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Behavioral agency and corporate entrepreneurship: CEO equity incentives & competitive behavior

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Abstract

Scholars have long studied drivers of entrepreneurial behavior among established firms. Yet little is known about how individual factors shape a firm’s choice to pursue entrepreneurship. We draw on behavioral agency theory to explore the role of equity incentives in driving corporate entrepreneurship. Our findings suggest CEOs avoid corporate entrepreneurial behaviors as their option wealth increases. However industry dynamics also prove to be an important contingency when predicting the effects of both restricted stock and stock options on the likelihood that the CEO engages in corporate entrepreneurship. Our findings provide a theoretical platform for predicting dimensions of entrepreneurial behavior and highlight effects of CEO equity ownership.

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Notes

  1. The agency problem arises due to separation of ownership (principal) and management (agent), the difficulty of observing management actions and the divergent goals of owners and managers.

  2. If the firm’s share price increases, CEOs will profit given they can buy the shares at the lower price and sell at the later (higher) market price, making a profit. If the share price declines in value after the stock options are granted, CEOs lose nothing as they merely choose not to exercise their option to buy at the higher exercise price.

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Authors and Affiliations

  1. Department of Management and Marketing, Sam Houston State University, Box 2056, Huntsville, TX, 77341-2056, USA

    Carla D. Jones

  2. School of Hospitality Management, Pennsylvania State University, University Park, PA, 16802, USA

    Phillip M. Jolly

  3. Management Department, University of Houston, 334 Melcher Hall, Houston, TX, 77204-6021, USA

    Connor J. Lubojacky

  4. Melbourne Business School, 200 Leicester Street, Carlton, VIC, 3053, Australia

    Geoffrey P. Martin

  5. Department of Management, W.P. Carey School of Business, Arizona State University, Tempe, AZ, 85287, USA

    Luis R. Gomez-Mejia

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Appendix

Appendix

Rules for Competitive Action Type Identification

Capacity action – Actions that increases or decreases the company’s ability to produce products or deliver a service. For example, opening new production facilities, closing facilities, investing in new business, etc.

Alliance action – Actions that involves forming strategic alliance or partnership with other firms.

Minor Product action – Actions that shift products or business lines; Actions that involve low levels of investment by the company, such as

• Product repositioning

• Product re-entry

• Changes in product features

Major Product action – Actions to introduce or launch new products or business lines; Actions that involve significant investment by the company, such as

• New product introduction

• New product launch

• New market entry

Merger and Acquisition action – Action that involves acquiring other firms or merging with another firm.

Restructuring action – Actions that involve changes in organizational structure. For example, combining business units, spinning off business units, reorganization, etc.

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Jones, C.D., Jolly, P.M., Lubojacky, C.J. et al. Behavioral agency and corporate entrepreneurship: CEO equity incentives & competitive behavior. Int Entrep Manag J 15, 1017–1039 (2019). https://doi.org/10.1007/s11365-019-00576-7

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