The impact of managerial job security on corporate entrepreneurship: Evidence from corporate venture capital programs

• DOI: http://doi.org/10.1002/sej.1357
• Author: M. V. Shyam Kumar,Bill B. Francis,Joseph J. Cabral
• Date: 01 March 2021
• Published date: 01 March 2021

RESEARCH ARTICLE

The impact of managerial job security on

corporate entrepreneurship: Evidence from

corporate venture capital programs

Joseph J. Cabral

1

| Bill B. Francis

2

| M. V. Shyam Kumar

2

1

Stephenson Department of Entrepreneurship & Information Systems, Louisiana State University, Baton Rouge, Louisiana

2

Lally School of Management, Rensselaer Polytechnic Institute, Troy, New York

Correspondence

Joseph J. Cabral, E. J. Ourso College of

Business, Louisiana State University,

501 South Quad Drive, Baton Rouge, LA

70803.

Email: jcabral@lsu.edu

Abstract

Research Summary: We examine the role of managerial job

security in the adoption of innovative practices and struc-

tures. Utilizing state level antitakeover protections as an

exogenous shock, we find that when managers are afforded

greater job security through these protections they exhibit a

higher probability of initiating a Corporate Venture Capital

(CVC) program. Furthermore, the positive effect of job secu-

rity on CVC adoption is stronger when firms are research

intensive, and when there are slack financial resources. Our

results suggest that providing managers leeway to experi-

ment while ensuring job security is important for corporate

entrepreneurship and the willingness to experiment with

innovative strategies.

Managerial Summary: Entrepreneurial activity often

involves identifying opportunities that the rest of the mar-

ketplace overlooks. While this risk taking is celebrated as

part of entrepreneurial folklore, in pragmatic terms, for man-

agers of public organizations, it requires going against the

prevailing wisdom of important stakeholders. Since stake-

holders can hold considerable influence over top managers'

employment, managers may avoid innovation if they feel

experimentation and/or failure could cost them their jobs.

This study demonstrates that when top managers have

Received: 4 April 2019 Revised: 8 May 2020 Accepted: 18 May 2020 Published on: 8 September 2020

DOI: 10.1002/sej.1357

© 2020 Strategic Management Society

28 Strategic Entrepreneurship Journal. 2021;15:28–48.wileyonlinelibrary.com/journal/sej

more job security, they are more likely to experiment with

new organizational forms and structures by establishing

Corporate Venture Capital units. The study demonstrates

that job security not only impacts the amount of risk taken

within existing operations, but also the willingness to experi-

ment with novel ideas and activities.

KEYWORDS

corporate entrepreneurship, corporate venture capital, governance,

innovation, market for corporate control

1|INTRODUCTION

“Invention requires a long-term willingness to be misunderstood. You do something that you genuinely believe in, that you

have conviction about, but for a long period of time, well-meaning people may criticize that effort…if you really have con-

viction that they're not right, you need to have that long-term willingness to be misunderstood.”

- Amazon CEO Jeff Bezos at the Aspen Institute's 26th Annual Awards Dinner

The commitment to experiment and adopt innovations is often required to create and maintain a competitive

advantage, particularly in technology intensive industries. Accordingly, the long-term survival of many organizations

is tied to their ability to facilitate environments that enable novel forms of search and experimentation. Large public

companies, however, face a paradox when they pursue entrepreneurial activities (Aghion, van Reenen, & Zingales,

2013; Holmstrom, 1989). On the one hand, stakeholders benefit when these organizations take calculated risks and

proactively seek opportunities (Lumpkin & Dess, 1996; Morris, Kuratko, & Covin, 2010). On the other hand, man-

agers who employ novel practices often face skepticism or even punishment from the very same stakeholders should

their efforts to innovate be misunderstood or ultimately fail.

Within public firms, skepticism from external financial markets may be particularly acute for two reasons. First,

financial market participants not only assess the appropriateness of strategic decisions, but also hold considerable

influence over the selection and retention of top management. Accordingly, top managers that exhibit proactiveness

and risk-taking also face the prospects of job loss should their efforts be interpreted by the markets as misguided or

value destroying. Consistent with this argument, Manso (2011) highlights that managers acting as agents of share-

holders tend to avoid exploratory innovation when they perceive their employment security to be under threat. Sec-

ond, organizations pursuing novel strategies may also experience loss in market value and share price declines

(Benner, 2007), making it attractive for other organizations to acquire them before the fruits of their entrepreneurial

efforts manifest (Stein, 1988). While managers with successful innovations are often described ex post as pioneers

or visionaries, ex ante there is friction in assessing the effectiveness of their decision-making, which makes them vul-

nerable to takeover and loss of employment.

Against this background, in this paper, we investigate to what extent managers undertake entrepreneurship ini-

tiatives when they are afforded job security in the form of antitakeover protection. Although theoretically it is recog-

nized that employment security is vital for long-term innovation, the empirical evidence in this regard remains far

from settled. On the one hand, some studies provide evidence that job security induced by antitakeover provisions

enhances innovative activity (e.g., Chemmanur & Tian, 2018). On the other hand, consistent with the “quiet life”

hypothesis and the moral hazard view (Bertrand & Mullainathan, 2003); studies have also found that antitakeover

protection reduces the intensity and scope of innovative activities (e.g., Atanassov, 2013; Younge & Tong, 2018).

CABRAL ET AL.29