Recipient: David Souder
Title: Choice of payoff horizon and firm performance: Strategic investments by cable TV operators 1972-1996
APPLICATION AND ABSTRACT »
David Souder is a doctoral candidate in the Department of Strategic Management and Organization at the Carlson School of Management, University of Minnesota, and is the winner of the 2006 Austin W. Shanfelter Dissertation Grant Award from The Cable Center’s Magness Institute. His dissertation research examines what makes firms have long or short investment horizons and whether firms with long investment horizons also have better performance, focusing specifically on cable multi-system operators (MSO). In addition to long run strategy formulation and performance measurement, his research interests include mergers and acquisitions, evolutionary theory, and corporate governance. His work has been presented at the annual conferences of the Academy of Management and the Strategic Management Society. David earned his bachelor of science in economics from the Wharton School of the University of Pennsylvania, and has a decade of work experience as a strategic management consultant.
An important managerial challenge is choosing the payoff horizon for strategic investments, since projects with long run benefits have immediate costs that reduce short run profits. My dissertation draws from the behavioral theory of the firm and agency theory to explain differences in payoff horizon choices between firms, based on performance relative to aspirations, incentive compensation, and external market pressure. I also test the intuition that long horizon investments have a positive impact on long run performance.
The business model for cable operators during its programming variety phase from 1972-1996 offers a quasi-experimental setting ideally suited for research into these issues. Like public utilities, local cable companies are natural monopolies with single providers in each market. Unlike electricity, heat, or water service, however, there is neither a mandate for universal service not municipal financing for capital investments. Furthermore, the distribution technology of microwave and, later, satellite eliminate the need for single firms to serve contiguous geographic regions, and the industry's pre-1972 history as a broadcast retransmission service contributed to a particularly disparate pattern of geographic expansion. As a result, cable operators during the research period do not compete with each other for market share among customers, but they do compete over future growth through their choice of investments. These investments have varying payoff horizons.
In testing predictions about which firms pursue longer or shorter payoff horizons, I use simultaneous equation techniques. To assess the impact of short- and long-horizon investments on ex post performance, I use dynamic panel modeling that allows the direction and significance of investment choices to be interpreted at different lag lengths. What makes firms choose different payoff horizons? Are longer horizon investments associated with higher eventual performance, as conventional wisdom suggests? The first question is central to understanding firm strategy, while the second is crucial for evaluating that strategy. By addressing both, my dissertation generates corporate governance implications and insight into the value-creation potential of longer payoff horizons. In addition, it analyzes the causes and effects of the wide heterogeneity of firm strategies observed in the partially regulated and monopolistic cable industry. |
