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TOO MUCH OF A GOOD THING?
THE DUAL EFFECT OF PUBLIC SPONSORSHIP
ON ORGANIZATIONAL PERFORMANCE1
Julien Jourdan
Paris-Dauphine University
Paris, France
julien.jourdan@dauphine.fr
Ilze Kivleniece
INSEAD
Fontainebleau, France
ilze.kivleniece@insead.edu
Accepted for publication in the Academy of Management Journal (Jan. 7, 2016).
1 We thank the Associate Editor Heli Wang and three anonymous reviewers for providing us with constructive and
thoughtful guidance throughout the review process. We acknowledge the helpful comments of participants at
seminars and presentations held at Bocconi University, Cass Business School, Dauphine University, EM Lyon,
Imperial College London, INSEAD, John Hopkins Carey Business School, the AoM Annual Meeting, the DRUID
Conference, the SEI workshop, and the SMS Conference.
2
TOO MUCH OF A GOOD THING?
THE DUAL EFFECT OF PUBLIC SPONSORSHIP
ON ORGANIZATIONAL PERFORMANCE
ABSTRACT
Existing research provides contradictory insights on the effect of public sponsorship on the
market performance of organizations. We develop the nascent theory on sponsorship by
highlighting the dual and contingent nature of the relationship between public sponsorship and
market performance. By arguing that sponsorship differentially affects resource accumulation
and allocation mechanisms, we suggest two opposing firm-level effects, leading to an inverted
U-shaped relationship between the amount of public sponsorship received and the market
performance of sponsored organizations. This non-linear relationship, we argue, is moderated by
the breadth, depth and focus of the focal organization’s resource accumulation and allocation
patterns. While horizontal scope (i.e. increased breadth) and externally oriented resource profile
(i.e. reduced depth) strengthen the relationship, market orientation (i.e. increased focus)
attenuates it. We test and find strong support for our hypotheses using population data on French
film production firms from 1998 to 2008. Our work highlights the performance trade-offs
associated with public sponsorship, and carries important managerial and policy implications.
3
INTRODUCTION
Organizational scholars increasingly highlight the need to examine the role of public policies in
fostering firm emergence and competitiveness, notably in light of the recent surge in public
resource allocations to corporations (Klein, Mahoney, McGahan, & Pitelis, 2010: 145; Lazzarini,
2015; Mahoney, McGahan, & Pitelis, 2009). As governments resort to dedicated organizations
and policy instruments to facilitate firm growth, and boost survival of local industries through
various subsidy, tax-relief, and business incubation schemes (Amezcua, Grimes, Bradley, &
Wiklund, 2013), the phenomenon of organizational sponsorship is increasingly brought to light–
as “a deliberate attempt to make available a significantly higher and more stable level of
resources to selected firms” by public actors (Flynn, 1993: 129), and alter the selection
environment by creating a resource-munificent context (Amezcua et al., 2013).2
Notwithstanding the significance of the phenomenon, the nascent literature provides
limited insights into the theoretical notion of sponsorship and its organizational-level effects.
First, the theoretical and phenomenological nature of organizational sponsorship remains elusive
and has only recently begun to receive systematic attention. Specifically, how sponsorship differs
from more traditional market-exchange based forms of resource sourcing, such as contract-based
or equity-based resource acquisitions (Mathews, 2003), requires clarification. Second, the
literature paints a limited and contrasting picture of sponsorship effects (Klein et al., 2010;
Mahoney et al., 2009), highlighting resource availability and competitive benefits (Dobbin &
Dowd, 1997; Russo, 2001), but also potential drawbacks related to crowding-out effects,
incentive corruption and productive inefficiencies associated with public intervention in market
organizations (Becker, 1983; Dixit, 1997; Lazzarini, 2015; Shleifer, 1998). Recent works show
2 While our focus primarily lies in public sponsorship, other forms of organizational sponsorship (Amezcua et al.,
2013) also exist, for example, involving wealthy patrons, foundations and charity organizations.
4
how the effects of sponsorship are conditional on environment characteristics, such as firm
founding density (Amezcua et al., 2013) or external technical, economic and cultural factors
(Marquis & Huang, 2009), but do not say much about potential internal organizational
contingencies. Third, most studies on organizational sponsorship are focused on start-up firms,
examining the impact of external resource allocation on innovation, emergence or survival rates
(Autio & Rannikko, 2015; Clarysse, Wright, & Mustar, 2009; David, Hall, & Toole, 2000;
Dobbin & Dowd, 1997; Klette, Møen, & Griliches, 2000). Yet, sponsorship schemes target both
new and established organizations, and assume a positive effect on market performance at the
organizational and population levels that remains to be verified (Flynn, 1993)3.
In this paper, we focus on public sponsorship–a common form of organizational
sponsorship–defined as a provision of external resources to a focal organization by a public actor
(e.g. state, political or governmental agency), whereby such provision takes place outside market
exchange mechanisms with an aim to selectively alter the focal organization’s emergence,
survival or performance. Building on resource accumulation and resource allocation as two
distinct mechanisms of organizational resource construction and deployment (Dierickx & Cool,
1989; Helfat & Peteraf, 2003; Lazzarini, 2015), we propose a nonlinear, contingency-based
model of sponsorship effects on performance. In line with prior literature, we expect sponsorship
to boost the available resource pool and temporarily shield the receiving firm from adverse
changes in the external environment, yielding positive performance effects through resource
accumulation. Yet, we point to a simultaneous set of adverse effects impacting firm performance
through alteration in resource allocation mechanisms. Because sponsorship involves a provision
of resources outside market exchange, i.e. without a corresponding transfer in underlying
3 Given our focus on market performance, in this study we do not address other, social or public objectives that
public actors might pursue through some sponsorship schemes (e.g., the creation of public goods).
5
resource value nor residual use and rent claims by original resource holders, most of the
incentivizing effects embedded in traditional market exchange are absent. Hence, the internal
discipline or efficiency in resource allocation is altered, adversely affecting market performance
as sponsorship increases.
In combination of the dual effects identified, we predict an inverse curvilinear U-shaped
relationship: the market performance of target organizations increases at low levels of
accumulated public sponsorship (due to positive resource accumulation effects), yet recedes after
a certain level of sponsorship is passed and more adverse effects (associated with efficiency in
resource allocation) dominate. Moreover, we posit that these non-linear sponsorship effects are
contingent upon three interlinked resource management dimensions: 1) the breadth of the firm’s
resource accumulation and allocation patterns in the chosen market position (i.e. horizontal
scope), 2) the focus of the firm’s resource accumulation and allocation patterns in terms of
catering to explicit or latent market needs (i.e. market orientation), and 3) the depth of the firm’s
resource accumulation and allocation patterns in terms of the degree of internal (or external)
vertical resource configurations used to produce the good (i.e. resource profile).
We test our hypotheses on the entire population of film production enterprises in France
between 1998 and 2008. Our findings support the predicted curvilinear relationship: market
performance first increases with sponsorship, before reaching a tipping point beyond which it
recedes. In line with our theoretical predictions, we find evidence that the inverse U-shaped
relationship between public sponsorship and market performance is attenuated when sponsored
organizations are horizontally specialized, market-oriented, and rely less on external
idiosyncratic resources in their vertical chain of activities.
6
Our work delivers several contributions to the nascent theory on sponsorship (Amezcua et
al., 2013). First, we propose and test a more nuanced conceptualization of the underlying
organizational phenomenon, drawing upon the specific nature of sponsorship as residing outside
market exchange mechanisms. Second, different from past start-up and survival studies, our
work contributes to a more general theory of sponsorship by examining market performance
effects in the context of both established and new organizations. Third and critically, our
arguments and findings underline the contingent nature of the sponsorship-performance
relationship, as dependent upon the breadth, depth and focus of firm’s resource accumulation and
allocation patterns, and underscore the critical role of internal resource management
mechanisms. Overall, our results shed light on the nature and impact of state interventions in
economic activity, and carry important managerial and policy implications.
THE PUBLIC SPONSORSHIP OF ORGANIZATIONS
Sponsorship is a ubiquitous organizational phenomenon, encountered when an external actor
deliberately attempts to create a more conducive environment to the formation or expansion of
organizations through targeted external resource allocation (Flynn, 1993). Prominent forms of
public sponsorship include selective subsidies and policy interventions aimed at increasing the
competitiveness of economic actors or sectors (Lazzarini, 2015). Sponsorship is rife in
entrepreneurial contexts, for example in the form of business incubation (Amezcua et al., 2013;
Autio & Rannikko, 2015; Colombo, Grilli, & Murtinu, 2011), and is known to have substantial
impact on firm innovation and commercialization rates (Clarysse et al., 2009; Meuleman & De
Maeseneire, 2012). Sponsorship is also found in a broader, albeit understudied, context of
established market organizations. For example, the recent financial crisis witnessed a large influx
of public resources to rescue entire sectors and large organizations: the implicit subsidy granted
7
to global banks reached $70 billion in the U.S., and $300 billion in the euro area (IMF, 2014).
Public sponsorship is also a permanent feature of industries such as agriculture, defense,
extraction, or aerospace (e.g., (Rooney, 2012)), as well as cultural industries.
Conceptually, sponsorship is a form of external resource provision, whereby outside actors
aim to alter the selection environment of focal organizations by creating a resource-munificent
context (Amezcua et al., 2013; Flynn, 1993). Existing conceptualizations, however, have fallen
short of providing a more discriminating view delineating sponsorship from other common forms
of external resource provisions, such as resource acquisition via contracting (e.g., public
procurement) or equity-based means (e.g., investment through capital markets mechanisms). We
formally conceive sponsorship as an external resource provision to a focal organization by an
external public (or private) actor that takes place outside (traditional) market exchange
mechanisms with an aim to selectively alter the focal organization’s emergence, survival or
performance. Organizational sponsorship (and public sponsorship in its common form) is
characterized by the selective nature of external intervention, and critically, the absence of value-
based exchange or residual (rent-based) claims in underlying resource transfer by the original
resource holders. The non-market based exchange is the key feature distinguishing sponsorship
from other forms of external resource provision to market organizations, such as equity or other
price-based mechanisms.4
Our definition extends the notion of public (and organizational) sponsorship in two
important ways. First, it distinguishes its essential nature from the area of application. Not all
sponsoring schemes intend to create supporting environments for the survival of new firms;
4 Recognizing the absent or severely limited market exchange in public sponsorship also allows us to differentiate
sponsorship from other forms of external and policy-based interventions in private economic activity, such as
privatization or public-private contracting–which retain price or residual-based exchange features.
8
some are equally relevant to mature, established organizations. Second, it highlights more
nuanced resource and incentive-based implications of sponsorship. In contrast to other forms of
external resource provision, sponsorship operates outside value-based market exchange
mechanisms, implying that the constraints associated with external resource provision, as well as
the bargaining power of the resource provider are substantially reduced (Casciaro & Piskorski,
2005; Pfeffer & Salancik, 2003). The critical link between resource (acquisition or exchange)
value and subsequent use value is removed, and important monitoring functions are weak or
absent, affecting the underlying incentives and efficiency of the receiver firm in resource
allocation (Dixit, 1997; Laffont & Martimort, 1997). Given how underlying incentives affect the
ability of resource owners and users to create and appropriate value (Foss & Foss, 2005; Hart &
Moore, 1990), this distinction permits us to hypothesize on how the influx of sponsored
resources is likely to play a contrasting, dual effect on the performance of target organizations.
THE EFFECT OF SPONSORSHIP ON MARKET PERFORMANCE
Sponsorship and organizational level outcomes
Existing literature reveals a contrasting assessment of the effect of public sponsorship on
sponsored organizations. While organization scholars highlight the potentially beneficial
performance implications of public sector interventions for target (private) organizations (Baum
& Oliver, 1991; Rangan, Samii, & Van Wassenhove, 2006), recent management studies as well
as works on innovation and organizational economics call for a more cautious perspective
(Amezcua et al., 2013; David et al., 2000; Shleifer, 1998; Shleifer & Vishny, 1994).
Sponsorship is commonly associated with three distinct performance-enhancing effects
stemming predominantly from resource buffering, as well as networking (bridging), and
legitimation. Resource buffering–referring to the isolating role that external resource allocations
9
provide for receiver organizations from environmental threats and uncertainty (Amburgey, Kelly,
& Barnett, 1993; Amezcua et al., 2013)–is directly tied to an increased pool of resources for the
target organization, acquired with no associated price or value-related claims by original
resource holders. Similar to internally generated resources, sponsored resources may constitute
contingency reserves in adverse market conditions, such as shifts in demand, customer
preferences or technology, and shield organizations from unfavorable change, reducing the level
of uncertainty it may be exposed to (Rangan et al., 2006). Resource buffering may also improve
the competitive position of the sponsored organization to the extent public sponsorship does not
favor all industry actors equally–for example, when subsidies are granted to domestic firms to
create an advantage over foreign rivals (Lazzarini, 2015; Murtha & Lenway, 1994). In the
French film industry, for instance, local producers receiving film subsidies (unavailable to
foreign studios) may benefit from improved resource position, reflected in higher performance.
Prior studies also suggest that sponsorship may contribute to a focal organization’s market
performance through network building or bridging mechanisms (Amezcua et al., 2013; Flynn,
1993)–for example, through programs designed to extend the network of participant firms.
Sponsorship and ties to public actors may also enhance organizational legitimacy (Baum &
Oliver, 1991; Podolny, 2001). Such an effect however is not indubitable: e.g. during the recent
financial crisis, continued public resource injections in industry were met with an increasing
public opposition, such as the “Occupy Wall Street” movement (Tarrow, 2013).
Simultaneously, a number of scholarly insights suggest an equally relevant, opposing set of
sponsorship effects. Works in organizational economics highlight potential incentive corruption
and productive inefficiencies associated with certain forms of political actor involvement in
resource allocation decisions (Becker, 1983; Dixit, 1997; Shleifer, 1998; Shleifer & Vishny,
10
1994). A number of organization studies suggests a de-stimulating or “crowding-out” effect of
public sponsorship on private innovative investment (see, e.g. David et al., 2000) or, in the non-
profit sector, weakening the perceived strength of the organization and underlying social cause
(Brooks, 2000a, b; Kingma, 1989; Payne, 1998). Jointly taken, existing accounts thus suggest a
mixed view of public sponsorship effects on market organizations, particularly, in the view of
underlying heterogeneity of receiver organizations. As Flynn (1993:133) highlights,
“sponsorship creates new organizations and also has effects, intended and unintended, on
existing populations of organizations” (our italicization), pointing to a need to empirically
examine and reconcile potentially contradictory effects.
The dual effect of public sponsorship: Resource accumulation and resource allocation
Drawing on the resource-based view and nascent works on resource orchestration (Sirmon et al.,
2011) we build on the critical link between organization’s performance and the underlying
processes of developing, structuring and dynamic leveraging of organization’s resources and
capabilities (Helfat & Peteraf, 2003; Sirmon, Hitt, & Ireland, 2007), to propose a non-linear
relationship between sponsorship and sponsored organization’s market performance.
Existing studies suggest that resource management and deployment constitutes a set of
concurrent or sequential activities (Sirmon et al., 2007), with resource accumulation and resource
allocation (or churn) as the main mechanisms in firm’s strategic resource management
(Lazzarini, 2015) Mathews, 2003). In other words, not only do organizations secure the resource
base through either internal development or external acquisitions and resource borrowing
(Barney, 1986; Capron & Mitchell, 2013), they continuously make allocative (use or change)
decisions. Corresponding to resource “stocks” and “flows”, these dual resource management
11
mechanisms influence the sustainability of organization’s competitive advantage and
performance (Dierickx & Cool, 1989).
We hypothesize that external resource influx through sponsorship is likely to differently
affect the resource accumulation and resource allocation mechanisms of receiver firms. As
suggested by prior literature, repeated, cumulative public sponsorship may deliver positive
effects to receiving firms, primarily through an increase in the resource pool of target
organization, shielding it temporarily from adverse changes in the market and mitigating the
effects of market or technological uncertainty, i.e. buffering effect (Amezcua et al., 2013). This
positive first-order impact of sponsorship, we posit, stems from the resource accumulation
mechanism: an influx of sponsored resources permits a more rapid resource stock buildup,
particularly for valuable, hard-to-imitate external resources, and avoids potential “time
compression diseconomies” associated with resource imitation internally (Dierickx & Cool,
1989; Pacheco-de-Almeida & Zemsky, 2007). Moreover, as the buffering effect suggests, an
increase in the resource pool leads to higher “contingency reserves” particularly, in the case of
internal resource shortages. Organizations faced with unexpected change in competitive
conditions (e.g. shifting demand or foreign competitor entry) may “buffer” their short-term
performance by drawing on an increased stock of resources accumulated from public policy
interventions (Lazzarini, 2015). For example, Nair & Kotha (2001) illustrate how public resource
influx, notably in subsidies, helped revive Japanese steel industry players after the post-war
collapse, in spite of higher production costs than in other industrialized nations.
Resource accumulation mechanisms, nevertheless, may foretell only part of sponsorship
effects. Building on the related mechanisms of resource allocation, we hypothesize, that beyond
a certain level of sponsorship, the positive performance effects may increasingly be
12
overshadowed by (shifting) efficiencies in focal firm’s resource allocation or churn (Lazzarini,
2015)–notably, as the specific incentivizing and disciplining features associated with the
allocation of sponsored resources become increasingly critical. Two sets of arguments support
this view. First, a lower internal discipline in the resource allocation by sponsored organization
may be expected as a direct consequence of absent or severely limited market exchange
mechanisms in the sponsored resource provision. Without price, residual or other value-based
claims tied to external resource influx, the information and incentives of economic markets are
likely to be largely obstructed (Alchian & Demsetz, 1972; Kim & Mahoney, 2010; Perry &
Rainey, 1988). This has been shown to result in considerably lower efficiency in public
organizations and actors dependent on public resource allocations (Boardman & Vining, 1989;
Dixit, 1997; Williamson, 1999). As the absence of market exchange mechanisms distorts the link
between managerial actions and performance, weaker allocative efficiencies may influence
market performance through dimensions such as cost, quality or innovation (Hart, Shleifer, &
Vishny, 1997; Shleifer, 1998; Shleifer & Vishny, 1994). Because sponsorship implies resource
allocation in the absence of corresponding market exchange- and value-based mechanisms
between resource holders and receivers, an increasing influx of public resources is expected to
reduce the rigor or discipline in resource allocation. For example, a film producer faced with a
range of options may apply less stringent economic criteria when assessing projects (e.g., green-
lighting projects with weaker potential) to the extent they may be financed by externally
provided, “no-strings-attached” resources. Similar effect is found with soft budget constraints in
public enterprises (Kornai, Maskin, & Roland, 2003), where the availability of public resources
distorts organizational resource allocation, removing the link between performance and survival.
13
Second, the dis-incentivizing effect from non-market nature of public sponsorship is likely
to be further exacerbated by lower public actor incentives in efficiency enforcement and
monitoring (Ramaswamy, Li, & Veliyath, 2002). Although certain allocative constraints or
incentivizing devices may be built into the sponsorship scheme, the nature of decision-making
and the political (rather than economic) accountability of public resource holders itself may
weaken the resource-performance relationship of sponsored organizations (Schedler, 1999;
Shleifer, 1998; Spiller, 1990).
As a result, when two opposing sets of effects are combined (Haans, Pieters, & He, 2015),
we expect an inverse U-shaped relationship between public sponsorship and market
performance. At low sponsorship levels, performance benefits related to resource accumulation
are likely to dominate, notably, given the buffering effects. However, with increasing
sponsorship, the impact of shifting resource allocative efficiencies is expected to weigh in,
offsetting the favorable effects in resource accumulation. In the film industry, for example,
production companies may benefit from public sponsorship to the extent that firms are protected
from unexpected events or weak market demand. A producer receiving low to moderate levels of
sponsorship is likely to profit from proportionate buffering effects, yet, with an increasing level
of sponsorship, more resources will be available to be directed to the development of new
projects rather than merely shielding existing projects from adverse market conditions. A lower
discipline in allocating (an increasing amount of) external resources would then translate into
lower market performance, despite a certain positive “isolating” effect.
Hypothesis 1. There is an inverted U-shaped relationship between the cumulative amount
of public sponsorship received and market performance, such that market performance
increases at low public sponsorship level and declines past a certain point.
14
The contingent role of breadth, depth and focus in resource accumulation and allocation
If previous arguments hold true, the magnitude of sponsorship-performance relationship should
not be homogenous but vary along the dimensions that shape the sensitivity of firm performance
to distortions in its resource accumulation and allocation patterns. Drawing on the insights from
the resource orchestration literature (Sirmon et al., 2007; Sirmon et al., 2011) and positioning-
economizing studies (Ghosh & John, 1999; Nickerson, 2003; Nickerson, Hamilton, & Wada,
2001), we argue that sponsorship-performance relationship is likely to be conditioned by three
interlinked resource management dimensions of the focal firm, corresponding to 1) the breadth
of firm’s resource accumulation and allocation patterns in the chosen market position (i.e.
horizontal scope), 2) the focus of its resource accumulation and allocation patterns in terms of
catering to explicit or latent market needs (i.e. market orientation) and 3) the depth of its resource
accumulation and allocation patterns in terms of the vertical chain of activities (i.e. resource
profile).
Resource orchestration studies suggest that a number of firm’s inherent resource
management features, including those related to search/selection and configuration/deployment
(Helfat et al., 2007; Sirmon et al., 2011), play a critical role in delivering performance and value
from organization-wide resource and capabilities. The breadth (i.e. resource orchestration across
the horizontal scope of the firm) is strongly tied to the value derived from organization’s
underlying resource position (Sirmon et al., 2011), having a potentially important role in shaping
the impact of external resource influx on the firm’s performance. Market position–i.e. the
“needs, accessibility, or variety of products and services a firm desires to serve” (Nickerson et
al., 2001: 254)–is closely related not only to horizontal scope, but also to the firm’s market
orientation, i.e. the possession of capabilities that enable firms to better understand customers’
15
expressed and latent needs (Hult, Ketchen, & Slater, 2005; Ketchen, Hult, & Slater, 2007; Slater
& Narver, 1999). Since market orientation is intrinsically linked to both resource accumulation
and allocation patterns within firms–principally by influencing managerial focus–it is likewise
expected to significantly shape the intensity of the sponsorship-performance relationship.
Finally, an organization’s resource profile, understood as “set and type (i.e., the degree of
idiosyncrasy) of resources and capabilities employed in the vertical chain of activities”
(Nickerson et al., 2001: 252), is likewise intrinsically linked to resource management, market
position and performance (Chatterjee & Wernerfelt, 1991; Wernerfelt, 1984). The depth of an
organization’s resource profile, i.e. the degree of internal (as opposed to external) idiosyncratic
resources it relies on, may play an important role in the sponsorship-performance link, by
altering the efficiency in resource accumulation and allocation mechanisms.
----------------------------------------------
Insert Figure 1 about here
----------------------------------------------
As illustrated in Figure 1 (adapted from Zahavi & Lavie, 2013), we expect these three
dimensions to affect the convexity of sponsorship-performance relationship, i.e. make the
inverted U-shape steeper or flatter (Haans et al., 2015). When the relationship is strengthened
(attenuated), both the positive and the negative effects are larger (smaller).
Horizontal scope. The resource-based perspective and studies on horizontal scope suggest that
an organization’s choice of a market position, either focused on a limited number of segments or
spread across several, is strongly related to the breadth of its resource accumulation and
allocation (i.e. orchestration) patterns (Helfat et al., 2007; Sirmon et al., 2011). Organizations
typically pursue one of the two alternative types of horizontal scope strategy (Carroll, 1985;
Carroll & Swaminathan, 2000; Dobrev, Kim, & Hannan, 2001): generalist firms operate in
16
several product segments, relying on a broad resource base to appeal to a wide range of customer
tastes, while specialists operate in a single product segment, with focused and more narrow
resource accumulation patterns related to a more limited horizontal product strategy (Barroso &
Giarratana, 2013). Critically, specialist and generalist organizations accumulate different,
“broad” versus “narrower” resource and competence constellations, feature different patterns and
efficiencies in resource allocation, and, as a result, may face divergent performance implications
under external resource influx.
We hypothesize that both performance-enhancing and distortive effects associated with
sponsorship are likely to be substantially more pronounced for generalist than specialist firms,
reflecting in an amplified inverse U-shaped relationship between sponsorship and market
performance for generalist (compared to specialist) firms. First, we expect generalist
organizations to engage in broader, more diffused patterns of resource accumulation, reducing
the uncertainty and leveraging the positive buffering effects associated with operating in multiple
market segments. The performance-enhancing effect for generalist organizations, we predict,
will be amplified by “buffered” competitive position across the range of product markets they
operate in. For example, public credit subsidies provided to an agricultural enterprise operating
in multiple market segments would provide higher protection and more diversified risk shield
(Chaplin, Davidova, & Gorton, 2004), as well as higher likelihood of “isolating” effect,
compared to a competitor operating in just one area (which may or may not be subject to adverse
external conditions). Organizations with narrower scope are likely to lose out on the potential
performance benefits associated with a “diversified” set of resources accumulated and leveraged
across multiple segments for generalist firms (Sorenson, McEvily, Ren, & Roy, 2006; Teece,
1982). Second, we also expect differences in the extent to which more resources accumulated in
17
a narrow product market are able to generate higher returns. Generalist firms, receiving
sponsorship, are likely to capture more sustained incremental returns from resource accumulation
in each market category before reaching a point where additional resource stocks add little
further gain, while specialists, operating in narrow market segments, may face dwindling returns
to scale from increasing resource stock at lower sponsorship levels and to a stronger extent.
At the same time, generalist organizations may feature weaker discipline in sponsored
resource allocation, and an increased likelihood of diversion from core activities. Greater scope
provides competitive buffers that may weaken generalists’ incentives to pursue learning
opportunities (Henderson & Mitchell, 1997: 9), and make such organizations gain less value
from resource and capability utilization, compared to narrower range firms (Ingram & Baum,
1997). Stimulated by wider resource deployment opportunities, generalists are also likely to
engage in broader, more partitioned (Mezias & Mezias, 2000; Swaminathan, 2001) and non-core
resource applications to opportunities identified across multiple market segments, reducing
potential efficiencies on each type of resource engagement separately. For example, a generalist
producer in the film industry–i.e. engaged in various film genres–is more likely (than a
specialist) to feature diffused or partitioned resource management patterns with increased
sponsorship, e.g. undertaking non-core projects. At higher levels of sponsorship, such modified
incentives and a “portfolio” approach may lead generalist organizations to less optimal resource
allocation than specialist firms, weakening their market performance.
Hypothesis 2. The inverted U-shaped relationship between the cumulative amount of public
sponsorship received and market performance is strengthened by the focal organization’s
horizontal scope.
18
Market orientation. We also expect the sponsorship-performance relationship to be significantly
attenuated by the sponsored organization’s market orientation, primarily, through altering of
organizational focus in resource accumulation and allocation patterns. As a key organizational
asset, market orientation represents the “extent to which a firm engages in the generation,
dissemination, and response to market intelligence, pertaining to current and future customer
needs, competitor strategies and actions, channel requirements and abilities, and the broader
business environment” (Kohli & Jaworski, 1990; Morgan, Vorhies, & Mason, 2009: 910). It is
the principal means through which the accumulation and deployment of heterogeneous
marketing capabilities leads to enhanced organizational performance. It implies possession of
dynamic capabilities that enable better understanding of customer expressed and latent needs,
delivery of superior solutions to such needs (Hult et al., 2005; Ketchen et al., 2007; Slater &
Narver, 1999), and their integration in the strategic decision-making process (Day, 1994).
For sponsored organizations, market orientation may attenuate the need for external resource
accumulation: enhancing customer understanding and competitive actions, market orientation is
associated with superior internally-driven performance (Hult et al., 2005), making the focal
organization less dependent on external resources and reducing the level of environmental
uncertainty. A market-oriented firm may require less resource buffering, and be, accordingly,
less susceptible to “isolating” benefits from external resource accumulation, while organizations
with weaker market orientation are more likely to benefit from the protective effect of external
resource injections, especially at low to moderate levels of public sponsorship.
At the same time, organizations incorporating explicit and anticipated consumer preferences
into their existing resource allocation patterns may also be shielded from the more adverse
second-order effects of sponsorship. First, market orientation relates significantly to resource
19
allocation discipline: market-oriented firms are known to feature more efficient resource
exploitation in their strategic actions (Ketchen et al., 2007; Morgan et al., 2009) and have
processes in place to ensure that resource allocation decisions are oriented towards consumer
tastes. For example, before allocating resources, they may conduct more extensive market
research and consumer data analysis. Film producers, for instance, may investigate consumer
trends and incorporate cinematographic elements that please audiences rather than engaging in
“art for art’s sake” (Caves, 2000: 5). Second, consumer-oriented firms may focus more on
products that fit with their core capabilities rather than riskier projects that may displease
consumers. Film producers may, for instance, exploit a set of established storytelling techniques
and “formulaic” templates in order to reduce the uncertainty over the product’s appeal. Third, in
terms of further resource development, a market-oriented firm may be more committed to invest
in and develop capabilities that create consumer value (Slater & Narver, 1998) rather than other
goals, thus contributing to a more sustainable performance. A market-oriented sponsored firm
may thereby be less prone to inefficiencies or distorted focus for resource allocation, and less
sensitive to the adverse effects of sponsorship on performance.
Hypothesis 3. The inverted U-shaped relationship between the cumulative amount of public
sponsorship received and market performance is attenuated by the focal organization’s
market orientation.
Resource profile. Finally, we also expect the sponsorship-performance relationship to be
contingent upon the depth of the focal firm’s resource accumulation and allocation patterns in
terms of the vertical chain of activities. Prior literature suggests that market position, resource
profile and governance choices are intrinsically linked (Chatterjee & Wernerfelt, 1991;
Nickerson, 2003; Nickerson et al., 2001; Wernerfelt, 1984) and are jointly instrumental in
20
determining the firm’s market performance. A firm’s resource profile–that is the set and type
(degree of idiosyncrasy) of resources and capabilities employed in its vertical chain of activities
used to produce a good (Nickerson et al., 2001)–is closely related to the degree of resource
externalization, i.e. its reliance on external non-proprietary core resources and capabilities as
opposed to internal development (Argyres, 1996). Because resources form a base for firm-level
differentiation and a source of rents, the resource profiles are likely to be heterogeneous among
industry participants (Nickerson, 2003; Nickerson et al., 2001; Wernerfelt, 1984), and as a result,
condition the effects of external resource influx on a target organization’s market performance.
Critically, organizations relying on external idiosyncratic (i.e. rare, valuable, inimitable
and/or transaction-specific) resources are expected to feature different patterns of resource
orchestration than organizations relying on internally developed idiosyncratic resources. In the
film industry, for example, critical idiosyncratic resources relate to human and nonhuman
creative assets (such as film plot rights, movie characters, star actors, or directors); accumulation
and deployment of such resources differentiates producers and largely determines the rent
derived from each film project. A common trade-off for a resource-constrained producer may
involve the development and leverage of integrated idiosyncratic assets in film production, such
as creative team abilities, graphics skills or proprietary movie characters (e.g., “Avatar”), versus
an engagement of externally sourced idiosyncratic resources, such as star actors (e.g., “Titanic”).
We expect organizations that rely comparatively more on external idiosyncratic resources
than internally developed (and fully integrated) ones to benefit more from sponsorship effects.
For firms with externally oriented resource profile, sponsorship facilitates external resource
accumulation and stronger buffering effects, while internal resource accumulation may be
disadvantaged by time-compression diseconomies due to costly internal development (Dierickx
21
& Cool, 1989; Pacheco-de-Almeida & Zemsky, 2007), hindering the build-up of a resource
“buffer” and lowering the “isolating” effect of sponsorship. Conversely, in resource allocation,
we expect the adverse effects of sponsorship to be more severe for sponsored firms relying
comparatively more on externalized idiosyncratic resources in their vertical chain of activities
rather than the ones exploiting proprietary, internally developed resources and dynamic
capabilities (e.g., creative ones). First, strong internally embedded (e.g. intangible or knowledge-
based) organizational resources are likely to protect firms from a loss of discipline in resource
allocation (Chatterjee & Wernerfelt, 1991) and foster further capability development based on
past project experiences (Shamsie, Martin, & Miller, 2009). For example, a film producer able to
rely on unique in-house script analysis capabilities is likely to build more optimal, proprietary
film project screening mechanisms, leading to a better use of sponsored resources and improved
market performance. Moreover, a higher emphasis placed on the use of external idiosyncratic
resources substantially increases resource dependence and reduces the internal rents available
from the project, due to a risk of rent appropriation by external actors. For example, in the film
industry, while “it is unclear exactly what makes a blockbuster […] stars continue to command
salaries that may exceed their individual contributions and understate the value added via
interactions with a talented director or producer” (Blyler & Coff, 2003: 682). Such value
appropriation is likely to make the performance of externally oriented firm (in terms of resource
profile) suffer stronger adverse sponsorship effects overall.
Hypothesis 4. The inverted U-shaped relationship between the cumulative amount of public
sponsorship received and market performance is strengthened by the focal organization’s
reliance on external idiosyncratic resources.
22
METHODS
Empirical setting and data
Studying the relationship between sponsorship and performance raises several empirical
challenges. First, exhaustive industry data is required to observe organizational-level market
performance, on a longitudinal basis, for various levels of public support. Second, one needs to
carefully tease out potential selection effects that may affect the findings. If only low performing
projects are supported, for instance, a negative correlation between support and performance may
not reveal much about the underlying causal relationship.
Data on the French film production industry appears particularly well suited for the purposes
of such study. Born with the Lumière brothers’ cinematograph in 1895, the French film industry
witnessed a rapid surge in public intervention after the opening of local screens to rival
Hollywood films after WWII. To increase the competitiveness of local producers, in 1959 the
French state implemented an industry-wide system of public sponsorship. Financed by a sales
tax, the General Production Sponsorship (GPS) scheme allocates resources to producer firms,
accounting for 6% to 12% of film financing in the period we study (Figure 2). Sponsorship is
allocated in proportion to the sales tax levied on the revenues of the films produced and released
during the last five years (Table 1). The allocation is independent of the economic prospect of
the sponsored project, alleviating selection concerns. Film projects are eligible to the extent that
they meet a range of specific criteria, such as the producer firm being established in France or the
European Union, the film being in the French language, and others.
----------------------------------------------
Insert Table 1 and Figure 2 about here
----------------------------------------------
23
We longitudinally examine the entire population of firms acting as executive producers in
the French film industry from 1998 to 2008, including firms not benefiting from sponsorship.
Executive production firms are financially responsible for the market performance of the venture
and are the organizational bodies entitled to receive sponsorship. We use an original dataset
compiled from different sources, including proprietary data provided by the state sponsorship
agency and the exhaustive set of 17,707 production contracts extracted from the Public Register
of Cinema5. Contracts allow us to identify all the projects (sponsored or not) initiated during the
period. We rely on Cine Box Office database and the trade publication Le Film Français for
market data. Consumer ratings come from the leading consumer website Allocine. Our unit of
analysis is firm-year (1,386 observations, N=567).
Dependent variable. Consistent with prior studies (e.g. Cattani, Ferriani, Mariani, & Mengoli,
2013), we examine the theatrical performance of producer firms, a solid proxy for overall market
performance (Elberse, 2013).6 Market performance captures firm’s annual return on investment
as a ratio of theatrical revenues (box office) over production costs. We obtain productions costs
by summing up production budgets, capturing all the direct expenses required to produce a film
as well as the overhead costs allocated by the firm to the films it produces (Wasko, 2003).
Because box office numbers are skewed (Caves, 2000), we take the natural log of the variable
and standardize it for ease of interpretation.
Explanatory variables. We operationalize sponsorship as the natural log of the cumulative
amount of public resources received by a firm under the GPS scheme as of the end of the
5 Our dataset partially overlaps with the data used by Durand and Jourdan (2012), with key differences in levels of
analysis (firm level vs. product level), data structure (longitudinal vs. cross-sectional), and time period. Data on
public sponsorship, producer firms, and market orientation were collected for the unique purpose of this study.
6 A supplemental analysis using a sample of 780 films released in the years 2004–2008 revealed that theatrical
revenues strongly correlate (.9433, p<.001) with overall revenues including video, television and other sales.
24
preceding year (we start counting in 1994 to estimate the full amounts each firm is eligible for).
We add a quadratic term, sponsorship squared, to test a curvilinear effect. Alternative
specifications using mean centered variables suggest that collinearity is not a concern.
Film studies typically measure scope (Hypothesis 2) in terms of genres (Hsu, 2006; Hsu,
Hannan, & Koçak, 2009), the rationale being that film genres embody project categories
requiring specific sets of resources and capabilities (Shamsie et al., 2009). In our dataset,
products are assigned to one of 15 different genres (e.g., comedy, drama). We use a Herfindahl-
Hirschman index to capture scope:!"#$%& ' ( ) ! "*+
,
*-. , where si is the share of a firm’s
production allocated to a given genre in the focal year. The variable is equal to 0 when a firm is a
specialist (si=1) and tends to 1 as a firm becomes more generalist (si → 0).
Film production houses can be placed on a continuum ranging from pure mainstream players
with a strong market orientation (Hypothesis 3) to art-house producers for whom films are
cultural pieces. We use average consumer ratings to capture where firms stand in this continuum:
according to McPhee’s (1963) well-established theory of exposure, art-house products receive
lower ratings than mainstream products across all types of consumers (see Elberse (2008) for a
recent test). Although not fully under the control of producers, ratings reveal the extent to which
firms’ output meets consumer preferences (Salganik, Dodds, & Watts, 2006): market oriented
firms will receive, on average, higher ratings than other firms.
At last, in terms of resource profile (Hypothesis 4), film producers may access valuable
idiosyncratic external resources, notably, in the form of reputable star actors. The variable
captures the average number of cast members among the five highest grossing actors in the three
25
preceding years7: for a given level of budget, the higher the number of stars, the more the firm
relies on externally engaged rather than internal idiosyncratic resources. To alleviate potential
correlation concerns, we use a modified Gram-Schmidt procedure to orthogonalize the
moderators (Golub & Van Loan, 1996).
Control variables. We account for a number of factors that may affect the relationship between
sponsorship and market performance. We control for firm’s experience, as a proxy for
accumulated capabilities measured by the number of films produced since 1987 (i.e., a decade
before the study period). The number of films produced in the focal year serves as a proxy for
firm’s size: small production houses typically do not produce more than a film a year whereas
larger companies have the capabilities to handle several projects simultaneously. We also add
variables to capture firms’ past economic and artistic performance: past hits represents the
number of films previously produced that reached the top 20 at the French box office
(specifications based on the top 10 or top 30 give similar results); past awards accounts for the
prizes received at the Cannes film festival and the Césars (the French Oscars). We use an
established proxy for distribution effort in film studies (e.g. Cattani et al., 2013): the number of
prints (35mm or digital film copies) distributed to theatres on release. We add major, a dummy
variable equal to 1 if the producer firm has worked with one of the top five distributors in the
preceding year, and 0 otherwise (given that major distributors may contribute key resources
fuelling performance). All three variables–past hits, prints and major–are orthogonalized. We
also examine producer firm film portfolios. Sequel is a dummy variable equal to 1, if the
producer makes sequels, relying on “pre-sold” stories, and 0 otherwise. Césars and Cannes count
7 The three-year window is typical in film studies (Cattani et al., 2008; Durand & Jourdan, 2012) due to the
relatively short-lived status of films stars.
26
the awards received during the year. Finally, dummy variables are added to control for the fifteen
film genres, and year dummy variables to account for period-specific effects.
Model specification
To address potential unobserved effects, we rely on firm-level panel data to examine the
relationship between firm-level variations in accumulated sponsorship and market performance
(Wooldrigde, 2002). We adopt a fixed effect specification as the Hausman test revealed that
unobserved effects were correlated with the explanatory variables (p<.001), suggesting that a
random-effect specification would produce inconsistent estimation. A modified Wald test
(Greene, 2003) revealed evidence of heteroskedasticity: we estimate robust standard errors
clustered at the firm level, a procedure described as de rigueur in panel data analysis (Nichols,
2007). We start our analysis with the controls (Model 1), then add the main variables and the
moderators (Model 2) to test Hypothesis 1, and finally introduce interactions, separately (Model
3-5) and then jointly (Model 6) to test Hypotheses 2 to 4.
RESULTS
We begin by assessing descriptive statistics and fixed-effect models of film producers’
performance (Table 2 and Table 3, respectively). Control variables are included in Model 1.
Consistent with prior studies on the film industry, market performance is positively related to
distribution effort, as well as awards; producers in business with major distributors also tend to
perform better. Experience appears to be negatively related to performance (a result driven by
the top 2% of most experienced firms). Other control variables are not significant.
We then add the main explanatory variables in Model 2. While the coefficient for scope is
positive and marginally significant (.058, p<.10), the other two moderators, market orientation
and resource profile, do not appear to be directly related to performance. The coefficients for
27
sponsorship (.133, p<.001) and sponsorship squared (-.012, p<.001) are significant and in the
expected directions, supporting Hypothesis 1. As recommended by Haans et al. (2015), we plot
the predicted values of market performance for the range of sponsorship values (all other
variables being at their mean): Figure 3 shows that the performance of sponsored firms quickly
increases with sponsorship received, before reaching a tipping point and receding. At the highest,
a 1% increase in sponsorship translates into a 0.58% marginal increase in performance. At large
values of (cumulated) sponsorship (above an estimated €360,000), the net effect of sponsorship
becomes detrimental to performance–suggesting that the distortive effects of sponsorship at this
point exceed its underlying benefits.
----------------------------------------------------------------
Insert Tables 2 and 3, and Figures 3 and 4 about here
----------------------------------------------------------------
The interaction terms with scope, market orientation and resource profile are added step-
wise in Models 3 to 5. All the coefficients of interaction variables are in the expected direction
and significant, albeit marginally so for the interactions of sponsorship squared with market
orientation (p=.63), and with resource profile (p=.52). Model 6 combines the full set of
interaction variables. The results remain consistent and, importantly, all interaction variables are
significant at 5% level and in the expected direction, adding confidence in the results. Of
particular interest are the coefficients of interactions with sponsorship squared, sufficient to test
whether a curvilinear relationship is strengthened (negative coefficient) or attenuated (positive
coefficient) (Haans et al., 2015). Scope (-.003, p<.05) and resource profile (-.003, p<.05)
strengthen the relationship, as per Hypotheses 2 and 4, respectively; market orientation (.003,
p<.05) attenuates the inverted U-shape, as per Hypothesis 3.
28
To further probe these results, we predict the marginal effect of sponsorship on market
performance, conditional on three values of horizontal scope, market orientation, and resource
profile (based on Model 6, all other variables at their mean). The predicted values are plotted in
Figure 4. (To allow readability, we show the 95% confidence interval for the moderate scenario
only.) Figure 4a illustrates the moderating effect of horizontal scope: the larger the scope of
producer firms, the stronger the curvilinear relationship between public sponsorship and market
performance. In other words, the inverted U-curve is more convex for generalist firms than for
specialists, as per Hypothesis 2. At the apex of the curve, the net positive effect of sponsorship
on performance is about twice as large for generalist firms (1.20 vs. 0.59). Also, the inflexion
point moves to the right when producer firms have a wider scope: it takes less sponsorship for
specialist producer firms to reach the point at which the marginal performance effect is optimal.
As Figure 4b shows, the moderating effect of market orientation is rather different. As predicted
by Hypothesis 3, the shape of the curves is flatter at high levels of market orientation, confirming
an attenuating effect of market orientation. Yet, the curves appear relatively close in most of the
sponsorship variable range, suggesting that the moderating effect of market orientation is limited,
albeit statistically significant. Finally, the predicted moderating effect of resource profile is
represented in Figure 4c. Similar to scope, reliance on external idiosyncratic resources
strengthens the inverted U-shape: the curve increases in convexity with the value of resource
profile. As predicted by Hypothesis 4, the market performance of firms relying on external
idiosyncratic resources appears more sensitive to the dual effects of sponsorship. The magnitude
of the moderating effect is material: at the highest, the positive net effect of sponsorship on
performance is more than two times stronger for firms relying on two star performers (1.41) than
29
firms operating without stars (0.65). However, as predicted, firms relying more on such external
idiosyncratic resources also appear to suffer more from adverse sponsorship effects.
Robustness checks
A number of supplementary analyses are carried out and presented in Table 4. We first ensure
that the shape of the relationship is not imposed by the model specifications. Models 7 and 8
replicate Model 2 using, respectively, linear and restricted cubic spline functions to capture
differences in behaviors above and below critical knots (Greene, 2003). Both models point to an
inverted U-shape. Because a quadratic relationship may erroneously yield a curvilinear shape
when the true relationship is convex but monotone over relevant data points (Lind and Mehlum,
(2010), we also test the significance of the slopes at the end points of distribution to avoid
interpretation issues. Both the lower bound (.130, p<.001) and higher bound (-.270, p<.001)
slopes are in the expected direction and significant. Moreover, the Fieller confidence interval for
the extreme point is within the range of the variable [4.910; 6.355]. In combination, these results
add support to an inverted U-shape between sponsorship and performance, as hypothesized.
Another concern relates to the cumulative nature of the independent variable, which may
induce a violation of the assumption of independence of observations, yielding potentially biased
and inefficient estimations. The procedure proposed by Wooldridge (2010)–running a first-
difference regression and performing a Wald test that the coefficient on the lagged residual is
equal to -.5 (Drukker, 2003)–suggests that serial correlation is not an issue (p=.633).
----------------------------------------------
Insert Table 4 about here
----------------------------------------------
Finally, we follow the procedure recommended by Woodridge (2010) to test the potential
endogenous nature of sponsorship (e.g., if an unobserved factor affects both sponsorship and
30
performance). We estimate the residuals of a first-stage regression predicting sponsorship using a
set of control variables and two instruments, and then include first-stage residuals in a second-
stage regression of performance on sponsorship. We rely on two instruments to predict
sponsorship. First, we use weather data–provided by the French National Meteorological
Agency–at the time when past movies were released. We expect past weather to have influenced
past box office (Moretti, 2011), and thus the amount of sponsorship firms received, without
affecting current market performance. We consider all the films released between 1994 and the
year preceding each firm-year observation, and compute average temperatures, sun exposures
and rain values on weekends. We find that opening weekend temperature is the most relevant
instrument (i.e., correlated with sponsorship), controlling for seasonality (in line with Gil and
Hartmann (2009)). Second, we exploit a regulatory change in the sponsorship scheme, from flat
percentage rates to a decreasing scale in 2002, as an exogenous event that affected the amount of
sponsorship received without influencing market performance. We create a variable indicating
whether the firm was affected by this regulation change as a second instrument. We retain the
two instruments, opening weekend temperature and regulation change, as being both relevant
and exogenous (Bascle, 2008). As shown in Model 9, the coefficient for first-stage residuals is
not significantly different from zero in the second-stage regression (p=.136), suggesting that
sponsorship is not endogenous to the equation of interest.
Overall, our empirical findings support the view that, all else being equal, public
sponsorship has a curvilinear inverted-U relationship with market performance. Both positive
and negative effects are strengthened when firms have a wider scope, lower market orientation,
and rely more on external than internal critical resources. The results are robust, consistent across
31
different specifications, and do not appear to be affected by serial correlation or potential
endogeneity in the public sponsorship variable.
DISCUSSION AND CONCLUSION
With existing literature remaining rather ambiguous about the nature and effect of organizational
(or public) sponsorship on sponsored organizations, our work is among the first to address
increasing calls for understanding the performance impact of external public resource allocations
to market organizations (Amezcua et al., 2013; Klein et al., 2010; Lazzarini, 2015; Mahoney et
al., 2009). In this study, examining sponsorship effects in the French film industry, we delineate
non-linear and contingent effects under which sponsorship may (or may not) improve the market
performance of sponsored organizations. Drawing on the theoretical distinction between resource
allocation and accumulation as critical mechanisms of organizational resource construction and
deployment (Dierickx & Cool, 1989; Helfat & Peteraf, 2003; Lazzarini, 2015), we argue that the
conflicting insights on the impact of sponsorship can be untangled by identifying positive firm-
level effects associated with resource accumulation mechanisms from opposing, distortive
effects associated predominantly with resource allocation. Using population data on French film
production firms, we find evidence for an inverted U-shaped relationship between the cumulative
level of public sponsorship received and market performance, with sponsorship becoming
detrimental to performance past a given degree.
From a theoretical perspective, the inverted U-shape relationship arises from and illuminates
a critical hidden trade-off associated with sponsorship as source of external resources for firms.
The additional resource stock, accumulated through sponsorship, may reduce the impact of
external market uncertainty and buffer the organizational performance from associated hazards.
Yet increasing sponsorship may lower the discipline in resource allocation, given the absence of
32
market (value-based) exchange mechanisms in underlying resource transfer. As the fundamental
link between managerial incentives and underlying resource price (or residual claims) is distorted
(Foss & Foss, 2005; Kim & Mahoney, 2010), the associated efficiencies in resource allocation
are weakened, impairing performance. Jointly, these insights provide a more nuanced
understanding of ambiguous and contrasting sponsorship effects reported in prior studies.
Crucially, our study sheds light on important internal organizational contingencies
associated with the dual public sponsorship effects. We account for the heterogeneity of
organizational market and resource positions, and the strong links that exist between the focal
organization’s resource orchestration and its product-based scope, market orientation and
resource profile (Sirmon et al., 2011). We show how both performance-enhancing and distortive
effects of sponsorship appear more (or less) pronounced for organizations that vary by scope,
focus and depth as critical interlinked resource management dimensions. Our findings suggest
that organizations spanning several market segments (scope) and relying on critical idiosyncratic
resources in their vertical chain of activities (depth) are particularly sensitive to the dual effects
of sponsorship. Effects are sizeable: at its peak, the marginal effect of sponsorship on
performance can be twice as strong for generalist film producers (vs. specialist) and firms relying
on star actors (vs. internally developed resources). There is also statistically significant evidence,
albeit more limited in size, that market orientation (focus) attenuates the sponsorship-
performance relationship. Because market-oriented firms possess dynamic capabilities that
enable them to better understand customers’ expressed as well as latent needs (Hult et al., 2005;
Ketchen et al., 2007; Slater & Narver, 1999), they may benefit relatively less from “buffering”
mechanisms in resource accumulation, isolating them from market uncertainty, and are less
likely to suffer from loss of discipline in resource allocation.
33
Overall, our work delivers four distinct theoretical contributions. First, we offer a more
discriminant and theoretically grounded conceptualization of organizational or public
sponsorship. We draw upon the specific nature of sponsorship as being based outside market
exchange mechanisms (in contrast to contractual or equity-based forms of resource sourcing).
Second, we complement the nascent literature on organizational sponsorship (Amezcua et al.,
2013; Flynn, 1993), by highlighting the non-linear and internally contingent relationship between
sponsorship and market performance. In the light of conflicting accounts from prior studies, our
study disentangles the performance-enhancing and distortive effects of sponsorship, and draws a
more detailed picture of the intricate, multiple mechanisms at play. Beyond positive performance
effects–implicitly associated in the current literature with the benefits of resource accumulation–
our work highlights the opposing effects and underlying distortions in resource allocation that
may affect sponsored firm’s performance. Through theorizing and empirical testing, our study
contributes to emergent work highlighting the contingency or “liability” aspects of sponsorship
and of public-private interaction more generally (Amezcua et al., 2013; Mahoney et al., 2009).
By focusing on the contingent nature of underlying effects, we specifically highlight how the
breadth, depth and focus of the focal firm’s resource accumulation and allocation patterns
moderate the sponsorship-performance relationship. The result is a richer, more fine-grained
theory on the impact of organizational sponsorship (and public sponsorship in its common form).
By studying an entire population of firms in an established industry, we also overcome certain
empirical or field-level limitations in the current literature. We broaden the theoretical insights
and relevance of organizational sponsorship theory beyond the confines of entrepreneurial and
survival studies, to illuminate performance implications for a broader, diverse spectrum of (new
and established) organizations.
34
Third, our study, broadly taken, speaks to the important, burgeoning literature on the nature
and implications of public actor intervention in the organization of economic activity (Lazzarini,
2015), and firm activities in political markets (Bonardi, Hillman, & Keim, 2005; Ring, Bigley,
D'Aunno, & Khanna, 2005; Spencer, Murtha, & Lenway, 2005). Envisioning public sponsorship
as a common state polity instrument (Murtha & Lenway, 1994) confirms the potency of public
resource-based interventions in affecting performance. It also brings to light less recognized
“side-effects” of such intervention, notably, alterations in underlying mechanisms of
organizational resource orchestration. This insight has important implications, not least, from the
public policy and strategic management perspectives, whereby public sector resources–while
sought and provided to selectively boost performance–may potentially become detrimental. Our
insights reveal how the heterogeneity in organization’s (horizontal) scope, market orientation and
resource profile shapes the sponsorship-performance relationship. More generally, they illustrate
how organizations influence and condition the effectiveness of public policy, calling for more
organizational research on sponsorship and other public policy instruments.
This study also suggests important managerial insights, potentially applicable to a range of
organizations operating in political markets, engaged in public-private resource-based ties
(Kivleniece & Quélin, 2012) and pursuing non-market strategies (Bonardi et al., 2005; Bonardi,
Holburn, & Vanden Bergh, 2006). To the extent such markets are prone to a higher or
continuous degree of public sector resource-based intervention, the incentives of economic actors
may be altered to engage in a more diffused, less optimal resource allocation, and direct
increasing attention towards non-market strategies (e.g., securing future forms of public
resource-based support). Such nonmarket actions however may come at the expense of
35
organization’s core market activities focus (Bonardi, 2008), and affect the development and
optimal allocation of underlying resources, ultimately reducing organizational performance.
Finally, our work also provides insights to the emergent stream of literature on resource
constraints and their implications for organizational performance (Amabile, 1996; Baker &
Nelson, 2005; George, 2005; Nohria & Gulati, 1996). First, it highlights sponsorship as an
important externally-driven antecedent of resource munificence in organizations, and lends
support to insights suggesting resource abundance leads organizations to utilize resources less
effectively (Nohria & Gulati, 1996). Our study extends these insights by suggesting that sub-
optimal performance may arise not only due to disruptive effects of internally generated excess
resources (such as organizational slack), but also of resource-based intervention of external
actors. Importantly and in contrast to existing literature, we highlight that the effects of such
externally generated resource abundance are intrinsically tied to sponsorship taking place outside
market exchange mechanisms and absent the associated resource transfer or use “price” by
original resource holders, resulting in shifts in resource management patterns and efficiency.
Limitations and future research directions
Further research is needed to explore other factors that may moderate the relationship between
sponsorship and performance. Sponsors might monitor schemes more closely and ensure that
some of the efficiency features associated with market exchange mechanisms are retained in
sponsorship schemes. Some organizational actors and sponsorship constellations may be more
prone to incentive distortive effects than others–for example, future studies may examine in more
detail the characteristics of external sponsors (e.g. incentives, organizational accountability) to
examine the underlying effects. Another stream of potential inquiry may relate to exploring the
nature of sponsored organizations, industries, and focus particularly on interaction between non-
36
market strategy of an organization and its ability to benefit from and overcome the limitations of
externally created resource abundance. For example, firms operating in heavily sponsored
industries may feature less abilities to adapt to resource constrained, competitive environments,
yet, inversely develop stronger non-marker capabilities in soliciting and absorbing external
resource influx, and managing environmental or institutional idiosyncrasies (Henisz, 2003).
An interesting path for inquiry would be to examine other, non-market performance related
aspects and impact of organizational sponsorship. Future works may relate the insights on public
sponsorship to implicit contracts and value-based claims that may be inherent in the sponsored
resources by broader resource “owners” or stakeholders, e.g. taxpayers (Asher, Mahoney, &
Mahoney, 2005). For example, certain other dimensions of performance (such as creativity in
cultural industries, or inclusiveness in public service industries) may supplant or reign over
market performance dimensions, and yield different outcomes and sensitivity to the dual nature
of sponsorship effects. Researchers may also explore the effects of diverse (private) forms of
organizational sponsorship, for instance by wealthy patrons, foundations, and other institutions
(e.g., research councils). While both performance-enhancing and disruptive effects are likely to
be present in various sponsorship forms and settings, there may be variations in the magnitude
and direction of underlying effects. How diverse actor claims and interests are retained within
sponsorship agreements may raise further insights into the dynamics of broader market-
institutional actor relationships.
Further work may also address the context specificities of the present study. As a creative
industry, French film production is governed by intrinsic economic principles (Caves, 2000) that
may affect the public sponsorship-performance relationship; hence, other film or creative
industry contexts may be explored. In the U.S., for instance, investment tax credits supported
37
independent cinema between 1976-1986 (Desai, Loeb, & Veblen, 2002) and helped curb
“runaway production”–the offshoring of production that has since taken enormous proportions
(e.g., Film L.A. (2015)). Researchers could examine how various forms of sponsorship may
support the performance of independent producers, and help them compete in domestic and
international markets. More generally, more research is required to validate and extend current
insights to other settings and industries.
Conclusion
This study provides theoretical insights and evidence of an inverted U-shape relationship
between public sponsorship and market performance, based on two parallel, yet opposing, effects
of sponsorship on performance. Critically, the curvilinear relationship we identify is contingent
upon the scope, market orientation, and resource profile of the receiver organization. By
unveiling the hidden trade-offs and contingencies associated with sponsorship, our work
contributes to a better understanding of resource-based effects on organizations, and sheds more
nuanced light on firms’ interactions with public and other external actors.
38
TABLES
Table 1. Rules of allocation of the General Production Sponsorship scheme (1994–2008)
Period
Type
Percentage of the Special Tax (TSA)
1994–96
Flat
140%
1997–98
Flat
130%
1999–00
Flat
140%
2001
Flat
120%
2002–04
Scale
125% up to €2.69m revenues, 110% up to €26.9m, 50% above
2005–08
Scale
105% up to €2.9m revenues, 90% up to €29.1m, 40% above
Table 2. Descriptive statistics and pairwise correlations
mean
s.d.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
1
Market perf.
0.00
1.00
2
Sponsorship
8.74
6.35
0.22
3
Sponsors. sq.
116.6
93.04
0.26
0.98
4
Scope*
0.10
0.21
0.16
0.32
0.36
5
Market orient.*
2.71
0.59
-0.11
-0.12
-0.14
0.00
6
Resource profile*
0.05
0.21
0.10
0.07
0.09
0.00
0.00
7
Experience
7.49
11.85
0.13
0.51
0.59
0.37
-0.08
0.07
8
Size*
1.42
0.92
0.17
0.34
0.40
0.76
-0.02
0.01
0.56
9
Past hits
0.21
0.74
0.24
0.28
0.38
0.25
-0.07
0.14
0.51
0.40
10
Past awards
0.31
0.85
0.10
0.34
0.40
0.16
-0.05
0.04
0.40
0.23
0.28
11
Prints*
209.5
310.81
0.44
0.15
0.22
-0.02
-0.29
0.24
0.13
0.00
0.50
0.11
12
Major*
0.92
0.98
0.16
0.10
0.12
0.07
-0.03
-0.02
-0.03
0.00
0.03
0.13
0.00
13
Sequel
0.01
0.12
0.13
0.09
0.11
0.11
-0.05
0.07
0.07
0.13
0.19
0.01
0.33
-0.08
14
Césars
0.04
0.27
0.16
0.07
0.09
0.07
0.12
0.03
0.04
0.09
0.09
0.02
0.10
0.05
-0.02
15
Cannes
0.03
0.16
0.13
0.05
0.05
0.04
0.09
-0.02
0.03
0.05
0.01
-0.12
0.02
0.02
-0.02
0.17
Note– All correlations greater than .10 are significant at the .05 level.
* Orthogonalized variables. Means and s.d. shown are prior to orthogonalization. Pairwise correlations are between
orthogonalized variables as used in the analysis.
39
Table 3. Fixed-effect regression of producer firm’s market performance
VARIABLES
Model 1!
Model 2
Model 3
Model 4
Model 5
Model 6
Genre dummy variables
Yes!
Yes
Yes
Yes
Yes
Yes
Year dummy variables
Yes!
Yes
Yes
Yes
Yes
Yes
Experience
-0.034***!
-0.027**
-0.024*
-0.028**
-0.028**
-0.025*
(0.009)!
(0.009)
(0.010)
(0.009)
(0.009)
(0.010)
Size
-0.032!
-0.043
-0.038
-0.032
-0.031
-0.014
(0.458)
(0.459)
(0.454)
(0.469)
(0.452)
(0.456)
Past hits
-0.039
0.048
0.051
0.065
0.055
0.076
(0.096)
(0.108)
(0.113)
(0.111)
(0.111)
(0.119)
Past awards
-0.035
0.036
0.034
0.042
0.039
0.044
(0.081)!
(0.078)
(0.079)
(0.077)
(0.078)
(0.079)
Distribution effort
0.483***!
0.447***
0.458***
0.441***
0.440***
0.445***
(0.055)!
(0.055)
(0.055)
(0.054)
(0.055)
(0.054)
Major
0.135***!
0.129***
0.136***
0.126***
0.125***
0.129***
(0.035)!
(0.036)
(0.036)
(0.036)
(0.036)
(0.036)
Sequel
-0.063!
-0.073
-0.082
-0.077
-0.052
-0.067
(0.168)!
(0.180)
(0.180)
(0.176)
(0.182)
(0.178)
Césars
0.272**!
0.285**
0.285**
0.279**
0.286**
0.278**
(0.098)!
(0.096)
(0.096)
(0.097)
(0.095)
(0.097)
Cannes
0.422**!
0.481***
0.469***
0.482***
0.491***
0.482***
(0.138)
(0.132)
(0.133)
(0.132)
(0.133)
(0.134)
Sponsorship
0.133***
0.137***
0.148***
0.136***
0.158***
(0.032)
(0.032)
(0.032)
(0.032)
(0.032)
Sponsorship squared
-0.012***
-0.012***
-0.013***
-0.012***
-0.014***
(0.003)
(0.003)
(0.002)
(0.003)
(0.003)
Scope
0.058+
0.017
0.056
0.056
-0.014
(0.034)
(0.090)
(0.035)
(0.034)
(0.086)
Market orientation
0.019
0.024
0.214**
0.013
0.220**
(0.030)
(0.031)
(0.082)
(0.030)
(0.082)
External resources
-0.012
-0.014
-0.014
-0.106+
-0.133*
(0.021)
(0.021)
(0.021)
(0.054)
(0.055)
Sponsorship X Scope
0.040*
0.046*
(0.019)
(0.019)
Sponsorship sq. X Scope
-0.003*
-0.003**
(0.001)
(0.001)
Sponsorship X Market orientation!
-0.050*
-0.055*
(0.021)
(0.022)
Sponsorship sq. X Market orient.
0.003+
0.003*
(0.001)
(0.001)
Sponsorship X Resource profile!
0.045*
0.050*
(0.021)
(0.021)
Sponsorship sq. X Resource profile
-0.003+
-0.003*
(0.001)
(0.001)
Constant
-0.248!
-0.202
-0.224
-0.220
-0.193
-0.246
(0.723)!
(0.725)
(0.718)
(0.741)
(0.713)
(0.720)
Observations
1,386!
1,386
1,386
1,386
1,386
1,386
Number of firms
567!
567
567
567
567
567
R-squared
0.228!
0.265
0.268
0.272
0.269
0.283
Note– Robust standard errors clustered at the firm level in parentheses.
+ p<0.10. * p<0.05. ** p<0.01. *** p<0.001.
40
Table 4. Robustness checks
VARIABLES
Model 7
Model 8
Model 9
Genre dummy variables
Yes
Yes
Yes
Year dummy variables
Yes
Yes
Yes
Experience
-0.031***
-0.028**
-0.033**
(0.009)
(0.009)
(0.011)
Size
-0.041
-0.036
-0.032
(0.448)
(0.458)
(0.457)
Past hits
0.022
0.039
0.040
(0.104)
(0.108)
(0.109)
Past awards
0.021
0.036
0.043
(0.078)
(0.078)
(0.078)
Distribution effort
0.453***
0.450***
0.442***
(0.055)
(0.055)
(0.055)
Major
0.129***
0.130***
0.130***
(0.036)
(0.036)
(0.036)
Sequel
-0.058
-0.071
-0.061
(0.179)
(0.180)
(0.181)
Césars
0.277**
0.286**
0.278**
(0.096)
(0.096)
(0.095)
Cannes
0.461***
0.482***
0.488***
(0.132)
(0.133)
(0.134)
Low sponsorship (linear spline)
0.037**
(0.014)
High sponsorship (linear spline)
-0.158***
(0.030)
Low sponsorship (cublic spline)
0.063***
(0.019)
High sponsorship (cublic spline)
-0.122***
(0.026)
Sponsorship
0.105**
(0.037)
Sponsorship squared
-0.012***
(0.003)
Scope
0.057+
0.057+
0.061+
(0.034)
(0.034)
(0.034)
Market orientation
0.021
0.020
0.019
(0.030)
(0.030)
(0.030)
Resource profile
-0.012
-0.012
-0.008
(0.021)
(0.021)
(0.021)
First-stage residuals
0.029
(0.019)
Constant
-0.181
-0.189
-0.084
(0.708)
(0.724)
(0.727)
Observations
1,386
1,386
1,386
Number of firms
567
567
567
R-squared
0.261
0.262
0.266
Note– Robust standard errors clustered at the firm level in parentheses.
+ p<0.10. * p<0.05. ** p<0.01. *** p<0.001.
41
FIGURES
Figure 1. Graphical representation of the predicted moderations of the relationship between the
amount of public sponsorship received and the market performance of receiver firms
Figure 2. General Production Sponsorship allocated to film production firms, 1998–2008.
Market performance
Public Sponsorship
attenuated relationship strengthened relationship
0%
2%
4%
6%
8%
10%
12%
14%
-
20
40
60
80
100
120
1998 2000 2002 2004 2006 2008
Share of film financing
Sponsorship (million euros)
sponsorship (in million euros) share of financing
42
Figure 3. Predicted marginal effect of public sponsorship on market performance
-1.5 -1 -.5 0 .5 1
Marginal effect on market performance
0 5 10 15 20
Sponsorship
Marginal effect 95% confidence interval
43
(a)
(b)
(c)
Figure 4. Predicted marginal effect of public sponsorship on market performance conditional on
three values of scope (a), market orientation (MO) (b), and resource profile (RP) (c)
-3 -2 -1 0 1 2
Marginal effect on market performance
0 5 10 15 20
Sponsorship
Moderate (scope=0.4) Low (scope=0)
95% confidence interval (Moderate) High (scope=0.8)
Scope
-3 -2 -1 0 1
Marginal effect on market performance
0 5 10 15 20
Sponsorship
Moderate (MO=2) Low (MO=1)
95% confidence interval (Moderate) High (MO=3)
Market orientation
-4 -2 0 2 4
Marginal effect on market performance
0 5 10 15 20
Sponsorship
Moderate (RP=1) Low (RP=0)
95% confidence interval (Moderate) High (RP=2)
Resource profile
44
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Julien Jourdan (julien.jourdan@unibocconi.it) is an assistant professor at the Department of
Management and Technology at Bocconi University, and a Professor of Leadership at SDA
Bocconi. He is affiliated with the CRIOS Research Center. He received his Ph.D. from HEC
Paris. His research focuses on the strategic implications of financing and resource acquisition,
organizational conformity, and social valuation.
Ilze Kivleniece (ilze.kivleniece@imperial.ac.uk) is an assistant professor at the Innovation and
Entrepreneurship Department at Imperial College Business School (Imperial College London).
She holds a Ph.D. in Strategic Management from HEC Paris. Her research interests include firm
boundaries, innovative organizational forms and governance models, with a particular focus on
organizational interaction that spans private and public interests.
