psychological response among top executives. At the project level, accounting failures have the opposite effect, resulting in an increase in the number of exploratory projects, as predicted by a failure trap (“swing for the fences”) psychological response among functional managers. Unpacking this relation at multiple levels of analysis helps us to understand the complex ways in which financial misconduct shapes a firm's innovation activities and appreciate the far-reaching consequences of accounting failure.