Providing managers with the freedom to be entrepreneurial and take risks is essential to corporate innovation, according to recently published research conducted by faculty members in the Lally School of Management at Rensselaer Polytechnic Institute and an alumnus of the Institute.

The article, “The Impact of Managerial Job Security on Corporate Entrepreneurship: Evidence from Corporate Venture Capital Programs,” was published in Strategic Entrepreneurship Journal. The study is co-authored by Joseph J. Cabral, an assistant professor at Louisiana State University who earned his doctorate from Rensselaer; Bill B. Francis, a professor in Lally; and Shyam Kumar, an associate professor and director of Master’s programs in Lally.  

The paper builds on the idea that risk-taking in corporations can be constrained by shareholders’ influence even though these shareholders stand to benefit from such activities. If managers make decisions that are perceived to be too speculative for the company, they may face backlash from shareholders and lose their jobs, especially if they fail in their entrepreneurial efforts.

By using a difference-in-difference methodology to sample more than 3,300 data points from a 15-year period, the study found that, when top managers have more job security through state-level anti-takeover measures, they are more likely to experiment with new organizational forms and structures by establishing corporate venture capital units. 

These units allow corporations to be entrepreneurial and nimble by investing in startups rather than relying on innovation from their internal research and development activities.

“Our findings were reinforcing and clear,” Kumar said. “Job security combined with tolerance for failure is crucial for stimulating innovation in corporations. Bringing clarity to this area of research is important for both managers and shareholders to see the overall benefits of job security to the bottom line.”