CSES Working Paper Series Paper # 3 6 Jeong - han Kang A Typology of Organizational Behavior and Its Application to Diversification U . S . Venture Capital Firms , 1980 – 2004 December 2006

This paper proposes four forms of organizational behavior at the intersection of organizational ecology (inertia vs. change) and new institutionalism (normative vs. deviant): innovative (deviant change), reformative (normative change), conservative (normative inertia), and reactionary (deviant inertia) in the order of the life-course of an organizational form. Then, it further identifies decision-making strategy underlying each dimension of those forms: risk-aversion vs. risk-taking underlying inertia vs. change and certainty vs. uncertainty underlying normative vs. deviant. Simply speaking, the choice between inertia vs. change is a matter of experience whereas that between normative vs. deviant is a matter of information. This integration between organizational theories and decision-making theory leads to hypothesize various behavioral outcomes corresponding to various types of diversification in an application of the typology to venture capital (VC) industry. Analyzing U.S. VC firms’ investments to target companies from 1980 through 2004, this paper finds three distinctive relationships between VC firms’ investmentdiversification and subsequent investment behaviors: First, target-diversification leads to conservative investments (decreasing both uncertainty and risk); Second, industrydiversification leads to innovative investments (increasing both uncertainty and risk); Third, stage-diversification leads to reformative investments (increasing risk but decreasing uncertainty).