Choose to Fight or Choose to Flee? A Network Embeddedness Perspective of Executive Ship Jumping in Declining Firms

• DOI: http://doi.org/10.1002/smj.2637
• Date: 01 October 2017
• Published date: 01 October 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 2061–2079 (2017)

Published online EarlyView 24 February 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2637

Received 13 November 2014;Final revisionreceived 21 December 2016

Choose to Fight or Choose to Flee? A Network

Embeddedness Perspective of Executive Ship

Jumping in Declining Firms

Han Jiang,1,*Albert A. Cannella, Jr.2Jun Xia,3and Matthew Semadeni4

1Department of Management and Organizations, Eller College of Management, The

University of Arizona, Tucson, Arizona

2Department of Management, Mays School of Business, Texas A&M University,

College Station, Texas

3Department of Organizations, Strategy and International Management, Jindal

School of Management, University of Texas at Dallas, Richardson, Texas

4Department of Management, W. P. Carey School of Business, Arizona State

University, Tempe, Arizona

Research summary: Executives in declining rms may engage in ship-jumping behavior (i.e.,

voluntarily move to new employers before the failure occurs) to avoid the stigma of failure.

However,it is unclear how executives decide whether or not to jump ship. Building on a network

embeddedness perspective, we highlight how three network-based indicators (i.e., executive

social capital, the social capital of other peers in the declining rm, and the declining rm’s

alliance network) inuence the executive-level ship-jumping decision by shaping its benets and

opportunity costs. Using data from executives at failing rms in China, we nd support for our

hypothesized relationships. Our researchprovides important insight into the network mechanisms

driving the ship-jumping decision.

Managerial summary: Executives at failing rms have a choice: stay and attempt to rescue the

rm from failure or exit and avoid the stigma of the failure (i.e., jump ship). Yet, little is known

about what factors affect this choice. We propose that social capital plays an important rolein the

decision. Our evidence fromspecially treated (*ST) public rms in China nds that ship jumping is

lowest at low and high values of social capital, and highest at moderate levels of social capital (an

inverted U-shaped relationship). In addition, higher levels of peer social capital (in the declining

rm) as well as a well-established rm-level alliance network discourage the ship-jumping choice.

Copyright © 2017 John Wiley & Sons, Ltd.

Introduction

When a rm confronts a severe decline, its exec-

utives can be motivated to “jump ship,” dened

as voluntary exit from the declining rm and

accepting employment elsewhere (Marcel &

Cowen, 2014; Semadeni, Cannella, Fraser, & Lee,

Keywords: alliance networks; declining rms; executive

social capital; jumping ship; peer social capital

*Correspondence to: Han Jiang, Department of Manage-

ment and Organizations, Eller College of Management, The

University of Arizona, Tucson, AZ, 85721-0108. E-mail:

hjiang2@email.arizona.edu

Copyright © 2017 John Wiley & Sons, Ltd.

2008). As the major agents of their rms, execu-

tives are often perceived as personally associated

with and responsible for their rms’ negative out-

comes, including organizational failure (Carpenter,

Geletkanycz, & Sanders, 2004; Meindl & Ehrlich,

1987). Since the elevated failure risk of a declining

rm threatens its executives with stigmatization

(Pozner, 2008), a central benet of ship-jumping

behavior is to protect the executives from personal

stigmatization should the rm fail (Semadeni et al.,

2008).

However, an executive jumping ship from

a declining rm may also incur signicant

2062 H. Jiang et al.

opportunity costs. For example, despite its poor

performance, a declining rm may still possess

valuable resources (Singh, 1993). By exiting from

this rm, executives sacrice access to those

important, and possibly, irreplaceable resources

(Perry, 1984; Semadeni etal., 2008), especially if

the rm emerges from the decline. These benets

and opportunity costs of ship jumping together

present a dilemma for executives in declining

rms, leaving open the following question: How

do executives decide whether (or not) to jump ship

from a declining rm?

We resolve this dilemma drawing on a network

embeddedness perspective (Carpenter, Li, & Jiang,

2012). Network embeddedness refers to the fact

that actors are subject to the inuences of social

ties and networks they participate in (Granovetter,

1985, p. 482). These networks, which provide both

valuable resources and support to participants and

exert signicant constraints on their actions, largely

shape the participants’ decisions by altering the

potential benets and costs of their options (Burt,

1992; N. Lin, 2001). Particularly, it has been widely

noted that executives are embedded in multiple

networks with important stakeholders within and

beyond their rms (e.g., interlocked boards, peers in

their rms, personal contacts, inter-rm exchanges,

and so on, see Carpenter et al., 2012; Rogan, 2014).

Drawing on this insight, we posit that for executives

in declining rms, embeddedness in these networks

affects the ship-jumping decision by shaping the

potential costs and benets of doing so.

Following the above logic, we highlight the

implications of three key networks of executives

for their ship-jumping decision. The rst network

is executive social capital— dened as the web of

an executive’s personal ties with external stake-

holders.1High levels of social capital provide

more access to external employment opportunities,

and thus, facilitate ship-jumping behavior (Burt,

1992; Seibert, Kraimer, & Liden, 2001). How-

ever, high levels of social capital can also reduce

the motivation to jump ship by protecting execu-

tives from stigma generated by the crises in their

1Here, we dene executive social capital as connections with

outside stakeholders beyond their rms, that is, their outward net-

works (Carpenter et al., 2012). Although executives’ connections

with others in their rms can also be important components of

their social networks, these inward connections tend to affecttheir

decisions in distinctive ways (e.g., Jiang, Cannella, Gao, & Jiao,

2014). For that reason, we limit executivesocial capital to outward

networks and capture the effects of inward connections separately

(i.e., peer social capital).

rms (Wiesenfeld, Wurthmann,& Hambrick, 2008;

Zajonc, 1980). High levels of social capital also

enhance the executives’ ability to help their rms

emerge from the decline (Hayward, Shepard, &

Grifn, 2006), and increase the potential costs of

ship jumping due to network embeddedness effects

(Carpenter et al., 2012; Fevre, 2000). The reverse

holds for low levels of executive social capital.

We thus predict an inverted U-shaped relationship

between executive social capital and ship-jumping

behavior, such that executives with moderate lev-

els of social capital are the most likely to jump ship

from declining rms.

Moreover, executives are embedded in the

networks of inter-rm relationships established

through their rms’ operation, what we dene as

“rm-specic networks” (Carpenter et al., 2012).

By working closely with other peers in their rms,

executives are enmeshed in the personal contacts

of these peers. Similarly, executives represent their

rms in inter-rm networks, and thus, are connected

with their rms’ inter-rm contacts (Gulati & West-

phal, 1999; Zajac, 1988). We capture the effects

of these two rm-specic networks using two

constructs— peer social capital, which refers to the

social capital of other executives and directors in

the declining rm, and the rm’s alliance network,

which refers to the web of collaborative relation-

ships between the declining rm and its inter-rm

partners. We posit that the two rm-specic

networks will discourage ship-jumping behavior.

First, due to the focal executives’ embeddedness

in the two rm-specic networks, peer social

capital and rm alliance networks both benet and

constrain the focal executives, thus increasing the

opportunity costs of jumping ship. Moreover, both

peer social capital and alliance networks can help

declining rms emerge from the crisis (Daily &

Dalton, 1995), thus reducing the potential benet

of and perceived need to jump ship.

Our research seeks to make two major contri-

butions. First, poor rm performance is among the

most prevalent antecedents of executive exit (Kang

& Shivdasani, 1995; Shen & Cannella, 2002). How-

ever, with few exceptions (e.g., Semadeni et al.,

2008), prior studies have predominately empha-

sized involuntary executive turnover.In contrast, lit-

tle is known about voluntary exit, especially how

executives decide whether to stay or leave.As such,

we advance the strategic leadership literature by

highlighting the mechanisms behind ship-jumping

behavior.

Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2061–2079 (2017)

DOI: 10.1002/smj