TY - JOUR
T1 - Endogeneity in Strategy-Performance Analysis
T2 - An Application to Initial Human Capital Strategy and New Venture Performance
AU - Rocha, Vera
AU - Van Praag, Mirjam
AU - B. Folta, Timothy
AU - Carneiro, Anabela
N1 - Published online: 11. February 2018
PY - 2019/7
Y1 - 2019/7
N2 - Managers engage in a variety of strategies, not randomly, but having in mind their performance implications. Therefore, strategic choices are endogenous in performance equations. Despite increasing efforts by various scholars in solving endogeneity bias, prior attempts have almost exclusively focused on single, one-sided, and discrete (binary) organizational decisions. Yet, in reality, managers often face multiple, simultaneous, and interdependent decisions, possibly including a continuous choice set. These choices may further entail a two-sided process between managers and others, such as employees, strategic partners, customers, or investors, whose choices and preferences also affect the final decision. We discuss how endogeneity can plague the measurement of the performance effects of these two-sided strategic decisions—which are more complex, but more realistic, than prior representations of organizational decision making. We provide an empirical demonstration of possible methods to deal with three different sources of bias, by analyzing the performance effects of two human capital choices made by founders at startup: the size and average quality of the initial workforce.
AB - Managers engage in a variety of strategies, not randomly, but having in mind their performance implications. Therefore, strategic choices are endogenous in performance equations. Despite increasing efforts by various scholars in solving endogeneity bias, prior attempts have almost exclusively focused on single, one-sided, and discrete (binary) organizational decisions. Yet, in reality, managers often face multiple, simultaneous, and interdependent decisions, possibly including a continuous choice set. These choices may further entail a two-sided process between managers and others, such as employees, strategic partners, customers, or investors, whose choices and preferences also affect the final decision. We discuss how endogeneity can plague the measurement of the performance effects of these two-sided strategic decisions—which are more complex, but more realistic, than prior representations of organizational decision making. We provide an empirical demonstration of possible methods to deal with three different sources of bias, by analyzing the performance effects of two human capital choices made by founders at startup: the size and average quality of the initial workforce.
KW - Endogeneity
KW - Human capital choices
KW - Selection effects
KW - Simultaneous equations
KW - Strategy-performance effects
KW - Endogeneity
KW - Human capital choices
KW - Selection effects
KW - Simultaneous equations
KW - Strategy-performance effects
U2 - 10.1177/1094428118757313
DO - 10.1177/1094428118757313
M3 - Journal article
SN - 1094-4281
VL - 22
SP - 740
EP - 764
JO - Organizational Research Methods
JF - Organizational Research Methods
IS - 3
ER -