Faculty and Research | Recent Publications
Our driven faculty at McCombs School of Business writes and publishes a large body of work each year that spans all areas of business expertise. Explore what McCombs research has to offer.
Inter-industry network structure and the cross-predictability of earnings and stock returns.
Aobdia, Daniel; Caskey, Judson; Ozel, N.
Review of Accounting Studies. September 2014, Vol. 19 Issue 3, p1191-1224.
We examine how the patterns of inter-industry trade flows impact the transfer of information and economic shocks. We provide evidence that the intensity of transfers depends on industries' positions within the economy. In particular, some industries occupy central positions in the flow of trade, serving as hubs. Consistent with a diversification effect, we find that these industries' returns depend relatively more on aggregate risks than do returns of noncentral industries. Analogously, we find that the accounting performance of central industries associates more strongly with macroeconomic measures than does the accounting performance of noncentral industries. Comparing central industries to noncentral ones, we find that the stock returns and accounting performance of central industries better predict the performance of industries linked to them. This suggests that shocks to central industries propagate more strongly than shocks to other industries. Our results highlight how industries' positions within the economy affect the transfer of information and economic shocks.
Conservatism and Equity Ownership of the Founding Family.
Chen, Shuping; Chen, Xia; Cheng, Qiang
European Accounting Review. July 2014, Vol. 23 Issue 3, p403-430.
We investigate the impact of founding family ownership on accounting conservatism. Family ownership is characterized by large, under-diversified equity stake and long investment horizon. These features give family owners both the incentives and the ability to implement conservative financial reporting to reduce legal liability and mitigate agency conflicts with other stakeholders. Since CEOs can have different incentives towards conservatism, we focus on ownership of non-CEO founding family members in our investigation. We find that conservatism increases with non-CEO family ownership, supporting our prediction. This relationship becomes insignificant in family firms with founders serving as CEOs, either due to founder CEOs' incentives to implement more conservative financial reporting or their power to thwart non-CEO family owners' demand for conservatism. Overall, our paper adds to the literature on the impact of founding family ownership on firms' financial reporting policy. Our findings are consistent with the recent evidence in the family-firm literature that founding families exhibit substantial incentives to reduce agency and litigation costs and to maximize firm value.
Understanding the Realities of Modern Patent Litigation.
Allison, John R.; Lemley, Mark A.; Schwartz, David L.
Texas Law Review. June 2014, Vol. 92 Issue 7, p1769-1801.
Sixteen years ago, two of us published the first detailed empirical look at patent litigation. In this Article, we update and expand the earlier study with a new hand-coded data set. We evaluate all substantive decisions rendered by any court in every patent case filed in 2008 and 2009--decisions made between 2009 and 2013. We consider not just patent validity but also infringement and unenforceability. Moreover, we relate the outcomes of those cases to a host of variables, including variables related to the parties, the patents, and the courts in which those cases were litigated. The result is a comprehensive picture of the outcomes of modern patent litigation, one that confirms conventional wisdom in some respects but upends it in others. In particular, we find a surprising amount of continuity in the basic outcomes of patent lawsuits over the past twenty years, despite rather dramatic changes in who brought patent suits during that time.
Electoral regime and trade policy.
Hatfield, John William; Jr.Hauk, William R.
Journal of Comparative Economics. August 2014, Vol. 42 Issue 3, p518-534.
We study how trade protection varies with the electoral rules for legislative representation. In particular, we investigate different hypotheses about why trade policy differs between countries with legislatures elected by a plurality election rule in single member constituencies and legislatures elected by a proportional, or party-list, rule. Our results, which are in line with the existing literature, show that countries with list-PR systems tend to have lower trade barriers than countries with majoritarian systems. We expand on this literature by looking at the mechanisms through which this correlation can be explained. Our findings indicate that, contrary to existing theory, neither constituency size nor party strength are important when explaining this correlation. Country size does matter, but does not explain the whole of the correlation.
A Bayesian Nonparametric Test for Minimal Repair.
Li, Li; Hanson, Timothy; Damien, Paul; Popova, Elmira
Technometrics. August 2014, Vol. 56 Issue 3, p393-406.
The article develops a Bayesian nonparametric reliability model for recurrent events where failure and truncated time-to-failure density shape is regressed on past maintenance decisions: perfect repair and minimal repair. By comparing the system interfailure lifetime distributions after minimal and perfect repair, we are able to test the minimal repair assumption of “good as old.” Interfailure hazard functions after perfect and minimal repairs are estimated, shedding light on departures from minimal repair. The method is illustrated both on simulated data as well as failure time data from air-conditioning units at the South Texas Nuclear Operating Company near Bay City, Texas. This article has supplementary material online.
The Bayesian bridge.
Polson, Nicholas G.; Scott, James G.; Windle, Jesse
Journal of the Royal Statistical Society: Series B (Statistical Methodology). September 2014, Vol. 76 Issue 4, p713-733.
We propose the Bayesian bridge estimator for regularized regression and classification. Two key mixture representations for the Bayesian bridge model are developed: a scale mixture of normal distributions with respect to an α-stable random variable; a mixture of Bartlett-Fejer kernels (or triangle densities) with respect to a two-component mixture of gamma random variables. Both lead to Markov chain Monte Carlo methods for posterior simulation, and these methods turn out to have complementary domains of maximum efficiency. The first representation is a well-known result due to West and is the better choice for collinear design matrices. The second representation is new and is more efficient for orthogonal problems, largely because it avoids the need to deal with exponentially tilted stable random variables. It also provides insight into the multimodality of the joint posterior distribution, which is a feature of the bridge model that is notably absent under ridge or lasso-type priors. We prove a theorem that extends this representation to a wider class of densities representable as scale mixtures of beta distributions, and we provide an explicit inversion formula for the mixing distribution. The connections with slice sampling and scale mixtures of normal distributions are explored. On the practical side, we find that the Bayesian bridge model outperforms its classical cousin in estimation and prediction across a variety of data sets, both simulated and real. We also show that the Markov chain Monte Carlo algorithm for fitting the bridge model exhibits excellent mixing properties, particularly for the global scale parameter. This makes for a favourable contrast with analogous Markov chain Monte Carlo algorithms for other sparse
How do IT outsourcing vendors respond to shocks in client demand? A resource dependence perspective.
Su, Fang; Mao, Ji-Ye; Jarvenpaa, Sirkka L.
Journal of Information Technology (Palgrave Macmillan). September 2014, Vol. 29 Issue 3, p253-267.
IT outsourcing vendors depend on projects from their clients to reap gains and develop capabilities. Because of this dependence, vendors are vulnerable to shocks in client demand. However, the extant literature on how vendors mitigate the damage from demand shocks is very limited. This multiple case study examined five pairs of relationships between Chinese vendors and their Japanese clients, drawing on resource dependence theory, which considers two response strategies: bridging and buffering. Our findings suggest that both bridging and buffering should be specified further on the basis of their explorative and exploitative dimensions, and that the choice of a particular strategy depended on the power relation between the vendor and client. Results show that when the client was in a high-power advantage, the vendor chose bridging. More specifically, if the vendor also had high power, it adopted explorative bridging; otherwise, it adopted exploitative bridging. When the client was in a low-power position, the vendor would pursue explorative buffering. Exploitative buffering was a common response to demand shocks, independent of the dyadic power relation.
Adaptation to Temporal Shocks: Influences of Strategic Interpretation and Spatial Distance.
Pérez-Nordtvedt, Liliana; Khavul, Susanna; Harrison, David A.; McGee, Jeffrey E.
Journal of Management Studies. September 2014, Vol. 51 Issue 6, p869-897.
Even when shocks in a firm's environment are predictable, their consequences are not. Using the relocation of the Dallas Cowboys Stadium as a rich case of such a disruption, we investigate how combinations of strategic interpretation and spatial distance influence incumbent business owners' decisions to pursue temporal adaptation as a response. Temporal adaptation (TA) comprises timing rather than content changes by the firm seeking to adjust to the reconfigured environment. Survey data from 168 business owners show that strategic interpretation directly influences TA decisions. However, the effect of strategic interpretation on the TA decision is moderated by the spatial (geographic) distance of the incumbent firm from the locus of the disruption. Furthermore, results suggest that through strategic interpretation, spatial distance also indirectly affects the business owners' decisions to make temporal changes. Data collected 1.5 and 4 years later suggest that TA responses are related to performance and may be indicative of a particular type of TA, organizational entrainment (OE), which concerns the synchronization of organizational activity cycles with cycles in the environment.
Decision Difficulty in the Age of Consumer Empowerment.
Broniarczyk, Susan M.; Griffin, Jill G.
Journal of Consumer Psychology (Elsevier Science). October 2014, Vol. 24 Issue 4, p608-625.
In this review, we examine the impact of two key factors of consumer empowerment--choice freedom and expansion of information--on the choice difficulty consumers experience in today's decision environment. We posit that though these two consumer empowerment factors offer numerous potential benefits, they also can magnify such sources of decision difficulty as task complexity, tradeoff difficulty, and preference uncertainty. Next we review several key moderators, including consumer knowledge, mental representation, and maximization tendencies as well as information type and organization, that can exacerbate or mitigate the effect of these consumer empowerment factors on decision difficultly outcomes. Lastly, we examine the effectiveness of decision aids in assisting consumers navigate the complexity of today's decision environment, and we identify areas for future investigation.
A Rose by Any Other Name: Are Family Firms Named After Their Founding Families Rewarded More for Their New Product Introductions?
Kashmiri, Saim; Mahajan, Vijay
Journal of Business Ethics. September 2014, Vol. 124 Issue 1, p81-99.
The authors explore the relation between the way different family firms are named, and the shareholder value impact of these firms' new product introductions. Using an event study of 1,294 product introduction announcements of 107 publicly listed U.S. family firms, the authors find that the presence of the founding family's name as part of a family firm's name acts as a valuable firm resource, increasing the abnormal stock returns surrounding the firm's new product introductions. Superior returns to family-named firms' new product introductions are partially mediated by these firms' history of ethical product-related behavior: family-named firms, particularly those with corporate branding, and those wherein a founding family member holds the CEO or chairman position, are more likely to exhibit a history of avoiding such product-related controversies as product safety issues, and deceptive advertising. The authors highlight the managerial and theoretical contributions of this research.