Faculty Awarded 2007-2008

April 18, 2008
McCombs Research Excellence Grants

The McCombs Research Excellence Grant program recognizes and promotes research excellence in the McCombs School by supporting influential and high quality faculty research projects.

The grants are awarded based on competitive project proposals, and can be used to cover substantive research expenses (such as data gathering costs, graduate assistantships and database purchases). Criteria for awarding Research Excellence Grants include the novelty and likely academic impact of the proposed research, potential to significantly enhance the research reputation of the faculty and the school, and prospects for facilitating collaboration among faculty members.

For the 2007-2008 period, Research Excellence Grants were awarded to the following projects:

• "A Comparison of Index Funds and ETFs":
  Ilan Guedj and Jennifer Huang

• "Consequences of Presitge and Performance in the Market for Directors" :
  Pamela Haunschild

• "Can IT-enabled Government Services Lower Corruption?":
  Prabhudev Konana

• "Role of Information Technology Preparedness in Performance of Corporate Divestitures":
  Huseyin Tanriverdi

• "Employee Voice (and missed) Opportunities for Learning in Credit Unions":
  Ethan Burris

A Comparison of Index Funds and ETFs

Ilan Guedj and Jennifer Huang

Index Mutual Funds (OEF) were lunched by Vanguard in 1976, by 1999 the accounted for 17% of equity fund assets, but the dominance of the OEFs came to a virtual halt. That 9% asset share of 1999 has grown to only 10% today. The extra 7% in index fund market share have been accounted for by a variant of that original investment form, the Exchange-Traded Fund (ETF). Although ETFs appear to perform the same economic task as Open-End Index Mutual Funds (OEF), to track the underlying index, there is an important difference in their organizational structures. Namely, investors submit their orders to purchase or redeem shares directly to the OEF. The orders are pooled at the fund level and executed at the end-of day fund price, which is determined mechanically by the closing prices of its underlying stocks. Other than loads for some funds (which is rare for index funds), investors do not pay any transaction costs. To the extend that the fund needs to liquidate or purchase underlying stocks to meet these transactions or to maintain the trading platform to implement these trades, all investors in the fund (including those not transacting) share the cost through decreased fund performance or management fees. On the other hand, investors can purchase or sell shares of ETFs in the stock market throughout the day at the market price of the ETF, which in theory can deviate from the price of its underlying stocks. Each investor pays both the explicit transaction cost of brokerage fees and the implicit cost of price impacts due to his trades. Moreover, ETFs are transacted between institutional investors and individual investors, while OEFs separate the two. Our study attempts to compare the two form of indexing in order to better understand when one is better for the individual investor. Moreover, the study attempts to better understand the cost and advantages of allowing institutional and individual investor to trade those index funds with each other when their goals are different.

Consequences of Presitge and Performance in the Market for Directors

Pamela Haunschild

A reasonable assumption, which has been confirmed by some recent research, is that board member turnover at a firm increases when the firm suffers from severe underperformance or is found to have committed some illegitimate action. However, there has been little research attention paid to what happens to these individuals later. It is possible that these individuals later get asked onto boards of other firms with equal or better reputation than the one they left, thus resulting in a “market failure” in the sense that the market has failed to discipline poor director performance. This also raises a broader issue of how different aspects of a director’s personal and professional reputation affect his/her future success in the market for board appointments. In a longitudinal study with 9691 director-year observations from 1996 to 2003, we test hypotheses about how director prestige, illegitimate actions, and firm performance affect individual outcomes in the market for directors. Additionally and paradoxically, we predict that actions typically thought of as good governance on the part of outside directors will worsen their labor market outcomes because they threaten the interests of the corporate elite. This research should contribute to our understanding of the market for director labor, including factors that affect the likelihood of obtaining future director appointments and the quality and quantity of those appointments.

Can IT-enabled Government Services Lower Corruption?

Prabhudev Konana

Corruption is an endemic problem worldwide. According to the Corruption Perceptions Index 2006, over 73% of the nations have a score of below 5 on a scale of 0 to 10 (0 being highly corrupt and 10 highly clean). Emerging economies such as Brazil, Russia, India and China (BRIC countries) that have attracted substantial interest all have a score of 3.3 or less suggesting highly corrupt states. Many strategies have been proposed to fight corruption by influencing economic policies and institutions (e.g., judiciary), and introducing incentives in emerging economies. However, there is excitement in using information technology (IT) that touches common citizens to lower corruption. Early e-government initiatives in India have shown some promise. But, there are no systematic studies that have paid attention to details and how and why IT can lower corruption. This study develops a model and empirically validates on reducing corruption through IT. This research builds on insights from process reengineering and business value of IT and extends to incorporate challenges in governmental services within social, political, economic, and infrastructural complexity of emerging economies. The study involves large-scale survey of citizens from different economic strata and regions. This is a collaborative research with Prof. Ravi Bapna at the Indian School of Business, Hyderabad, India.

Role of Information Technology Preparedness in Performance of Corporate Divestitures

Huseyin Tanriverdi

Corporate divestitures are prevent and financially significant across almost all sectors of the economy. They usually entail carving out or retaining strategic business units manufacturing facilities, products, services or assets. Business processes and operations of these entities are supported by IT systems. Thus, a corporate divestiture implies that previously integrated IT systems be disentangled and reconfigured to support the independent operations of the divested and divesting organizations. Properly managing this process is critical to the achievement of intended objectives of the divestiture. However, we know very little about IT challenges and IT management practices in divestitures. There is urgent need for high-quality academic research that informs how successful firms do IT due diligence in the pre-divestiture planning and negotiation phases, what kinds of IT strategies and management practices they use during the implementation phase of the divestiture, and how and why those IT strategies and management practices influence the performance of divestitures. This study will begin to answer these questions by first conducting in-depth case studies of a few corporate divestitures. It will build on the case studies to develop theory about the role of IT in the success of divestitures. Then, it will survey a large sample of divestitures to test the theory. The study will generate new knowledge about IT management best practices in corporate divestitures. The findings will be targeted for publication in academic and practitioner journals. In addition, a teaching case will be developed to facilitate the discussion of IT challenges in corporate divestitures.

Employee Voice (and missed) Opportunities for Learning in Credit Unions

Ethan Burris

Getting employees at all levels to speak up with improvement-oriented comments - that is, to exercise their voice - is imperative for organizational effectiveness because the knowledge needed to make appropriate, timely adjustments to a firm is increasingly unlikely to reside solely at the top of an organization. Despite the many benefits of voice, most individuals do not work in environments where they believe that they can safely or effectively speak up. Prior research has highlighted personality (e.g., extraversion) and leadership behaviors (e.g., openness) as important influences on employee decisions to speak up or stay silent, however little attention has been directed toward the content of what ideas are voiced. Our research aims to investigate whether some employees may be in better positions to offer unique insights that are critical for organizational success than others.

Drawing on existing theory, we argue that individuals whose social networks bridge across different groups are likely to have access to more diverse sets of information and experience and therefore can contribute higher quality ideas. Yet, the very same characteristics that enable these individuals to glean significant insights may also hinder their ability to successfully convey these ideas to those with the power to take action. Specifically, brokering a relationship between two distinct social networks often requires individuals to remain on the periphery of both groups and be less integrated in either one, both of which can make challenging the status quo (the definition of voice) more risky. Thus, individuals who span several networks will have better quality ideas but be more reluctant in conveying those ideas to their superiors.

Through collecting survey and archival data from over 200 branches in twelve credit unions throughout the United States, our study seeks to offer new insights into 1) who stands in the best positions to offer high quality ideas for improving their organization – i.e., who actually has good ideas; 2) who stands in the best positions to speak up – i.e., who feels capable of getting these ideas to key decision makers without undue personal risk; and 3) what patterns of improvement-oriented communication – i.e., what network configurations – are most effective for organizational learning.

This stream of research is important theoretically and practically – in one study, 70% of 260 interviewees across industry and job type had hesitated to speak up because they feared repercussions; in another, only 51% of thousands of employees in a Fortune 100 multinational responded favorably to the survey question, “Most of the time it is safe to speak up” – but despite the obvious and great need, there is little research on which employees speak up, to whom, and about what.

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