ORGANIZATIONAL POLITICAL IDEOLOGY AND FIRMS' MARKET AND NON-MARKET BEHAVIOR ...

141 Pages·2015·2.14 MB·English

by  Abhinav Gupta

The Pennsylvania State University
The Graduate School
The Mary Jean and Frank P. Smeal College of Business

ORGANIZATIONAL POLITICAL IDEOLOGY AND FIRMS’ MARKET AND
NON-MARKET BEHAVIOR

A Dissertation in
Business Administration
by
Abhinav Gupta

© 2015 Abhinav Gupta

Submitted in Partial Fulfillment
of the Requirements
for the Degree of

Doctor of Philosophy

August 2015
The dissertation of Abhinav Gupta was reviewed and approved* by the following:

Forrest Briscoe
Associate Professor of Management
Dissertation Advisor
Chair of Committee

Donald C. Hambrick
Evan Pugh Professor and Smeal Chaired Professor of Management

Srikanth Paruchuri
Associate Professor of Management

John D. McCarthy
Distinguished Professor of Sociology

Brent Ambrose
Smeal Professor of Real Estate
Director of PhD Program

*Signatures are on file in the Graduate School

! ii!
ABSTRACT
This dissertation examines the influence of organizational political ideology on firm’s
market and non-market behaviors. I investigate how politically liberal and conservative
firms differ in their responses to disruption, either in their external environment, or their
internal performance. In the first study, I address the question of how liberal and
conservative firms adopt different non-market responses to protest by activist
stakeholders. Given that liberal and conservative ideologies differ in their preference for
incorporating the interests of diverse stakeholders vs. pursuit of the singular goal of
shareholder value creation, I theorize that liberal firms may adopt more substantive
concession-based responses to activist protest, whereas conservative firms will adopt
more impression-management based responses. At the same time, I expect that activists
will anticipate differences in liberal and conservative firms’ proclivities and reflect them
in their selection of targets. In the second study, I aim to shed light on how liberal and
conservative firms may adopt different preferences regarding divestitures of business
units. I propose that due to inherent differences in prevailing conceptions of the firm,
liberal firms will be less likely to engage in business unit divestitures during periods of
poor firm performance. Further, I theorize that, due to underlying values that engender
greater concern for the divested unit and its employees, liberal firms will be more likely
to sell the unit to an industry-outsider firm, and less likely to sell the unit to a private
equity firm, relative to conservative firms. Lastly, I anticipate that liberal firms’ greater
concern for social and human costs involved in divestiture decision-making will lead
them to have higher post-divestiture firm performance. The findings broadly provide
support for my expectations, and advance an “ideological theory of the firm.”
! iii!
TABLE OF CONTENTS
List of Figures………………………………………………………...………………….. vi

List of Tables…………………………………………………………………………..... vii

Acknowledgements……………………………………………………………………...viii

Chapter 1 – INTRODUCTION…………………………………………………………… 1
1.1. Theoretical Background……………………………………………………… 2
1.2. Organizational Ideology on Political Liberalism-Conservatism Axis……….. 5
1.3. Mechanisms…………………………………………………………………...8
1.4. Research Questions…………………………………………………………..10
1.5. Dissertation Overview……………………………………………………….10
Chapter 2 – ORGANIZATIONAL POLITICAL IDEOLOGY AND CORPORATE
RESPONSES TO ACTIVIST PROTEST………………………………………………. 13

2.1. Background on Organizational responses to Activism……………………... 18

2.2. Theory and Hypothesis Development………………………………………. 20

2.2.1. Organizational Ideology and Concessions to Social Activists…….20
2.2.2. Organizational Ideology and Deployment of Impression-
Management Tactics……………………………………………… 24
2.2.2.1. Pro-social Claims…………………………………………24
2.2.2.1. Corporate Social Responsibility…………………………. 25
2.2.3. The Moderating Effects of Stakeholder Type – Primary vs.
Secondary………………………………………………………… 27
2.2.4. Organizational Ideology as a Determinant of Activist Selection of
Targets……………………………………………………………. 30

2.3. Methodology………………………………………………………………... 31

2.3.1. Sample…………………………………………………………….. 31
2.3.2. Measurement of Organizational Ideology…………………………32
2.3.3. Dependent Variables……………………………………………… 34
2.3.4. Independent and Moderator Variable……………………………...36
2.3.5. Control Variables…………………………………………………. 36
2.3.6. Estimation Methods………………………………………………. 38

2.4. Results………………………………………………………………………. 40

2.5. Discussion…………………………………………………………………... 47

! iv!
2.5.1. Implications and Future Research………………………………… 52

Chapter 3 – ORGANIZATIONAL POLITICAL IDEOLOGY AND BUSINESS UNIT
DIVESTITURES………………………………………………………………………... 54

3.1. Firm as an Internal Market vs. a Cooperative social entity………………… 59

3.2. Theory and Hypothesis Development………………………………………. 62

3.2.1. Organizational Ideology And Business Unit Divestitures In
Response to Poor Firm Performance……………………………... 64
3.2.2. The Moderating Effect of Ownership Dispersion………………… 67
3.2.3. The Moderating Effect of Relatedness in firm’s portfolio. 68
3.2.4. Organizational Ideology and Selection of Buyers for Divested
Business Units……………………………………………………. 69
3.2.5. Organizational Ideology and Post-divestiture Firm Performance…72

3.3. Methodology………………………………………………………………... 73

3.3.1. Sample…………………………………………………………….. 73
3.3.2. Dependent Variables……………………………………………… 74
3.3.3. Independent and Moderator Variables……………………………. 75
3.3.4. Control Variables…………………………………………………. 76
3.3.5. Estimation Methods………………………………………………. 77

3.4. Results………………………………………………………………………. 78

3.5. Discussion…………………………………………………………………... 82

3.5.1. Implications and Future Research………………………………… 85

Chapter 4 – DISCUSSION AND CONCLUSION……………………………………… 88

4.1. Broad Overview of Findings………………………………………………... 88
4.2. Future Research Direction…………………………………………………...90
4.3. Conclusion…………………………………………………………………...94

References 95

Appendix A. Tables……………………………………………….…………………… 109
Appendix B. Figures…………………………………………………………………… 119
Appendix C. Examples of Articles Coded as Concessions…………………………….. 129
Appendix D. Examples of Articles Coded as Pro-social Claims………………………. 130
Appendix E. Frequency of Different Types of Stakeholders..…………………………. 131

! v!
LIST OF FIGURES
Figure 1: Number of Activist Protests Experienced by Firms that were protested at
least once……………………………...……………………………........... 119
Figure 2: Number of Protests Per Year……………………………...………………. 119
Figure 3: Organizational Liberalism Index……………………………...................... 120
Figure 4: CEO Liberalism Index……………………………...................................... 120
Figure 5: The Effect of Organizational Liberalism on Firms’ likelihood of being
targeted by activists……………………………...………………………... 121
Figure 6: The Effect of Organizational Liberalism on Firms’ Deployment of Prosocial
Claims……………………………...……………………………................ 122
Figure 7: The Moderating Effect of Secondary Stakeholder Protest on the association
between Organizational Liberalism and Corporate Concessions…………. 123
Figure 8: The Effect of Primary and Secondary Stakeholder Protest on Liberal and
Conservative Firms’ CSR based responses to activism…………………... 124
Figure 9: Number of Divestitures for firms that divested at least once……………... 125
Figure 10: Number of Divestitures Per Year during the study window……………… 125
Figure 11: Number of Divestitures Across Industrial Sectors………………………... 126
Figure 12: The Moderating Effect of Organizational Liberalism on the Relationship
between Underperformance and Business Unit Divestiture…………...... 127
Figure 13: The Moderating Effect of Organizational Liberalism on Underperformance–
Divestiture relationship – under conditions of Low and High Relatedness in
Firm’s Portfolio……………………………...……………………………. 128

! vi!
LIST OF TABLES
Table 1: Correlations and Descriptive Statistics for Activist Protest Analyses (protest-
event level) ……………………………...……………………………....... 109
Table 2: Correlations and Descriptive Statistics for Activist Protest Analyses (firm-
year level) ……………………………...……………………………......... 116
Table 3: Probit Models Predicting Likelihood of Protest Against Fortune 500
Corporations……………………………...……………………………...... 111
Table 4: Probit Models Predicting Corporate Concessions to Activist Demands….. 112
Table 5: Poisson Models Predicting Corporate Deployment of Prosocial Claims…. 113
Table 6: OLS Models Predicting Changes in CSR Profile…………………………. 114
Table 7: Correlations and Descriptive Statistics for Divestiture Analysis (firm-year
level) ……………………………...……………………………................. 115
Table 8: Correlations and Descriptive Statistics for Divestiture Analysis (Completed
Divestiture Deals) ……………………………...…………………………. 115
Table 9: Probit Models Predicting Likelihood of Business Unit Divestitures……... 116
Table 10: Probit Models Predicting Choice of Types of Buyer for Completed
Divestiture Deals……………………………...…………………………... 117
Table 11: OLS Models Predicting Post-Divestiture Performance……………………. 118

! vii!
ACKNOWLEDGEMENTS
I owe the successful completion of my doctoral degree to many people who have directly and
indirectly contributed to making it possible. Here, I would like to thank those who have played
the most central roles.
First and foremost, I would like to thank Forrest Briscoe, my advisor, and friend, whose
contribution to my doctoral education is beyond measure. Forrest is a brilliant scholar, a very
patient and caring human being, and – as I have come to know – an outstanding mentor. Forrest,
thank you for granting me the unique privilege of being your student.
A big thank you to Don Hambrick. I feel very fortunate to have benefitted from Don’s
tremendous experience, wisdom, and warmth. His optimism, an ability to sift good ideas from the
mountain of chaff, and work ethic are unmatched and make him a great role model for all
academics.
I feel a deep sense of gratitude to many other professors at Penn State, who have helped
me navigate through my Ph.D. journey. Barbara Gray, thank you for admitting me to the
wonderful M&O community, and for your fascinating qualitative research methods class. Linda
Trevino, thank you for always being highly developmental and kind to me. Srikanth, Vilmos,
Lance, Jon, and Stephen, thank you for always being available, and offering your thoughtful
advice on any and all matters. John McCarthy, thank you for admitting me to your wonderful
community of social movement scholars.
I am indebted toward several other members of M&O community who have made this
journey easy and enjoyable. Shubha Patvardhan, thank you for being the source of great wisdom,
love and care. Without you, my Ph.D. journey would have been so much more difficult, and so
much less enjoyable. Kisha and Sungwon, thank you for being my cohort-mates and friends.
Sharing dilemmas, anxieties and laughs with you through these years has made this challenging
process so much easier and so much fun. I thank Abhijith Acharya, MK Chin, and Chad Murphy
for giving useful advice, hope, and confidence at every stage in the Ph.D. program. My deepest
! viii!
gratitude to my dear friend and office-mate, Thinley Tharchen, who super-generously welcomed
me to stay at his home during the last two years of the program. My sincere thanks to all the staff
members, most notably – Holly Packard, Tena Ishler, and Nicole Force – for frequently bailing
me out on many an administrative front. I will miss you all.
I also owe my educational success to my family and friends, who have enabled me to
pursue my dreams and ambitions by consistently providing love and support. Here, I would like
to remember my late grandparents, Taravali and C.B.L. Gupta, who loved me unconditionally and
instilled in me the values that make my life meaningful each day. I thank my parents, Kapila and
Abhay Kumar Gupta, who have always placed my happiness before their own, and constantly
worked toward creating conditions for my success. I am grateful to have Anubhav Gupta as my
brother, whose presence in my life has given tremendous happiness, joy, and comfort. I feel
blessed to have been born in a family such as mine, and wouldn’t trade it for anything. Among
my extended family, I am very thankful to Preeti Sayeed, my mother-in-law, who has given me
immense love and support during the last eight years, and to my aunts and uncles, Jayashree,
Jagat, Kristine, and Ajaya Kumar Gupta, who have not only provided encouragement and help
during my higher education, but have served as great role models throughout my life. I am
grateful to my dearest friends, Rohan Kumar, Shankey Bansal, and Mohammad Raza, who have
risen to help me with my research on many occasions. I thank Vishal Gupta and Anup Singh, who
crucially helped me when I was applying for Ph.D. programs.
Above all, I am so thankful to Misha Mariam, my life companion. Her love,
encouragement, sacrifice, and sheer presence in my life have not only made the pursuit of a
doctoral degree possible, but worthwhile. I dedicate this Ph.D. to her.

! ix!
Chapter 1
INTRODUCTION
Organizations are often known to have deeply embedded ideologies or “coherent sets of
beliefs that bind people together and explain their worlds” (Beyer, 1981: 166). Focusing
on one notably salient dimension of ideology, political liberalism vs. conservatism, I
argue that some companies are clearly more liberal or conservative than others.
Transcending the economic interests of the organization and personal values of its
leaders, firms’ ideological orientations may give rise to a wide variety of organizational
decisions. Using a novel measurement of organizational political ideology (which I will
also refer to as organizational ideology) based on political donations by the
organizational members, this dissertation aims to study the effects of ideology on two
strategic decisions that are not only highly consequential for the organizations, but also
important for the larger society that is increasingly affected by organizational actions.
The first essay examines how organizational ideology influences a key non-
market behavior of firms - how they respond to the activist protest. Drawing from prior
research documenting that ideology guides preferences about shared vs. personal
responsibility, I anticipate that ideology will affect whether a firm responds to activist
protest with substantive changes in its practices and behavior or with tactical responses
geared toward impression management. I further posit that activists will pay attention to
these variations in organizational ideologies and target certain companies more frequently
than others. The second essay investigates the ideological underpinnings of a
fundamentally strategic market behavior - business unit divestitures. Building on prior
! 1!