Perceived Environmental Threats and Strategic Choices: Evidence from Pharmaceutical Firms in China

This paper aims to explore the non-linear relationship between perceived environmental threats and strategic choices in a dynamic environment. Based on secondary data from pharmaceutical companies listed on Shenzhen or Shanghai Stock Exchange in China, this study adopts a Heckman selection model to test the hypothesis. The first stage of the model assesses the likelihood of top managers to perceive environmental threats based on a series of firm-specific and TMT-specific factors. One factor from this first model that captures the confounding effect of strategy self-selection is used in second stage of the model which estimates the complicated relationship between perceived threats and strategic choice. The empirical results indicate that when perceived threats are larger than opportunities, the perception of threats has a U-shaped relationship with proactiveness of strategic choice. When perceived threats are smaller than opportunities, the perceived threat has an inverse U-shaped relationship with proactiveness of strategic choice. The findings contribute to managerial cognition literature by arguing the non-linear relationship between perceived threats and strategic choice. Also this study makes an empirical contribution by measuring the degree of perceived threats and proactiveness of strategic choice in continuous variables rather than in categorical variables.