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Firm speed has long been a construct of interest among managers and researchers. Despite its importance, making a ceteris paribus comparison of speed can be challenging. In the current paper, we suggest an alternative to the conventional way of capturing the speed ceteris paribus. First, we illustrate the concept of faster speed in strategic management research. Second, we use numerical simulation data to illustrate the challenges of the conventional methodology, known as the nonlinear transformation of variables. We show that this method is difficult to apply and may produce an inaccurate measurement of the concept unless the exact functional form is chosen. Third, we suggest an alternative methodology, known as data envelopment analysis. This accounts for the challenges of the conventional methodology when we do not know the accurate functional form for nonlinear transformation, while performing as well as the best of the conventional approach. Finally, by using actual firm data, we show that our suggested methodology can be an effective alternative to the conventional approach of capturing a firm’s speed.
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This paper examines the effect of market-entry timing on a firm’s speed and cost of entry in a setting where a firm needs to build a plant for market entry. Based on our developed analytical model, we provide seven scenarios of the market-entry timing effect on a firm’s entry speed and cost. We test hypotheses in the liquefied natural gas (LNG) industry. We use Wooldridge’s three-step instrumental variable (IV) approach to account for endogeneity bias. We find that a late entrant has (1) a shorter time-to-build and (2) a higher cost-to-build relative to an early entrant. Further, (3) the late entrant positively moderates the negative relationship of time-to-build and cost-to-build (i.e., the negative relationship of time-to build and cost-to-build becomes less negative for the late entrant). These empirical results are consistent with the prediction of when both revenue effect (i.e., revenue curve shift) and cost effect (i.e., cost curve leftward shift) exist.
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Conventional wisdom suggests that an increase in a firm’s operational effectiveness will increase its economic performance. However, we show that an increase in a firm’s operational effectiveness can decrease its economic performance. Specifically, a firm’s increase in operational effectiveness of its existing projects following a positive demand shock can limit its profitable growth as its strategic resources are not allocated to pursuing new projects, thereby incurring opportunity costs that can lower its economic performance. We corroborate this reasoning in the context of the liquefied natural gas industry, which experienced a positive demand shock in 2000 due to energy market liberalization. We find empirically that a firm’s operational effectiveness increases its Tobin’s Q in the pre-shock period and reduces it in the post-shock period.
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- Conference Paper (2)
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- English (1)