Why are Firms Rigid? A General Framework and Empirical Tests.

38 Pages Posted: 29 May 2013 Last revised: 24 Nov 2019

See all articles by Rui J.P. de Figueiredo

Rui J.P. de Figueiredo

University of California, Berkeley - Business & Public Policy Group

Evan Rawley

University of Minnesota - Twin Cities - Carlson School of Management

Christopher I. Rider

University of Michigan, Ross School of Business

Date Written: June 5, 2015

Abstract

We present a general framework for understanding why firms are slow to make major strategic changes in a wide-range of organizational settings. We then apply this framework to investigate, more specifically, the relationship between firm age and scope in hedge funds. Our empirical analyses demonstrate that younger hedge funds outperform older hedge funds both prior to and after the launch of a new fund. Based on our framework, these results suggest that age-based rigidity in hedge funds is more attributable to internal political frictions that influence project selection than to constraints associated with exchange partners or implementation costs. We conclude by discussing how our framework can be used to identify the dominant source of rigidity in other contexts.

Keywords: strategic change, rigidity, organizational age, inertia, diversification, hedge funds

JEL Classification: D21, D23, D70, L21

Suggested Citation

de Figueiredo, Rui José P. and Rawley, Evan and Rider, Christopher I., Why are Firms Rigid? A General Framework and Empirical Tests. (June 5, 2015). Columbia Business School Research Paper No. 13-41. Available at SSRN: https://ssrn.com/abstract=2271655 or http://dx.doi.org/10.2139/ssrn.2271655

Rui José P. De Figueiredo

University of California, Berkeley - Business & Public Policy Group ( email )

545 Student Services Building
Berkeley, CA 94720
United States
510-642-6452 (Phone)
510-643-1412 (Fax)

Evan Rawley (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Christopher I. Rider

University of Michigan, Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

HOME PAGE: http://https://michiganross.umich.edu/faculty-research/faculty/christopher-rider

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