Research and teaching

Michelle Rogan and Olav Sorenson

Numerous studies have found that mergers and acquisitions destroy value. What might account for these poor decisions? Using comprehensive data from the advertising industry, we found that the probability of being acquired rose but that the performance of merged entities declined – both losing clients and selling less to the clients retained – with the number of common clients (indirect ties) connecting the target to the acquirer. Two potential mechanisms could account for this pattern of results. Either managers hold (positively) biased beliefs about those connected to them through common clients, or they restrict their searches for potential acquisition partners to those they already know, despite the disadvantages of doing so.

Administrative Science Quarterly, 59 (2014): 301-329

David M. Waguespack and Olav Sorenson

Categorization processes are generally treated as consistent mappings of the underlying characteristics that they group. Yet, in many cases, the identities of actors influence these processes. When identity matters, high status actors often obtain more favorable classifications. We examine these processes in the context of the Motion Picture Association of America’s parental guidance classifications of movies (G, PG, R, NC-17). We find that, conditional on a given level of content, films distributed by MPAA members, and those that involve more central producers and directors, receive more lenient classifications than those carried by independent distributors and involving more peripheral personnel. Conversely, and again conditional on content, films involving directors with a history of producing R rated features receive more restrictive ratings. We discuss the mechanisms that might account for these effects. Regardless of the mechanism, however, since ratings influence revenue and consequently profitability, the movie certification system in the United States places independent distributors and peripheral individuals at a disadvantage relative to their larger and more central rivals.

Organization Science, 22 (2011): 541-553

Ratings data and do files

Toby E. Stuart and Olav Sorenson

Much research suggests that social networks shape the emergence and development of nascent ventures. Scholars have argued that founders’ and firms’ networks influence innovation and the identification of entrepreneurial opportunities, as well as facilitate the mobilization of resources for growth and the harvesting of value from fledgling firms. It is not an exaggeration to claim that existing empirical findings point to the centrality of networks in every aspect of the entrepreneurial process. However, with exceptions so few they may be counted on one hand, this research untenably treats network structures as exogenous—in other words, as if entrepreneurs and enterprises do not pursue valuable connections. In this article, we review the literature on networks in entrepreneurial contexts, argue that it disproportionately focuses on the consequences of networks at the expense of research on their origins, and consider the implications for the literature of the fact that most entrepreneurs and young ventures are strategic in their formation of relations. We then articulate a research agenda composed of five areas of inquiry we consider critical to a better understanding of networks and entrepreneurship.

Strategic Entrepreneurship Journal, 1 (2007): 211-227

Olav Sorenson and David M. Waguespack

This study uses data on the U.S. film industry from 1982 to 2001 to analyze the effects on box office performance of prior relationships between film producers and distributors. In contrast to prior studies, which have appeared to find performance benefits to both buyers and sellers when exchange occurs embedded within existing social relations, we propose that the apparent mutual advantages of embedded exchange can also emerge from endogenous behavior that benefits one party at the expense of the other: actors offer better terms of trade and allocate more resources to transactions embedded within existing social relations, thereby contributing to the ostensible advantages of such exchange patterns. Findings show that not only do distributors exhibit a preference for carrying films involving key personnel with whom they had prior exchange relations, but also they tend to favor these films when allocating scarce resources (opening dates and promotion effort). After controlling for the effects of these decisions, films with deeper prior relations to the distributor perform worse at the box office. The results suggest that, rather than benefiting from repeated exchange, distributors overallocate scarce resources to these prior exchange partners, enacting a self-confirming dynamic.

Administrative Science Quarterly, 51 (2006), 560-589

Olav Sorenson, Susan McEvily, Charlotte Rongrong Ren, and Raja Roy

Although strategy research typically regards firm scope as a positional characteristic associated with performance differences, we propose that broad contemporary scope also provides insight into the routines that govern firm behavior. To attain broad scope, firms must repeatedly explore outside the boundaries of their current niche. Firms with broad niches therefore operate under a set of routines that repeatedly propel them into new market segments, expanding their niche. These niche expansions, however, involve risky organizational changes, behavior that disadvantages generalists relative to specialists, despite the positional value of broad scope. Empirical analyses of machine tool manufacturers and computer workstation manufacturers support this conjecture: (i) generalists introduce new products at a higher than optimal rate, thereby increasing their exit rates; and (ii) generalists also more frequently launch new models with novel features or targeted at new consumer segments rather than improving only incrementally on existing products, further accelerating their odds of failure. After adjusting for these behavioral differences, broad niche widths reduce exit rates, suggesting that they provide positional advantages. The paper discusses how this phenomenon may help to explain the diversification and multi-nationality discounts.

Strategic Management Journal, 27 (2006): 915-936

Link to workstation data at FIVE Project