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Mazzelli, A, Nason, R, Foley, A. "Stairway to Tax Haven: Family Ownership and Deactivation Of Offshore Companies in Response to Regulatory Pressures
Revise & Resubmit (SMJ)

This article sheds light on how family ownership impacts the effectiveness of public policy efforts to reduce the liminal practice of owning and operating offshore companies. An analysis of the deactivation rates of offshore companies in the data leak of the Panama Papers between 1977 and 2015 shows that bilateral tax agreements aimed at increasing transparency were ineffective at curtailing offshore activity amongst companies whose shareholders included members of the same family. These findings reveal important differences among elite owners of capital and suggest that, in order to design effective policy instruments against economic inequality, policymakers should pay particular attention to ownership structures and the presence of kinship ties among capital owners.

Foley, A., Sine, W., Coles, R. - "The Family that Builds the Iron Cage Together, Stays Together… or Does It? An Intervention Assessing the Impact of Formal Structure for Family Ventures in Peru"
Under Review

Prior research has highlighted that firm formalization generally improves the performance of new ventures through the purging of particularism – or, the bending of rules, standards, and criteria to accommodate personal relationships and motives.  However, few empirical studies have considered how the involvement of an entrepreneur’s family in their ventures influences these dynamics.  We build on this work by integrating the literatures on firm formalization and family business.  Specifically, we highlight that whether purging particularism improves the performance of young firms will be contingent on the extent to which the firms maintain clear boundaries between their business and family systems. In contrast with prior work, we theorize that purging particularism within young firms which do not maintain clear boundaries between these systems will result in decreased performance.  This argument builds on the view that particularism within family firms is often a means by which family members leverage unique, family-centered assets such as altruism and an intergenerational commitment to the business. Interfering with this process should thus reduce performance.  Results from a randomized controlled trial (RCT) of 1,401 new ventures in Peru support our hypotheses.  Implications for the formal structure of family-controlled ventures are discussed.

Working Papers

Indirect ties to competition through a powerful intermediary may expose young firms to resource misappropriation.  Prior work has demonstrated that certain attributes of the relationship between a young firm and an intermediary – such as the amount of physical distance or the level of mutual commitment between them – may attenuate these risks and that young firms often seek to further protect themselves via an array of strategic defense mechanisms.  I focus here on exchange relations among powerful intermediaries and how these relations can impact the success and failure of the young firms to which they are connected.  In a longitudinal study of venture capital deals in the biotechnology sector, I find that venture capitalists investing in many competing firms in this industry face incentives to redirect information and resources away from firms in their portfolios with weaker financial fundamentals but that they will refrain from doing so when these firms are also in the portfolios of other venture capitalists to whom they are socially indebted via norms of reciprocity.  I thus offer the insight that exchange relations between powerful intermediaries play a key role in determining whether a given network position represents a strategic vulnerability for young firms.

In this paper, we systematically integrate the literatures on status and structural holes to develop a theoretical model of tertius iungens (TI) brokerage in creative projects. Our model contributes to the literature on structural holes in creative projects in four ways.  First, it calls attention to the fact that the TI model, with its focus on coordinating diverse alters, explicitly raises issues of status differentiation in ways that other models of brokerage - such as the Tertius Gaudens (TG) - do not. Second, it explicitly accounts for the fact that TI brokerage in creative projects is not simply an event, but is rather a multi-staged process.  Third, our model accounts for and explains the risks associated with brokerage strategies at each phase of the brokerage process; these risks stem from the uncertainty associated with convening diverse actors of different skill and rank together from across a structural hole.  Fourth, we also explain how differences in status among a broker and their alters exacerbate or mitigate these risks.  In so doing, we draw greater attention to the role that alters - and not just the broker - play in the dynamics of brokerage in creative projects.

The prevailing view in the management literature is that income inequality fosters entrepreneurship by providing both incentives and resources for individuals who engage in risk-taking and innovative activities. [MOU1] tHowever, we contend that this view overlooks the potential negative effects of high levels of income inequality on entrepreneurship. We develop and test a curvilinear theory of income inequality and entrepreneurship that posits that the relationship between inequality and entrepreneurship shifts from positive to negative as inequality increases beyond a certain threshold. We further propose that this nonlinear effect is mediated by social capital, which is undermined by excessive inequality. Social capital enables entrepreneurship by reducing transaction costs. We examine our theory empirically by looking at data on entrepreneurial activity across all Mexican municipalities over a 12-year period (2000-2011). Our results support our curvilinear hypothesis and our mediation mechanism, and thus advance the understanding of income inequality, social capital, and entrepreneurship.

Business ecosystems have been advanced as an analytical lens for studying multilateral arrangements of firms that span industries and in which the boundaries between competition and collaboration are unclear. A key construct in the ecosystem literature is the complementor. These are firms that, while not formally connected to a focal firm, provide services that are necessary for the focal firm’s value to be realized by consumers. While the literature has emphasized the tensions faced by a focal firm as it attempts to align the efforts of its complementors to its value proposition, however, these studies have tended to take a static view of this phenomenon: they haven’t considered how a focal firm’s past decisions of which complementor firms to engage impact their ability to engage with successive complementors in the future. Moreover, the literature on ecosystems has viewed complementors as fungible. As a result, we still lack an understanding of how a focal firm’s choices of complementors over time impact the evolution of an ecosystem. This paper contributes to the ecosystems literature by building theory that foregrounds the role of complementors in the development of business ecosystems and by responding to calls for an inter-temporal perspective on ecosystem evolution.

Research in-progress

High-status ties are often referred to as “interorganizational endorsements” for young ventures.  Prior work has found, for instance, that such ties can help young firms overcome the “liability of newness” by granting them legitimacy and higher perceived status in the eyes of potential resource providers; this legitimacy, in turn, should increase their survival rates.  However, much of this prior work has tended to assume that the new venture would continue to pursue the strategic direction it undertook at the time the high-status tie was formed.  In this paper, we suggest that high-status ties may have a detrimental effect on young ventures by restricting their propensity to “pivot” and pursue new opportunities, thereby reducing their survival rates.  These effects will be strongest in nascent or turbulent industries in which uncertainty – and hence a need to experiment - is highest.  These relationships are also mediated both by the feelings of overconfidence and greater fear of loss that such ties instill in entrepreneurs.  We test our hypotheses via a novel combination of archival and laboratory studies.  Analyses are still underway, but we currently find broad support for our claims.

This project attempts to reconcile theoretical tensions between social exchange theory (Blau, 1964; Cropanzano et al., 2016) and the embeddedness view of networks (Granovetter, 1985; Uzzi, 1996).  This tension stems from the fact that, while exchange theory suggests that individuals often form ties through a process of social exchange in which one sends the tie and the other receives it, the majority of the embeddedness literature takes any level of relational embeddedness as given. In other words, the embeddedness literature tacitly ignores the process of exchange that leads to various levels of embeddedness. In response, I build theory suggesting that the effects of relational embeddedness on economic action – which generally stem from shared norms and ease of information transfer - will be contingent on whether a single actor in a group has initiated a majority of the ties within the group.  I test these hypotheses in the context of VC syndication data over a 20-year period and observe how relational embeddedness (the number of times two investors have previously coinvested) and patterns of exchange (who has sent more deals to whom) interact to influence:  1) rates of deal failure within syndicates and 2) the primary mode of exit pursued by a syndicate’s investments.  This paper aims to contribute to the embeddedness literature by suggesting that the effect of relational embeddedness on economic behavior will often be contingent on the patterns of exchange and reciprocity that generated it.

Pivoting is a fact of life for new ventures: entrepreneurs develop ideas iteratively, often changing course many times before settling on a strategic orientation. However, new ventures rarely develop in isolation; rather, they exist in complex ecosystems of complementary services in which many products and services must be closely coordinated for consumers to derive value from any of them. Thus, pivoting entails not just a strategic reorientation of the focal firm, but also careful coordination and reorientation among the focal firm’s ecosystem of complementors. Though differences regarding the ways in which new ventures are organized with respect to their complementors might therefore impact a firm’s decision to pivot, however, current literature does not explore these dynamics. In this paper, I argue that the governance mode underlying a new venture’s relationships with its complementors plays an important role in its ability to appropriate value from an opportunity, thereby influencing its propensity to pivot and pursue it. I test my hypotheses in the context of the U.S solar panel industry from 1992-2018. This paper contributes to the entrepreneurship literature by suggesting that it is not merely the content of a new venture’s relationships that determine whether or not it will pivot, but also their structure.

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