Why are firms rigid? A general framework and empirical tests

Rui J.P. de Figueiredo, Evan Rawley, Christopher I. Rider

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

We present a general framework for understanding why firms are slow to make major strategic changes in a wide range of empirical 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 before 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.

Original languageEnglish (US)
Pages (from-to)1502-1519
Number of pages18
JournalOrganization Science
Volume26
Issue number5
DOIs
StatePublished - 2015

Bibliographical note

Funding Information:
The authors thank Nick Argyres, Matthew Bidwell, Olivier Chatain, Emilie Feldman, Rahul Kapoor, Felipe Monteiro, Jesper S?rensen, three anonymous reviewers, and seminar participants at Seoul National University, as well as participants at the Atlanta Competitive Advantage Conference, the 13th Meeting of Organizational Ecologists, and the NYU Economics of Strategy Conference for comments on earlier versions of this paper. The authors thank the Garwood Center at the Haas School of Business for generous support.

Keywords

  • Diversification
  • Firm scope
  • Organizational capabilities
  • Organizational change
  • Organizational economics
  • Strategy and firm performance

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