Inside McCombs
When it comes to research and theory, McCombs consistently ranks as one of the top business schools in the United States, with faculty and doctoral students producing groundbreaking work across a wide spectrum of disciplines. Below are a few current topics being studied at McCombs
FACULTY RESEARCH
Is Fairness Important to All Employees?
A study co-authored by Caroline Bartel, assistant professor of management, found that current theories about the importance of organizational justice might need to be rethought. In a paper published in the Academy of Management Journal, Bartel and her colleagues studied workers at large companies in the midst of downsizing or restructuring and discovered that employees with low self-esteem tend to regard organizational justice with indifference.
“Organizational justice has been described as the glue that holds organizations together,” Bartel said. “It is widely believed that people place significant value on being treated fairly and respond positively to organizations that do so. However, our research suggests that in many instances this is not the case.”
The researchers did find a positive relationship between fairness and company loyalty among those with high self-esteem. But that changed when they studied employees with low self-esteem.
Said Bartel, “Given the current business environment where restructurings and downsizing have become a common state of affairs, our research should serve as a warning: while organizational justice may be valuable, companies should not overestimate its ability to foster trust and loyalty from all employees.”
Gu E-Commerce Research Wins Best Paper
Research co-authored by Bin Gu, assistant professor in the Department of Information, Risk, and Operations Management (IROM), was named Best Paper in Track at the 2007 International Conference on Information Systems. The paper, “Estimating Menu Costs in Electronic Markets,” examines the costs online retailers incur when they make price changes.
“Common wisdom suggests that information technology advances allow online retailers to change prices quickly and with less cost,” Gu said. “In the paper, however, we measured the price adjustment costs of a major online retailer and found the company actually incurred significantly higher costs for each price change. But the price change costs were spread across a larger quantity of products, reducing price adjustment costs per product.” Therefore, Gu’s research suggests, scale economies rather than IT enables online retailers to change prices more often.
Clement Analyzes the Analysts
Michael Clement, associate professor of accounting, has always been fascinated by Wall Street’s high-paid stock pickers. “Anytime I see someone making that much money, I wonder if they really are that good, and if some are actually better than others,” said Clement, who spoke Feb. 12 on the topic as part of the undergraduate program’s Faculty Research Presentation Speaker Series.
In his research, Clement has found that a stock analyst’s forecast accuracy improves with experience. “If you see 20 analysts following Intel, listen to the one who has the most experience, in general and with Intel specifically,” he said.
Accuracy declines as more firms and industries are added to an analyst’s responsibilities. “If you take too many classes, then your grades start to suffer, and you can’t stay on top of the homework,” Clement said by way of example. “So as an analyst starts to follow a whole lot of companies, they can’t do as good a job on each one.”
Clement has also researched the relationship between analysts and company executives. In one study, Clement and his co-author showed that even the smallest favors from an executive to an analyst can help secure better stock ratings for their firm.
“We are not talking about blatant bribery, and these favors aren’t illegal,” Clement said. “But it is more than just socializing.”
They found that analysts who received at least two favors were half as likely as colleagues who did not receive favors to downgrade a company after a report of poor results. In the wake of a diversifying acquisition by a company—a move generally frowned upon by Wall Street because it moves a company away from its core markets—favor-rendering reduced the likelihood of a downgrade by 65 percent.
Good Intentions are Not Enough
Robert Prentice, professor of business law in the IROM Department, applied recent findings from neurology and psychology to analyze how investors and their advisers make moral decisions. The resulting paper, “Ethical Decision Making: More Needed Than Good Intentions,” received the Investment Management Consultants Association’s 2008 Richard Davis Ethics Award following its appearance in Financial Analysts Journal.
The paper demonstrates that investment professionals whose ethics derail frequently believe they hold solid moral values individually but succumb to the questionable culture of their organizations. Prentice also has anecdotal evidence to back it up. He met several corporate criminals and has found that most are just like him—nice people who got caught up in something.
“I stopped fooling myself that I am somehow better than them. There are many nice people sitting in jail right now,” he said. “The urge to obey authority and conform to the group is deeply embedded in the human brain.” Prentice says employees must always remain aware of the potential ethical pitfalls that surround them.
Getting that “Warm Glow”
What happens when a company promotes its brand by donating to a social cause triggered by the brand’s purchase? For example, Yoplait donates 10 cents to breast cancer research for each pink yogurt lid that customers return to the company. Researchers like Assistant Professor of Marketing Ty Henderson call this an embedded premium (EP), and have found that EPs can make a weak brand stronger and help consumers feel better about their purchases.
“Buying a brand with an EP is like killing two birds with one stone: consumers get the product they need, and they get that warm-glow feeling from helping a cause,” Henderson said. Although there has always been a socially engaged market segment, the recent popularity of “green” products suggests EPs may have a wider appeal. In a paper published in Marketing Science, Henderson and his co-author examined the value of embedded premiums. “With the proliferation of cause-related marketing, we wanted to put some pages in the management playbook for brand managers thinking about using EPs,” Henderson said.
Using experiments and econometric models, Henderson and his colleague held a series of “horse races,” pitting EP promotions such as ones linked to the Red Cross against traditional price promotions like coupons—both valued at 10 cents. Although at higher dollar values price promotions beat EPs, at low levels like 10 cents, the researchers found that EPs beat the coupons. “EPs are not a replacement for existing price promotion tactics, but our research suggests that EPs should be considered a viable component of a manager’s strategic marketing options.”
Diversify, Diversify
In a paper to be published in Review of Finance, Alok Kumar, assistant professor of finance, and his co-author show that many individual investors in the U.S. hold portfolios that aren’t sufficiently diversified to reduce or eliminate risk. That might not come as a shock to many who study the average investor. But Kumar’s research also outlines the type of person who is under-diversified. “The level of under-diversification is greater among younger, low-income, less-educated and less sophisticated investors,” Kumar said.
The paper also finds the level of under-diversification accompanies investment choices that show overconfidence, trend-following behavior and local bias.
The study examines choices of individual investors during a recent six-year period using data from a large U.S. discount brokerage house.
Kumar said there is little evidence that portfolio size or transaction costs constrain diversification and that most investors could have improved the performance of their portfolios by simply investing in one of the many available passive index funds.
McCombs Research Awards
The 2007-08 McCombs Research Excellence Grants were given to the following faculty: Assistant Finance Professors Ilan Guedj and Jennifer Huang for “A Comparison of Index Funds and ETFs” (exchange-traded funds); Management Professor and Department Chair Pamela Haunschild for “Consequences of Prestige and Performance in the Market for Directors”; Assistant Management Professor Ethan Burris for “Employee Voice (and Missed) Opportunities for Learning in Credit Unions”; IROM Professor Prabhudev Konana for “Can IT-Enabled Government Services Lower Corruption?”; and Assistant Professor Huseyin Tanriverdi in the IROM Department for “Role of Information Technology Preparedness in Performance of Corporate Divestitures.”
At the annual faculty teaching and research awards ceremony, held May 6, Raj Raghunathan, associate professor of marketing, earned the McCombs Award for Research Excellence. Aydogan Alti, of the Finance Department, took home the CBA Foundation Research Excellence Award for Assistant Professors.
