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Featured Publications Archive

  • Short-Term Earnings Guidance and Accrual-Based Earnings Management.

    Call, Andrew; Chen, Shuping; Miao, Bin; Tong, Yen

    Review of Accounting Studies. June 2014, Vol. 19 Issue 2, p955-987.

    Motivated by recent practitioners' concerns that short-term earnings guidance leads to managerial myopia, we investigate the impact of short-term earnings guidance on earnings management. Using a propensity-score matched control sample, we find strong and consistent evidence that the issuance of short-term quarterly earnings guidance is associated with less, rather than more, earnings management. We also find that regular guiders exhibit less earnings management than do less regular guiders. Our findings hold using both abnormal accruals and discretionary revenues to measure earnings management and after controlling for potential reverse causality concerns. Furthermore, in a setting where managers have particularly strong capital market incentives to manage earnings, we corroborate these findings by documenting that earnings guidance either has no impact on or mitigates earnings management. Overall, our evidence does not support the criticism from practitioners that short-term earnings guidance leads to more earnings management.
  • Labor Mobility: Implications for Asset Pricing.

    Donangelo, Andres

    Journal of Finance. June 2014, Vol. 69 Issue 3, p1321-1346.

    Labor mobility is the flexibility of workers to walk away from an industry in response to better opportunities. I develop a model in which labor flows make bad times worse for shareholders who are left with capital that is less productive. The model shows that firms face greater operating leverage by providing flexibility to mobile workers. I construct an empirical measure of labor mobility consistent with the model and document an economically significant cross-sectional relation between mobility, operating leverage, and stock returns. I find that firms in mobile industries earn returns over 5% higher than those in less mobile industries.
  • Public Equity and Audit Pricing in the United States.

    Badertscher, Brad; Jorgensen, Bjorn; Katz, Sharon; Kinney, William

    Journal of Accounting Research. May 2014, Vol. 52 Issue 2, p303-339.

    To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross-section, we find that audit fees for public equity firms are 20-22% higher than fees for otherwise similar private equity firms. Time-series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.
  • Do Ties Really Bind? The Effect of Knowledge and Commercialization Networks on Opposition to Standards.

    Ranganathan, Ram; Rosenkopf, Lori

    Academy of Management Journal. April 2014, Vol. 57 Issue 2, p515-540.

    We examine how the multiplicity of interorganizational relationships affects strategic behavior by studying the influence of two such relationships--knowledge linkages and commercialization ties--on the voting behavior of firms in a technological standards-setting committee. We find that, while centrally positioned firms in the knowledge network exhibit lower opposition to the standard, centrally positioned firms in the commercialization network exhibit higher opposition to the standard. Thus, the influence of network position on coordination is contingent upon the type of interorganizational tie. Furthermore, when we consider these relationships jointly, knowledge centrality moderates the opposing effect of commercialization centrality, such that the commercialization centrality effect increases with decreasing levels of knowledge centrality. In other words, firms most likely to delay the standard are peripheral in the knowledge network yet central in the commercialization network, which suggests that they have the most to lose from changes to current technology.
  • Updating Inventories of Substitutable Resources in Response to Forecast Updates.

    Bansal, Saurabh; Dyer, James S.

    Production & Operations Management. March 2014, Vol. 23 Issue 3, p477-488.

    We show simple yet optimal results to update the inventory/capacity levels, expected profit, fill rates, and service levels of substitutable resources in response to an updating of the mean demand forecasts for the resources. We find that a change in the mean demand of one resource does not affect the optimal inventory level of any other resource. The results are obtained for demands with location-scale distribution, and for a revenue structure satisfying a triangle property such that the manager will always use the inventory of a resource to meet her own demand first before using it for substitution. The results for updating the performance measures also extend to managers who maintain non-optimal inventory/capacity levels. Implications for procurement, sales and operational planning, and multi-store operations are discussed.
  • Optimal Per-Use Rentals and Sales of Durable Products and Their Distinct Roles in Price Discrimination.

    Gilbert, Stephen M.; Randhawa, Ramandeep S.; Sun, Haoying

    Production & Operations Management. March 2014, Vol. 23 Issue 3, p393-404.

    We consider a setting in which consumers experience distinct instances of need for a durable product at random intervals. Each instance of need is associated with a random utility and the consumers are differentiated according to the frequency with which they experience such instances of need. We use our model of consumer utility to characterize the firm's optimal strategy of whether to sell, rent, or do a combination of both in terms of the transaction costs and consumers' usage characteristics. We find that the two modes of operation serve different roles in allowing the firm to price discriminate. While sales allow the firm to discriminate among consumers of different usage frequencies, rentals allow it to discriminate according to consumers' realized valuations. Consequently, even when transaction costs are negligible, it is often optimal for the firm to simultaneously rent and sell its product. In addition, we find that although sales and rentals are substitutes and that the offering of sales weakly increases rental prices, it is possible that the introduction of rentals to a pure selling operation can either increase or decrease the optimal sales prices.
  • Moderating Effects of the Relationship Between Private Label Share and Store Loyalty.

    Koschate-Fischer, Nicole; Cramer, Johannes; Hoyer, Wayne D.

    Journal of Marketing. March 2014, Vol. 78 Issue 2, p69-82.

    A key benefit of private labels for retailers is their potential to increase customers' store loyalty. However, previous research has not examined how this relationship varies across customers and situations. This study contributes to knowledge in this area by developing a conceptual framework that guides the investigation of the role of four moderating factors in strengthening the private label brand share-store loyalty link: (1) customers' price-oriented behavior, (2) degree of commoditization of the product category, (3) product category involvement, and (4) the retailer's price positioning. This article draws on a large-scale empirical study using a household panel and questionnaire data for 35 diverse fast-moving consumer goods product categories. The results of this study show that the relationship between private label share and store loyalty is more complex than previous research has suggested. Specifically, the private label brand share-store loyalty link is stronger for customers with high price-oriented behavior, retailers with a low price positioning, and product categories that are less commoditized and have relatively higher involvement.
  • Beating the Recession Blues: Exploring the Link Between Family Ownership, Strategic Marketing Behavior and Firm Performance During Recessions.

    Kashmiri, Saim; Mahajan, Vijay

    International Journal of Research in Marketing. March 2014, Vol. 31 Issue 1, p78-93.

    This study explores whether family firms exhibit unique marketing behavior and whether their unique behavior in turn helps them outperform non-family firms during periods of economic contraction. Findings based on a sample of 275 large publicly listed U.S. firms reveal that family firms outperform non-family firms during recessions. This superior performance is partially driven by family firms' proactive marketing behavior and their relatively strong emphasis on corporate social responsibility (CSR). During recessions, while non-family firms tend to decrease their advertising intensities and rates of new product introduction (NPI), family firms are likely to maintain relatively high levels of advertising intensity and rates of NPI. Unlike non-family firms, family firms are also likely to maintain high levels of corporate social performance (CSP) during recessions. These results underscore the benefits of proactive marketing behavior and a continued emphasis on CSR during economic downturns. The authors also add to the scant family-firm literature, demonstrating the family firm to be an effective organizational form.
  • Advancing the Empirical Research on Lobbying.

    de Figueiredo, John M.; Richter, Brian Kelleher

    Annual Review of Political Science. 2014, Vol. 17, p163-185.

    This review identifies empirical facts about lobbying that are generally agreed upon in the literature. It then discusses challenges to empirical research in lobbying and provides examples of empirical methods that can be employed to overcome these challenges-with an emphasis on statistical measurement, identification, and casual inference. The article then discusses the advantages, disadvantages, and effective use of the main types of data available for research in lobbying. It closes with a number of open questions for researchers in the field and avenues for future work to advance empirical research on lobbying.
  • Effects of Social Networks on Prediction Markets: Examination in a Controlled Experiment.

    Qiu, Liangfei; Rui, Huaxia; Whinston, Andrew B.

    Journal of Management Information Systems. Spring 2014, Vol. 30 Issue 4, p235-268.

    This paper examines the effect of a social network on prediction markets using a controlled laboratory experiment that allows us to identify causal relationships between a social network and the performance of an individual participant, as well as the performance of the prediction market as a whole. Through a randomized experiment, we first confirm the theoretical predictions that participants with more social connections are less likely to invest in information acquisition from outside information sources, but perform significantly better than other participants in prediction markets. We further show that when the cost of information acquisition is low, a social network-embedded prediction market outperforms a nonnetworked prediction market. We find strong support for peer effects in prediction accuracy among participants. These results have direct managerial implications for the business practice of prediction markets and are critical to understanding how to use social networks to improve the performance of prediction markets.
  • Decision dependent stochastic processes.

    Kirschenmann, Thomas; Popova, Elmira; Damien, Paul; Hanson, Tim

    European Journal of Operational Research. May 2014, Vol. 234 Issue 3, p731-742.

    Highlights • A new Bayesian inferencing method for decision dependency in a stochastic process. • Real world examples provided using preventive and corrective maintenance in a nuclear power plant. • A stochastic optimization problem is solved using the decision dependent probability distribution inferences.
  • Convenience samples of college students and research reproducibility.

    Peterson, Robert A.; Merunka, Dwight R.

    Journal of Business Research. May 2014, Vol. 67 Issue 5, p1035-1041.

    Tests of theory in marketing and consumer behavior research are frequently based on convenience samples of undergraduate college students. In a study of business-related ethicality, analysis of data from four dozen convenience samples of undergraduate business students revealed significant differences in means, variances, intercorrelations, and path parameters across the samples. Depending on the particular convenience sample used, relationships between variables and constructs were positive or negative and statistically significant or insignificant. The present research empirically documents, for the first time, the uncertainty created by using convenience samples of college students as research subjects. Only through empirical replications can researchers pragmatically assess the reliability, validity, and generalizability of research findings.
  • Unmixed signals: How reputation and status affect alliance formation.

    Stern, Ithai; Dukerich, Janet M.; Zajac, Edward

    Strategic Management Journal. April 2014, Vol. 35 Issue 4, p512-531.

    We analyze how incumbents in technology-driven industries are influenced by founders' reputation and status when considering strategic alliances with newly emerging firms. We theorize that reputation and status represent two distinct components of perceived quality that exert independent and interdependent effects on alliance formation. Using literature on impression formation processes to derive predictions of signal congruence, we argue that the independent effects of reputation and status are amplified when the two are congruent, and that the effect of negative congruence (both reputation and status are low) is stronger than positive congruence (both are high). We find support for our arguments based on panel data on alliances between pharma and biotech firms, using data on biotech scientists' research output (reputation) and university attended (status).
  • Content Sharing in a Social Broadcasting Environment: Evidence from Twitter.

    Zhan Shi; Huaxia Rui; Whinston, Andrew B.

    MIS Quarterly. March 2014, Vol. 38 Issue 1, p123-A6.

    The rise of social broadcasting technologies has greatly facilitated open access to information worldwide, not only by powering decentralized information production and consumption, but also by expediting information diffusion through social interactions like content sharing. Voluntary information sharing by users in the context of Twitter, the predominant social broadcasting site, is studied by modeling both the technology and user behavior. A detailed data set about the official content-sharing function on Twitter, called retweet, is collected and the statistical relationships between users' social network characteristics and their retweeting acts are documented. A two-stage consumption-sharing model is then estimated using the conditional maximum likelihood estimation (MLE) method. The empirical results convincingly support our hypothesis that weak ties (in the form of unidirectional links) are more likely to engage in the social exchange process of content sharing. Specifically, we find that after a median quality tweet (as defined in the sample) is consumed, the likelihood that a unidirectional follower will retweet is 3.1 percentage point higher than the likelihood that a bidirectional follower will do so.
  • Biased Beliefs, Asset Prices, and Investment: A Structural Approach.

    Alti, Aydogan; Tetlock, Paul C.

    Journal of Finance. February 2014, Vol. 69 Issue 1, p325-361.

    We structurally estimate a model in which agents' information processing biases can cause predictability in firms' asset returns and investment inefficiencies. We generalize the neoclassical investment model by allowing for two biases--overconfidence and overextrapolation of trends--that distort agents' expectations of firm productivity. Our model's predictions closely match empirical data on asset pricing and firm behavior. The estimated bias parameters are well identified and exhibit plausible magnitudes. Alternative models without either bias or with efficient investment fail to match observed return predictability and firm behavior. These results suggest that biases affect firm behavior, which in turn affects return anomalies.
  • The evolution of capital structure and operating performance after leveraged buyouts: Evidence from U.S. corporate tax returns.

    Cohn, Jonathan B.; Mills, Lillian F.; Towery, Erin M.

    Journal of Financial Economics. February 2014, Vol. 111 Issue 2, p469-494.

    This study uses corporate tax return data to examine the evolution of firms' financial structure and performance after leveraged buyouts (LBOs) for a comprehensive sample of 317 LBOs taking place between 1995 and 2007. We find little evidence of operating improvements subsequent to an LBO, although consistent with prior studies, we do observe operating improvements in the set of LBO firms that have public financial statements. We also find that firms do not reduce leverage after LBOs, even if they generate excess cash flow. Our results suggest that effecting a sustained change in capital structure is a conscious objective of the LBO structure.
  • Supplier Encroachment Under Asymmetric Information.

    Zhuoxin Li; Gilbert, Stephen M.; Guoming Lai

    Management Science. February 2014, Vol. 60 Issue 2, p449-462.

    Prior literature has shown that, for a symmetric information setting, supplier encroachment into a reseller's market can mitigate double marginalization and benefit both the supplier and the reseller. This paper extends the investigation of supplier encroachment to the environment where the reseller might be better informed than the supplier. We find that the launch of the supplier's direct channel can result in costly signaling behavior on the part of the reseller, in which he reduces his order quantity when the market size is small. Such a downward order distortion can amplify double marginalization. As a result, in addition to the "win-win" and "win-lose" outcomes for the supplier and the reseller, supplier encroachment can also lead to "lose-lose" and "lose-win" outcomes, particularly when the reseller has a significant efficiency advantage in the selling process and the prior probability of a large market is low. We further explore the implications of those findings for information management in supply chains. Complementing the conventional understanding, we show that with the ability to encroach, the supplier may prefer to sell to either a better informed or an uninformed reseller in different scenarios. On the other hand, as a result of a supplier developing encroachment capability, a reseller either may choose not to develop an advanced informational capability or may become more willing to find a means of credibly sharing his information.
  • Predicting Credit Losses: Loan Fair Values versus Historical Costs.

    Cantrell, Brett W.; McInnis, John M.; Yust, Christopher G.

    The Accounting Review. January 2014, Vol. 89 Issue 1, p147-176.

    Standard-setters and many investors argue that loan fair values provide more useful information about credit losses than historical cost information, while bankers and others generally disagree. We examine the ability of reported loan fair values to predict credit losses relative to the ability of net historical costs currently recognized under U.S. GAAP. Our analysis is important because credit losses in the banking sector can have severe and widespread economic effects, as the recent financial crisis demonstrates. Overall, we find that net historical loan costs are a better predictor of credit losses than reported loan fair values. Specifically, we find that historical cost information is more useful in predicting future net chargeoffs, non-performing loans, and bank failures over both short and long time horizons. Further tests indicate that the relative predictive ability of reported loan fair values improves in higher scrutiny environments, suggesting that a lack of scrutiny over reported loan fair values may contribute to our findings.
  • Bayesian Inference for Logistic Models Using Pólya–Gamma Latent Variables.

    Polson, Nicholas G.; Scott, James G.; Windle, Jesse

    Journal of the American Statistical Association. December 2013, Vol. 108 Issue 504, p1339-1349.

    We propose a new data-augmentation strategy for fully Bayesian inference in models with binomial likelihoods. The approach appeals to a new class of Pólya–Gamma distributions, which are constructed in detail. A variety of examples are presented to show the versatility of the method, including logistic regression, negative binomial regression, nonlinear mixed-effect models, and spatial models for count data. In each case, our data-augmentation strategy leads to simple, effective methods for posterior inference that (1) circumvent the need for analytic approximations, numerical integration, or Metropolis–Hastings; and (2) outperform other known data-augmentation strategies, both in ease of use and in computational efficiency. All methods, including an efficient sampler for the Pólya–Gamma distribution, are implemented in the R packageBayesLogit. Supplementary materials for this article are available online.
  • Home Country Investor Protection, Ownership Structure and Cross-Listed Firms' Compliance with SOX-Mandated Internal Control Deficiency Disclosures.

    Gong, Guojin; Ke, Bin; Yu, Yong

    Contemporary Accounting Research. Winter 2013, Vol. 30 Issue 4, p1490-1523.

    We examine whether home country investor protection and ownership structure affect cross-listed firms' compliance with SOX-mandated internal control deficiency ( ICD) disclosures. We develop a proxy for the likelihood of cross-listed firms' ICD misreporting during the Section 302 reporting regime. For cross-listed firms domiciled in weak investor protection countries, we have three main findings. First, firms whose managers control their firms and have voting rights in excess of cash flow rights are more likely to misreport ICD than other firms during the Section 302 reporting regime. Second, there is a positive association between the likelihood of ICD misreporting and voluntary deregistration from the SEC prior to the Section 404 effective date. Third, for firms that chose not to deregister, there is a positive association between the likelihood of ICD misreporting and the reporting of previously undisclosed ICDs during the Section 404 reporting regime. We do not find similar evidence for cross-listed firms domiciled in strong investor protection countries. Our findings are consistent with the hypothesis that, for cross-listed firms domiciled in weak investor protection countries, managers who have the ability and incentive to expropriate outside minority shareholders are reluctant to disclose ICDs in order to protect their private control benefits. The results of our study should be of interest to regulators who wish to identify noncompliant firms for closer supervision, investors who wish to identify ex ante red flags for poor financial disclosure quality, and researchers who wish to understand the economic forces governing cross-listed firms' financial disclosure behavior.
  • Voice Flows to and around Leaders: Understanding When Units Are Helped or Hurt by Employee Voice

    Detert, James R., Burris, Ethan R., Harrison, David A., Martin, Sean R.

    Administrative Science Quarterly. December 2013, Vol. 58 Issue 4, p624-668.

    In two studies, we develop and test theory about the relationship between speaking up, one type of organizational citizenship behavior, and unit performance by accounting for where employee voice is flowing. Results from a qualitative study of managers and professionals across a variety of industries suggest that voice to targets at different formal power levels (peers or superiors) and locations in the organization (inside or outside a focal unit) differs systematically in terms of its usefulness in generating actions to a unit’s benefit on the issues raised and in the likely information value of the ideas expressed. We then theorize how distinct voice flows should be differentially related to unit performance based on these core characteristics and test our hypotheses using time-lagged field data from 801 employees and their managers in 93 units across nine North American credit unions. Results demonstrate that voice flows are positively related to a unit’s effectiveness when they are targeted at the focal leader of that unit—who should be able to take action—whether from that leader’s own subordinates or those in other units, and negatively related to a unit’s effectiveness when they are targeted at coworkers who have little power to effect change. Together, these studies provide a structural framework for studying the nature and impact of multiple voice flows, some along formal reporting lines and others that reflect the informal communication structure within organizations. This research demonstrates that understanding the potential performance benefits and costs of voice for leaders and their units requires attention to the structure and complexity of multiple voice flows rather than to an undifferentiated amount of voice.based pay). We argue that while challenging targets and target-based pay can hinder the discovery of production efficiencies, they can motivate high productive effort whereby individuals work harder and more productively using either the conventional task approach or more efficient task approaches when discovered. Results of a laboratory experiment support our predictions. Individuals assigned an easy productivity target and paid a fixed wage identify a greater number of production efficiencies than those with either challenging targets or target-based pay. However, individuals with challenging targets and/or target-based pay have higher productivity per production efficiency discovered, suggesting these control tools better motivate productive effort. Collectively, our results suggest that the ultimate effectiveness of these control tools will likely hinge on the importance of promoting the discovery of production efficiencies relative to motivating productive effort. In doing so, our results provide a better understanding of conflicting prescriptions from the practitioner literature and business press.
  • The influence of online word-of-mouth on long tail formation

    Gu, Bin, Tang, Qian, Whinston, Andrew B.

    Decision Support Systems. December 2013, Vol. 56, p474-481.

    The long tail phenomenon has been attributed to both supply side and demand side economies. While the cause on the supply side is well-known, research on the demand side has largely focused on the awareness effect of online information that helps consumers discover new and often niche products. This study expands the demand side factors by showing that online information also influences the long tail phenomenon through the informative effect, which affects consumers' evaluation of product quality. We examine the informative effect in the context of online WOM. Two sets of theories suggest opposite directions for the implication of the informative effect. Information search and information cascade literatures indicate that WOM provides additional information to consumers, reduces the occurrence of information cascade, and encourages the formation of long tail. Studies on behavior heuristics, however, suggest that consumers tend to ignore online information inconsistent with their prior beliefs, which leads to a rich-gets-richer effect for popular products and curtail the formation of the long tail. We empirically examine the conflict by analyzing different impacts of online WOM across product popularity and WOM ratings. Using a panel data collected from, we show that positive reviews improve the sales of popular products more than the sales of niche products, while negative reviews hurt niche products more than popular products. The results are consistent with the prediction of the behavior heuristic and suggest that online WOM restrains the formation of long tail.
  • Integration and Cospecialization of Emerging Complementary Technologies by Startups

    Anderson, Edward G., Parker, Geoffrey G.

    Production & Operations Management. November 2013, Vol. 22 Issue 6, p1356-1373.

    We analyze the market entry problem faced by startups that must integrate their service or product with one or more complementary technologies. The problem is especially challenging when the complementary technologies have uncertain cost reduction potentials. The entrepreneurship literature suggests that startups should pursue focused strategies for various reasons, including bounded rationality and budget constraints, but generally overlooks startups entering markets with complementary technologies. The advice for mature firms investing in complementary technologies is often to diversify investment across multiple complements to manage technological uncertainty. Given competing guidance, we seek to extend the entrepreneurship literature by modeling startups' entry decisions for markets in which complementary technologies exhibit strong learning effects. We find that, consistent with the extant entrepreneurship literature, startups generally achieve higher expected returns by channeling their integration investment to only one complementary technology. However, the mechanisms driving our results differ significantly by hinging on nonlinear feedback effects that occur when firms concentrate integration investment in only one complementary technology. Interestingly, this focused strategy often does not yield the highest market share or the lowest likelihood of bankruptcy. We characterize the situations under which each finding holds and describe the implications of these findings for theory, practice, and policy.
  • When are Enhanced Relationship Tax Compliance Programs Mutually Beneficial?

    De Simone, Lisa, Sansing, Richard C., Seidman, Jeri K.

    Accounting Review. November 2013, Vol. 88 Issue 6, p1971-1991.

    This study investigates the circumstances under which ''enhanced relationship'' tax-compliance programs are mutually beneficial to taxpayers and tax authorities, as well as how these benefits are shared. We develop a model of taxpayer and tax authority behavior inside and outside of an enhanced relationship program. Our model suggests that, despite the adversarial nature of the relationship, an enhanced relationship program is mutually beneficial in many settings. The benefits are due to lower combined government audit and taxpayer compliance costs. These costs are lower because taxpayers are less likely to claim positions with weak support and the government is less likely to challenge positions with strong support inside the program. Further, we show that an increase in the ability of the tax authority to identify uncertain tax positions makes an enhanced relationship tax-compliance program more attractive to both the taxpayer and the tax authority.
  • Financial Market Shocks and the Macroeconomy

    Subrahmanyam, Avanidhar, Titman, Sheridan

    Review of Financial Studies. November 2013, Vol. 26 Issue 11, p2687-2717.

    Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting with incumbent publicly traded firms and privately held new entrants. In this setting the equilibrium relation among stock prices and both future dividends and aggregate output depends on the strategic environment in which these firms operate. In general, under reasonable conditions, the relations between prices, dividends, and economic output in our framework are consistent with empirical evidence in the macroliterature. We also generate new, potentially testable, implications.
  • The Social Negotiation of Group Prototype Ambiguity in Dynamic Organizational Contexts

    Bartel, Caroline A., Wiesenfeld, Batia M.

    Academy of Management Review. October 2013, Vol. 38 Issue 4, p503-524.

    This article focuses on how the changing nature of work and working today elicits prototype ambiguity in groups-a shared perception among group members that the attributes, attitudes, and actions that define and describe the typical group member are unclear. We offer a functionalist account of prototype ambiguity identifying social contexts that reliably trigger ambiguity in group prototypes, group-level consequences of prototype ambiguity that motivate corrective action, and social negotiation processes by which group members adaptively resolve prototype ambiguity. We outline how group members' social negotiation efforts unfold in different but predictable ways (in response to specific triggers of prototype ambiguity) to yield emergent prototypes based on either central tendencies (as exemplified by the average group member) or ideals (as exemplified by the extraordinary group member). Concluding the article is a discussion of implications for research on social identity processes, group prototypes, and social hierarchies in organizations.
  • Trading Complex Assets

    Carlin, Bruce I.; Kogan, Shimon; Lowery, Richard

    Journal of Finance. October 2013, Vol. 68 Issue 5, p1937-1960.

    We perform an experimental study to assess the effect of complexity on asset trading. We find that higher complexity leads to increased price volatility, lower liquidity, and decreased trade efficiency especially when repeated bargaining takes place. However, the channel through which complexity acts is not simply due to the added noise induced by estimation error. Rather, complexity alters the bidding strategies used by traders, making them less inclined to trade, even when we control for estimation error across treatments. As such, it appears that adverse selection plays an important role in explaining the trading abnormalities caused by complexity.
  • Driven to Be Good: A Stakeholder Theory Perspective on the Drivers of Corporate Social Performance

    Brower, Jacob, Mahajan, Vijay

    Journal of Business Ethics. October 2013, Vol. 117 Issue 2, p313-331.  

    Despite growing evidence of the benefits to a firm of improving corporate social performance (CSP), many firms vary significantly in terms of their CSP activities. This research investigates how the characteristics of the stakeholder landscape influence a firm's CSP breadth. Using stakeholder theory, we specifically propose that several factors increase the salience and impact of stakeholders' demands on the firm and that, in response to these factors, a firm's CSP will have greater breadth. A firm's CSP breadth is operationalized as the number of different sub-domains of CSR for which a firm has taken positive actions and is captured using a unique dataset from Kinder, Lydenburg, and Domini (KLD). This data set includes positive and negative firm actions across more than 35 different dimensions of socially responsible behavior. Findings based on a longitudinal, multi-industry sample of 447 US firms during the period from 2000 to 2007 demonstrate that firms which: (1) have greater sensitivity to stakeholder needs as a result of the firm's strategic emphasis on marketing and/or value creation, (2) face greater diversity of stakeholder demands, and (3) encounter a greater degree of scrutiny or risk from stakeholder action have a greater breadth of CSP in response to the stakeholder landscape that they face.
  • Conspicuous Consumption and Dynamic Pricing

    Raghunath Singh Rao, Schaefer, Richard

    Marketing Science. September/October 2013, Vol. 32 Issue 5, p786-804.

    How do firms develop marketing strategy when consumers seek to satisfy both quality and status-related considerations? We develop an analytical model to study this issue, examining both pricing and product management decisions in markets for conspicuous durable goods. Our analysis yields many interesting and nontrivial insights. First, we demonstrate that high intrinsic quality indirectly generates exclusivity via pricing effects; in turn, this exclusivity generates considerable social payoffs where consumers value status. This insight reverses the direction of causality in the existing literature, wherein only status considerations matter and mere price increases may enhance consumer utility. Second, our dynamic model indicates that where consumers prioritize status benefits, producers incur substantial price depreciation in equilibrium. Third, we examine the product management strategies used by firms to preserve early adopter exclusivity. Finally, we discuss the boundary conditions of our results as well as our results' implications for managerial and policy issues.
  • A competition-based explanation of collaborative invention within the firm

    Toh, Puay Khoon; Polidoro, Francisco.

    Strategic Management Journal. October 2013, Vol. 34 Issue 10, p1186-1208. 

    Existing literature shows that collaborative invention within the firm enhances innovativeness by facilitating knowledge recombination. Despite such benefit, firms vary in their use of collaborative invention when drawing on their individual inventors' knowledge. In addressing this puzzle, we argue that competition from rival products building on similar knowledge compels firms to favor search depth over exploratory search and respond expeditiously, thus reducing a firm's inclination toward collaborative invention. In contrast with prior research's focus on how upstream resources influence a firm's position in downstream markets, this study shows that downstream competition drives heterogeneity across firms in their utilization of upstream resources.
  • Incorporating Longevity Risk and Medical Information Into Life Settlement Pricing

    Brockett, Patrick L.; Chuang, Shuo-li; Deng, Yinglu; MacMinn, Richard D.

    Journal of Risk and Insurance. September 2013, Vol. 80 Issue 3, p799-826.

    A life settlement is a financial transaction in which the owner of a life insurance policy sells his or her policy to a third party. We present an overview of the life settlement market, exhibit its susceptibility to longevity risk, and discuss it as part of a new asset class of longevity-related securities. We discuss pricing where the investor has updated information concerning the expected life expectancy of the insured as well as perhaps other medical information obtained from a medical underwriter. We show how to incorporate this information into the investor's valuation in a rigorous and statistically justified manner. To incorporate medical information, we apply statistical information theory to adjust an appropriate prespecified standard mortality table so as to obtain a new mortality table that exactly reflects the known medical information. We illustrate using several mortality tables including a new extension of the Lee-Carter model that allows for jumps in mortality and longevity over time. The information theoretically adjusted mortality table has a distribution consistent with the underwriter's projected life expectancy or other medical underwriter information and is as indistinguishable as possible from the prespecified mortality model. An analysis using several different potential standard tables and medical information sets illustrates the robustness and versatility of the method.
  • Partial Factor Modeling: Predictor-Dependent Shrinkage for Linear Regression

    Hahn, P. Richard, Carvalho, Carlos M., Mukherjee, Sayan

    Journal of the American Statistical Association. September 2013, Vol. 108 Issue 503, p999-1008.  

    We develop a modified Gaussian factor model for the purpose of inducing predictor-dependent shrinkage for linear regression. The new model predicts well across a wide range of covariance structures, on real and simulated data. Furthermore, the new model facilitates variable selection in the case of correlated predictor variables, which often stymies other methods.
  • Rating Shopping or Catering? An Examination of the Response to Competitive Pressure for CDO Credit Ratings

    Griffin, John M.; Nickerson, Jordan; Tang, Dragon Yongjun

    Review of Financial Studies. September 2013, Vol. 26 Issue 9, p2270-2310.

    We examine whether “rating shopping” or “rating catering” is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs). Although investors paid a premium for dual ratings, AAA CDO tranches rated by both Moody's and S&P defaulted more frequently than tranches rated by only one of them, which is inconsistent with pure rating shopping. Rating agencies made upward adjustments beyond their model when their competitor had more lenient assumptions. Finally, consistent with rating catering, S&P's and Moody's adjustments and disagreements at security issuance were reflected in subsequent rating downgrades, suggesting that adjustments were harmful.
  • How Finnair Socialized Customers for Service Co-Creation with Social Media

    Jarvenpaa, Sirkka L.; Tuunainen, Virpi Kristiina

    MIS Quarterly Executive. September 2013, Vol. 12 Issue 3, p125-136. 12p.

    Firms are increasingly using social media to establish online communities where customers and other community members co-create new solutions. We describe how Finland's national airline, Finnair, succeeded in co-creating service ideas by using a variety of social media technologies and "socialization tactics" to help ensure that community members identified with the company's image and engaged in dialogs that were aligned with both company and customer needs.
  • Why does junior put all his eggs in one basket? A potential rational explanation for holding concentrated portfolios.

    Roche, Hervé; Tompaidis, Stathis; Yang, Chunyu

    Journal of Financial Economics. September 2013, Vol. 109 Issue 3, p775-796. 

    Empirical studies of household portfolios show that young households, with little financial wealth, hold underdiversified portfolios that are concentrated in a small number of assets, a fact often attributed to behavioral biases. We present a potential rational alternative: we show that investors with little financial wealth, who receive labor income, rationally limit the number of assets they invest in when faced with financial constraints such as margin requirements and restrictions on borrowing. We provide theoretical and numerical support for our results and identify the ratio of financial wealth to labor income as a useful control variable for household portfolio studies.
  • Discussion of 'The Economics of Setting Auditing Standards'

    Caskey, Judson

    Contemporary Accounting Research. Fall 2013, Vol. 30 Issue 3, p1216-1222. 

    The article details the paper by Ye and Simunic (YS) that analyzes the preferences of investors and auditors for auditing standards. It this paper, YS modeled two dimensions of auditing standards which are toughness and vagueness. Toughness refers to typical level of efforts that would be judged adequate and would project the auditor from liability while vagueness refers to variation around the toughness level due to uncertainty about how the standards of a particular journey might be interpreted.
  • Don't Kid Yourself, You're Biased

    Prentice, Robert A.; Valine, Yousef A.

    RMA Journal. July/August 2013, Vol. 95 Issue 10, p12-17.

    The article offers tips for risk management leaders to avoid cognitive biases in complex decision making. It suggests that these risk leaders should understand and design an organizational culture to overcome bias. Other suggestions include fact-based decision making, determination of circumstances that hinder risk management, and rewarding positive organizational behavior such as transparency.
  • Financial Markets and Investment Externalities

    Titman, Sheridan

    Journal of Finance. August 2013, Vol. 68 Issue 4, p1307-1329.

    This address explores the link between financial market shocks, investment choices, and various externalities that can arise from these choices. My analysis, which emphasizes differences between shocks to debt and equity markets, provides insights about some stylized facts from the macro finance literature. These insights are illustrated with a discussion of the technology boom and bust in the late 1990s and early 2000s, and the housing boom and bust in the mid-2000s.
  • Productivity-Target Difficulty, Target-Based Pay, and Outside-the-Box Thinking

    Webb, R. Alan; Williamson, Michael G.; Yue (May) Zhang

    The Accounting Review. July 2013, Vol. 88 Issue 4, p1433-1457.

    In an environment where individual productivity can be increased through efforts directed at a conventional task approach and more efficient task approaches that can be identified by thinking outside-the-box, we examine the effects of productivity- target difficulty and pay contingent on meeting and beating this target (i.e., target- based pay). We argue that while challenging targets and target-based pay can hinder the discovery of production efficiencies, they can motivate high productive effort whereby individuals work harder and more productively using either the conventional task approach or more efficient task approaches when discovered. Results of a laboratory experiment support our predictions. Individuals assigned an easy productivity target and paid a fixed wage identify a greater number of production efficiencies than those with either challenging targets or target-based pay. However, individuals with challenging targets and/or target-based pay have higher productivity per production efficiency discovered, suggesting these control tools better motivate productive effort. Collectively, our results suggest that the ultimate effectiveness of these control tools will likely hinge on the importance of promoting the discovery of production efficiencies relative to motivating productive effort. In doing so, our results provide a better understanding of conflicting prescriptions from the practitioner literature and business press.
  • When Do Transparent Packages Increase (or Decrease) Food Consumption?

    Xiaoyan Deng; Srinivasan, Raji

    Journal of Marketing. July 2013, Vol. 77 Issue 4, p104-117

    Transparent packages are pervasive in food consumption environments. Yet prior research has not systematically examined whether and how transparent packaging affects food consumption. The authors propose that transparent packaging has two opposing effects on food consumption: it enhances food salience, which increases consumption (salience effect), and it facilitates consumption monitoring, which decreases consumption (monitoring effect). They argue that the net effect of transparent packaging on food consumption is moderated by food characteristics (e.g., unit size, appearance). For small, visually attractive foods, the monitoring effect is low, so the salience effect dominates, and people eat more from a transparent package than from an opaque package. For large foods, the monitoring effect dominates the salience effect, decreasing consumption. For vegetables, which are primarily consumed for their health benefits, consumption monitoring is not activated, so the salience effect dominates, which ironically decreases consumption. The authors' findings suggest that marketers should offer small foods in transparent packages and large foods and vegetables in opaque packages to increase postpurchase consumption (and sales).