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Managerial Risk, Innovation, and Organizational Decline

Bentley College, 175 Forest Street, Waltham, MA 02452, slatham{at}bentley.edu

Michael Braun

University of Montana-Missoula, School of Business Administration, Gallagher Business Building, 32 Campus Drive, Missoula, MT 59812

This article introduces managers' personal risk considerations into the relationship between organizational decline and innovation. The agency-based perspective is used to complement threat rigidity theory and prospect theory in examining how managerial ownership and slack resources affect managers' innovation decisions when firms experience poor performance. The findings indicate that more managerial ownership decelerates innovation spending. The availability of slack resources also reduces the rate of innovation investments. Firms with more slack resources and higher levels of managerial ownership jointly reduce innovation under circumstances of decline. Last, poorly performing firms that continue investments in innovation exhibit a lower probability of survival.

Key Words: organizational decline • innovation • agency theory • financial slack

This version was published on March 1, 2009

Journal of Management, Vol. 35, No. 2, 258-281 (2009)
DOI: 10.1177/0149206308321549


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