Choose to Fight or Choose to Flee? A Network Embeddedness Perspective of Executive Ship Jumping in Declining Firms

Research summary: Executives in declining firms may engage in ship-jumping behavior (i.e., voluntarily move to new employers before the failure occurs) to avoid the stigma of failure. However, it is unclear how executives decide whether or not to jump ship. Building on a network embeddedness perspective, we highlight how three network-based indicators (i.e., executive social capital, the social capital of other peers in the declining firm, and the declining firm's alliance network) influence the executive-level ship-jumping decision by shaping its benefits and opportunity costs. Using data from executives at failing firms in China, we find support for our hypothesized relationships. Our research provides important insight into the network mechanisms driving the ship-jumping decision. Managerial summary: Executives at failing firms have a choice: stay and attempt to rescue the firm from failure or exit and avoid the stigma of the failure (i.e., jump ship). Yet, little is known about what factors affect this choice. We propose that social capital plays an important role in the decision. Our evidence from specially treated (*ST) public firms in China finds that ship jumping is lowest at low and high values of social capital, and highest at moderate levels of social capital (an inverted U-shaped relationship). In addition, higher levels of peer social capital (in the declining firm) as well as a well-established firm-level alliance network discourage the ship-jumping choice. Copyright © 2017 John Wiley & Sons, Ltd.

[1]  The Spillover Effect of Fraud Allegations against Chinese Reverse Mergers , 2013 .

[2]  Scott Sonenshein.  The role of construction, intuition, and justification in responding to ethical issues at work: The sensemaking-intuition model , 2007 .

[3]  P. Adler,et al.  Social Capital: Prospects for a New Concept , 2002 .

[4]  Abraham Carmeli,et al.  The relationship between emotional intelligence and work attitudes, behavior and outcomes: An examination among senior managers , 2003 .

[5]  R. Gulati.  Social Structure and Alliance Formation Patterns: A Longitudinal Analysis , 1995 .

[6]  Moses Acquaah.  Managerial social capital, strategic orientation, and organizational performance in an emerging economy , 2007 .

[7]  P. Giordano,et al.  Sanctioning the high-status deviant: an attributional analysis , 1983 .

[8]  N. Lin.  Social Capital: Frontmatter , 2001 .

[9]  R. Gulati,et al.  Where Do Interorganizational Networks Come From?1 , 1999, American Journal of Sociology.

[10]  Dan R. Dalton,et al.  CEO AND DIRECTOR TURNOVER IN FAILING FIRMS: AN ILLUSION OF CHANGE? , 1995 .

[11]  Jo-Ellen Pozner,et al.  Stigma and Settling Up: An Integrated Approach to the Consequences of Organizational Misconduct for Organizational Elites , 2008 .

[12]  Mason A. Carpenter,et al.  Upper Echelons Research Revisited: Antecedents, Elements, and Consequences of Top Management Team Composition , 2004 .

[13]  James D. Westphal,et al.  The Other Pathway to the Boardroom: Interpersonal Influence Behavior as a Substitute for Elite Credentials and Majority Status in Obtaining Board Appointments , 2006 .

[14]  Simone Ferriani,et al.  The social and economic bases of network multiplexity: Exploring the emergence of multiplex ties , 2013 .

[15]  Zhiang Lin,et al.  Alliance partners and firm performance: resource complementarity and status association , 2009 .

[16]  Benjamin L. Hallen.  The Causes and Consequences of the Initial Network Positions of New Organizations: From Whom Do Entrepreneurs Receive Investments? , 2008 .

[17]  L. Ryan,et al.  Family Strategies and Transnational Migration: Recent Polish Migrants in London , 2009 .

[18]  Balagopal Vissa,et al.  A Matching Theory of Entrepreneurs ’ Tie Formation Intentions and Initiation of Economic Exchange , 2010 .

[19]  D. Hall,et al.  Employability during unemployment: Adaptability, career identity and human and social capital , 2007 .

[20]  Matthew Semadeni,et al.  Fight or Flight: Managing Stigma in Executive Careers , 2002 .

[21]  Kurt Ulm,et al.  Applying competing risks regression models: an overview , 2013, Lifetime data analysis.

[22]  Scott Shane,et al.  Network Ties, Reputation, and the Financing of New Ventures , 2002, Manag. Sci..

[23]  J. Marcel,et al.  Cleaning house or jumping ship? Understanding board upheaval following financial fraud , 2014 .

[24]  William A. Gamson,et al.  Scapegoating in Baseball , 1964, American Journal of Sociology.

[25]  Y. Zhang.  Information asymmetry and the dismissal of newly appointed CEOs: an empirical investigation , 2008 .

[26]  Mason A. Carpenter,et al.  Social Network Research in Organizational Contexts , 2012 .

[27]  Yuri Mishina,et al.  A General Theory of Organizational Stigma , 2009, Organ. Sci..

[28]  Michael A. Hitt,et al.  Creating Value in the Face of Declining Performance: Firm Strategies and Organizational Recovery , 2007 .

[29]  Albert A. Cannella,et al.  Power Dynamics Within Top Management and Their Impacts on CEO Dismissal Followed by Inside Succession , 2002 .

[30]  Sanford B. Ehrlich,et al.  The Romance of Leadership and The Evaluation of Organizational Performance , 1987 .

[31]  Margarethe Wiersema,et al.  Holes at the top. Why CEO firings backfire. , 2002, Harvard business review.

[32]  Timothy G. Pollock,et al.  Time for Me to Fly: Predicting Director Exit at Large Firms , 2012 .

[33]  Margarethe Wiersema,et al.  CEO Dismissal: The Role of Investment Analysts , 2011 .

[34]  Zi-Lin He,et al.  Thinking about U: Theorizing and testing U‐ and inverted U‐shaped relationships in strategy research , 2016 .

[35]  Chang-Hyun Jin.  Social Capital Index , 2015 .

[36]  Haiyang Li,et al.  The role of managers' political networking and functional experience in new venture performance: Evidence from China's transition economy , 2007 .

[37]  Richard A. D'Aveni.  Top Managerial Prestige and Organizational Bankruptcy , 1990 .

[38]  Michelle Rogan.  Executive Departures Without Client Losses: The Role of Multiplex Ties in Exchange Partner Retention , 2014 .

[39]  Philippa Pattison,et al.  Manufacturing Relations: An Empirical Study of the Organization of Production Across Multiple Networks , 2006, Organ. Sci..

[40]  D. Hambrick,et al.  The Stigmatization and Devaluation of Elites Associated with Corporate Failures: A Process Model , 2008 .

[41]  James D. Westphal,et al.  Cooperative or Controlling? The Effects of CEO-Board Relations and the Content of Interlocks on the Formation of Joint Ventures , 1999 .

[42]  Mike W. Peng,et al.  Managerial Ties and Firm Performance in a Transition Economy: The Nature of a Micro-Macro Link , 2000 .

[43]  Robert Gray,et al.  A Proportional Hazards Model for the Subdistribution of a Competing Risk , 1999 .

[44]  Dean A. Shepherd,et al.  A Hubris Theory of Entrepreneurship , 2006, Manag. Sci..

[45]  Zhanming Jin,et al.  How members' managerial social capital influences their opportunism in interfirm relationships: Empirical investigation of Chinese‐foreign joint venture , 2010 .

[46]  M. Hitt,et al.  Partner Selection in Emerging and Developed Market Contexts: Resource-Based and Organizational Learning Perspectives , 2000 .

[47]  Matthew Semadeni,et al.  Strategy Research and Panel Data: Evidence and Implications , 2006 .

[48]  Mark S. Granovetter.  The Strength of Weak Ties , 1973, American Journal of Sociology.

[49]  D. Hambrick,et al.  TOP EXECUTIVE COMMITMENT TO THE STATUS QUO: SOME TESTS OF ITS DETERMINANTS , 1993 .

[50]  Guohua Jiang,et al.  Should Earnings Thresholds Be Used as Delisting Criteria in Stock Market , 2008 .

[51]  Theresa S. Cho,et al.  Exploring Involuntary Executive Turnover Through A Managerial Discretion Framework , 2005 .

[52]  W. Mitchell,et al.  Structural homophily or social asymmetry? The formation of alliances by poorly embedded firms , 2009 .

[53]  Constance E. Helfat,et al.  Managerial Resources and Rents , 1991 .

[54]  D. Watts.  Networks, Dynamics, and the Small‐World Phenomenon1 , 1999, American Journal of Sociology.

[55]  C. O'Reilly,et al.  Social Capital at the Top: Effects of Social Similarity and Status on CEO Compensation , 1996 .

[56]  R. Gray.  A Class of $K$-Sample Tests for Comparing the Cumulative Incidence of a Competing Risk , 1988 .

[57]  B. Nooteboom,et al.  Effects of trust and governance on relational risk. , 1997 .

[58]  Tom A. B. Snijders,et al.  Introduction to stochastic actor-based models for network dynamics , 2010, Soc. Networks.

[59]  Edward J. Zajac,et al.  Interlocking Directorates as An Interorganizational Strategy: A Test of Critical Assumptions , 1988 .

[60]  Maria L. Kraimer,et al.  A Social Capital Theory of Career Success , 2001 .

[61]  R. Zajonc.  Feeling and thinking : Preferences need no inferences , 1980 .

[62]  A. Zaheer,et al.  Does Trust Matter? Exploring the Effectsof Interorganizational and Interpersonaltrust on Performance , 1998 .

[63]  Christopher F. Baum,et al.  Evaluating one-way and two-way cluster-robust covariance matrix estimates , 2010 .

[64]  Ranjay Gulati,et al.  Relational Pluralism Within and Between Organizations , 2014 .

[65]  Brian Uzzi,et al.  Embeddedness and Price Formation in the Corporate Law Market , 2004 .

[66]  Albert A. Cannella,et al.  Toward a Social Capital Theory of Director Selection , 2008 .

[67]  J. Heckman.  Sample selection bias as a specification error , 1979 .

[68]  S. Sengupta,et al.  Impact of Strategic Alliances on Firm Valuation , 1998 .

[69]  P. Bonacich.  Power and Centrality: A Family of Measures , 1987, American Journal of Sociology.

[70]  G. Davis,et al.  Corporate Elite Networks and Governance Changes in the 1980s , 1997, American Journal of Sociology.

[71]  B. Uzzi,et al.  Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness , 1997 .

[72]  Patrick A. Saparito,et al.  Social Capital, Cognition, and Entrepreneurial Opportunities: A Theoretical Framework , 2006 .

[73]  Ligang Zhou,et al.  A comparison of dynamic hazard models and static models for predicting the special treatment of stocks in China with comprehensive variables , 2015, J. Oper. Res. Soc..

[74]  L. Perry.  Key human resource strategies in an organization downturn , 1984 .

[75]  Michael Patrick Allen,et al.  Power, Performance, and Succession in the Large Corporation , 1982 .

[76]  Xueguang Zhou,et al.  Late Adoption of the Multidivisional Form by Large U.S. Corporations: Institutional, Political, and Economic Accounts , 1993 .

[77]  E P HOLLANDER,et al.  Conformity, status, and idiosyncrasy credit. , 1958, Psychological review.

[78]  Albert A. Cannella,et al.  Inward−outward guanxi contagion and employees’ responses to managerial guanxi practices , 2013, Journal of Management & Organization.

[79]  Bing-Sheng Teng,et al.  Alliance Constellations: A Social Exchange Perspective , 2002 .

[80]  Gregory G. Dess,et al.  Voluntary Turnover, Social Capital, and Organizational Performance , 2001 .

[81]  Jun-Koo Kang,et al.  Firm performance, corporate governance, and top executive turnover in Japan , 1995 .

[82]  Harbir Singh.  CHALLENGES IN RESEARCHING CORPORATE RESTRUCTURING , 1993 .

[83]  Mark S. Granovetter.  Economic Action and Social Structure: The Problem of Embeddedness , 1985, American Journal of Sociology.

[84]  Mason A. Carpenter,et al.  Bundling Human Capital with Organizational Context: The Impact of International Assignment Experience on Multinational Firm Performance and CEO Pay , 2001 .