A Structural Approach to Handling Endogeneity in Strategic Management: The Case of RBV

European Management Review. doi: 10.1111/emre.12023

Posted: 18 Feb 2014

See all articles by Anup Nandialath

Anup Nandialath

University of Wisconsin - La Crosse - Department of Management

Jeffrey P. Dotson

Brigham Young University

Rodolphe Durand

HEC Paris - Strategy & Business Policy

Date Written: February 17, 2014

Abstract

In this paper we posit that the lack of consensus about empirical tests of resource based view (RBV) could be the result of endogenous resource picking on the part of firms. If resources are endogenously selected, regression based methods that examine their connection to firm performance will be mis-estimated. We show that traditional remedies for endogeneity do not resolve this problem when returns to resources are heterogeneous (as theorized under RBV) and when managers act with at least partial knowledge of the expected, idiosyncratic return (as theorized under the strategic factor market hypotheses). As such, we develop a Bayesian approach that solves this endogeneity problem by directly incorporating resource picking into the modeling framework. We illustrate the validity of our approach through the use of a comprehensive simulation study and show that our proposed approach outperforms traditional linear models (including traditional cures of endogeneity and unobserved heterogeneity) under a variety of conditions. Our findings suggest that: (1) research in strategy requires a more careful and deeper understanding of potential sources of endogeneity and (2) the use of Bayesian methods in management can help develop more theoretically motivated empirical approaches to hypothesis testing.

Keywords: resource based view; Bayesian modeling; endogeneity; structural modeling; competitive strategy

Suggested Citation

Nandialath, Anup and Dotson, Jeffrey P. and Durand, Rodolphe, A Structural Approach to Handling Endogeneity in Strategic Management: The Case of RBV (February 17, 2014). European Management Review. doi: 10.1111/emre.12023, Available at SSRN: https://ssrn.com/abstract=2397137

Anup Nandialath (Contact Author)

University of Wisconsin - La Crosse - Department of Management ( email )

1725 State St
La Crosse, WI 54601
United States

Jeffrey P. Dotson

Brigham Young University ( email )

United States
8014221659 (Phone)

Rodolphe Durand

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

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