THE ROLE OF MANAGERIAL CHOICE IN THEORIES OF EQUITY OWNERSHIP:
DO MANAGERS CHOOSE ACCORDING TO THEORY?
Prashant Kale 1
Asst. Professor of Strategy
Stephen M. Ross School of Business, University of Michigan
701 Tappan Avenue
Ann Arbor, MI 48109
Tel: 734-764-2305
Fax: 734-764-2557
E-mail: kale@umich.edu
Phanish Puranam
Asst. Professor of Strategy and International Management
London Business School
Sainsbury 317, Sussex Place
Tel: 44 (0) 20-7262-5050
Fax: 44 (0) 20-7724-7875
E-mail: ppuranam@london.edu
1 We would like to thank the Mack Center for Technological Innovation at the Wharton School of Business for providing financial support for this study. We are also grateful to Julian Birkinshaw, Sendil Ethiraj, Ranjay Gulati, Costas Markides, Freek Vermeulen, Margarethe Wiersema, Keven Steensma, Melissa Schilling, Joanne Oxley, Brian Silverman, Anoop Madhok and seminar audiences at London Business School, University of Michigan Business School, Academy of Management Meetings and Strategic Management Society Conference for their comments and feedback on earlier versions of this paper.
1
THE ROLE OF MANAGERIAL CHOICE IN THEORIES OF EQUITY OWNERSHIP:
DO MANAGERS CHOOSE ACCORDING TO THEORY?
ABSTRACT
We use the policy capture methodology to assess the importance of managerial choice as a mechanism in theories that focus on resource value (e.g., Resource-based Theory) and transactional hazards (e.g., Transaction Costs Economics) respectively in explaining equity ownership in inter-firm relationships. Our results show that managerial choices are consistent with theories that draw on resource value as well as transaction hazard considerations, although they more strongly aligned with theories that emphasize resource value as the key antecedent of ownership choices. Further, resource value considerations also explain managers’ choices regarding the level of ownership, in terms of minority ownership, non-majority ownership or majority equity...