Managerial-induced Uncertainty and Firm Performance: a Transaction Cost Approach

Nobuiuki Ito (Ibmec São Paulo)

Abstract : This paper investigates the influence of managerial-induced uncertainty on firm performance through a transaction costs economizing lens. I define managerial-induced uncertainty as frequent and hard to predict changes in the interaction rules between a seller and buyer that are generated by a trading party managerial action. In the presence of managerial-induced uncertainty, the costs of transactions are higher, impairing the economic activity, and resulting in lower performance levels. Using a dataset of stadium attendance and revenues in matches of the major soccer championship in Brazil, the empirical results point to negative effect of manager’s deliberate and intense changes in price and place on attendance and revenues. The findings contribute to advancements in Transaction Costs Economics (TCE) literature, as well as the to the link between TCE and management literatures.

Gradual Versus Abrupt Reorganizations

Anton Kolotilin (UNSW Sydney)
Hongyi Li (UNSW Sydney)

Abstract : Should organizations reorganize gradually or abruptly? Why do some software applications periodically undergo major, disruptive overhauls? We model how to adapt the design of complicated systems in response to continuous pressure to change. The key premise is that design interdependencies may impede adaptation: adjustment of maladapted design elements may cause painful dislocations elsewhere in the system. We show that for sufficiently complicated systems, optimal adaptation may involve abrupt reorganizations, where (in periodic episodes) the designer allows maladapted elements to accumulate up to a critical mass before deleting them altogether. Such abrupt reorganizations are associated with sudden reductions in functionality, technical debt, and overall performance.

Decentralization and Innovation of Hungarian Firms

Irina Levina (Higher School of Economics)

Abstract : In this paper we study the interrelation between decentralization, involvement in innovation and success of innovation activity of firms that operate in an environment with weak institutions. We argue that decentralization has a significant potential to enhance innovation at firms through promoting more efficient use of information, enhancing motivation of employees, generating more pro-creative work environment. We suggest that the value that decentralization can bring to firms’ innovation potential can be so important, that decentralized firms can be more innovative and more successful in innovation activity even in an environment with weak institutions. We test our hypothesis empirically using data on firms from Hungary. Our empirical results demonstrate that decentralized Hungarian firms are more likely to innovate. Moreover, decentralized Hungarian firms are more successful in innovation in a sense that they are more likely to bring to the market innovative products that are new not only to the firm, but also to the market. The gap in involvement in innovation and success of innovation activity between the decentralized and centralized Hungarian firms is very significant. Our results contribute to better understanding of potential of decentralization of firms even in an environment with weak institutions.