Business decisions
Local Happiness and Firm Behavior: Do Firms in Happy Places Invest More?
Tuugi Chuluun & Carol Graham
Journal of Economic Behavior & Organization, May 2016, Pages 41–56
Abstract:
We examine a previously unexplored relationship between local happiness and firm investment. We looked at investment in general and R&D intensity in particular, as the relatively intangible nature of the latter may make it more subject to the effects of sentiment and affect. We find that average local happiness is positively correlated with both R&D intensity and firm investment, after controlling for firm and local area characteristics. This positive relationship may be due to the optimism and longer term perspectives that are typically associated with higher levels of life satisfaction/happiness. We also look at inequality in happiness levels and find that the effect of local happiness is stronger in places with more equal happiness distributions. Younger firms’ investment behavior is also more strongly correlated with local happiness levels. The results remain robust to a battery of robustness tests including the use of residual and hedonic measures of happiness, analysis of a sample of relocated firms, and a test for reverse causality.
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Commuting with a Plan: How Goal-Directed Prospection Can Offset the Strain of Commuting
Jon Jachimowicz et al.
Harvard Working Paper, January 2016
Abstract:
To get to work, employees need to commute. Across the globe, the average commute is 38 minutes each way per day. It is well known that longer commutes have negative effects on employees’ well-being and job-related outcomes. Yet, commuting may not similarly affect all employees, since some of them may naturally engage in behaviors to offset the negative effects of longer commutes. Drawing on psychological research on self-control, we theorize how engaging in future-oriented thinking about the tasks to complete during the workday (i.e., goal-directed prospection) while commuting to work influences work outcomes. Across two field studies and one field experiment, we find that individuals higher in trait self-control are less likely to report negative effects of longer commutes. While commuting, individuals with higher trait self-control engage in goal-directed prospection, partially offsetting the strain of commuting. In a field experiment, individuals asked to engage in goal-directed prospecting during commuting reported higher levels of job satisfaction and lower levels of emotional exhaustion. Although commuting is typically seen as the least desirable part of an employee’s day, our theory and results point to the benefits of viewing it as a useful time period to engage in goal-directed prospection.
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Mutual Fund Transparency and Corporate Myopia
Vikas Agarwal, Rahul Vashishtha & Mohan Venkatachalam
Duke University Working Paper, February 2016
Abstract:
Pressure from institutional money managers to generate profits in the short run is often blamed for corporate myopia. Theoretical research suggests that money managers’ short term focus stems from their career concerns and greater fund transparency can amplify these concerns. Using a difference-in-differences design around a regulatory shock that increased transparency about fund managers’ portfolio choices, we examine whether increased transparency encourages myopic corporate investment behavior. We find that corporate innovation declines following the regulatory shock. Moreover, evidence from mutual fund trading behavior corroborates that these results are driven by increased short-term focus of money managers.
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The Making of a Manager: Evidence from Military Officer Training
Erik Grönqvist & Erik Lindqvist
Journal of Labor Economics, forthcoming
Abstract:
We show that officer training during the Swedish military service has a strong positive effect on the probability of attaining a managerial position later in life. The most intense type of officer training increases the probability of becoming a civilian manager by about 5 percentage points, or 75 percent. Officer training also increases educational attainment post-military service. We argue that the effect on civilian leadership could be due to acquisition of leadership specific skills during the military service, and present suggestive evidence related to alternative mechanisms, such as signaling, networks, and training unrelated to leadership.
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Fadel Matta et al.
Academy of Management Journal, forthcoming
Abstract:
Research on organizational justice has predominantly focused on between-individual differences in average levels of fair treatment experienced by employees. Recently, researchers have also demonstrated the importance of considering dynamic, within-individual fluctuations in fair treatment experienced by employees over time. Drawing on uncertainty management theory, we merge these two streams of research and introduce the concept of justice variability, which captures between-person differences in the stability of fairness over time. Contrary to the intuitive notion that more fairness is always better, our work shows that being treated consistently unfairly can be better for employees than being treated fairly sometimes and unfairly other times. Specifically, in a lab study, variably fair treatment resulted in greater physiological stress than both consistently fair and consistently unfair treatment. In a multi-level, experience-sampling field study, we replicated the positive association between justice variability and stress, and we also showed that justice variability exacerbated the positive, daily relationship between general workplace uncertainty and stress. Moreover, daily stress mediated the effects of justice variability on daily job dissatisfaction and emotional exhaustion. Finally, we showed that supervisors with more self-control tended to be less variable in their fair treatment over time.
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Effects of Unionization on Workplace-Safety Enforcement: Regression-Discontinuity Evidence
Aaron Sojourner & Jooyoung Yang
University of Minnesota Working Paper, December 2015
Abstract:
We study how union certification affects the enforcement of workplace-safety laws. To generate credible causal estimates, a regression discontinuity design compares outcomes in establishments where unions barely won representation elections to outcomes in establishments where union barely lost such elections. The study combines two main datasets: the census of National Labor Relations Board (NLRB) representation elections and the Occupational Safety and Health Administration's (OSHA) enforcement database since 1985. There is evidence of positive effects of union certification on establishment's rate of OSHA inspection, the share of inspections carried out in the presence of a labor representative, violations cited, and penalties assessed.
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How Do Employees Fare in Leveraged Buyouts? Evidence from Workplace Safety Records
Jonathan Cohn, Nicole Nestoriak & Malcolm Wardlaw
University of Texas Working Paper, February 2016
Abstract:
This paper studies the impact of leveraged buyouts (LBOs) on workplace injury risk. Injury rates decrease substantially after LBOs of public firms, both in absolute terms and relative to controls. These changes persist for several years post-buyout. Cross-sectional analysis suggests that alleviation of public market pressure to behave myopically contributes to the decrease in injury risk after LBOs of public firms. The reduction in injury risk, for which employees demand a compensating wage differential, may partly explain the recently-documented fall in employee earnings after public firm LBOs. Injury rates increase after LBOs of private firms, though from substantially lower pre-LBO levels.
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Founder CEOs and Innovation: Evidence from S&P 500 Firms
Joon Mahn Lee, Jongsoo Kim & Joonhyung Bae
Purdue University Working Paper, February 2016
Abstract:
Using a novel data set on founder CEOs in S&P 500 firms for the period from 1993 to 2003, this paper investigates the relationship between founder CEOs and innovation. While entrepreneurs as individuals have long been considered change agents, it is not clear whether entrepreneurs as managers of large organizations may facilitate organizations’ innovation performance. Our main results show that the existence of a founder CEO is correlated with a 31 percent increase in the citation-weighted patent count before we control for R&D spending and a 23 percent increase in the citation-weighted patent count after we control for R&D spending, suggesting that founder CEOs are more effective and efficient innovators than professional CEOs. As boundary conditions of the relationship, we find that the positive effect of founder CEOs on innovation is stronger in more competitive and innovative industries. Furthermore, our results suggest that founder CEOs are more likely to take their firms in a new technological direction. Finally, we provide evidence that the innovations of founder CEO-managed firms create more financial value than the innovations of professional CEO-managed firms. Our findings are particularly convincing because the results are consistent across various robustness checks that control for potential selection issues and other endogeneity concerns.
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Employee Recognition and Performance: A Field Experiment
Christiane Bradler et al.
Management Science, forthcoming
Abstract:
This paper reports the results from a controlled field experiment designed to investigate the causal effect of unannounced, public recognition on employee performance. We hired more than 300 employees to work on a three-hour data-entry task. In a random sample of work groups, workers unexpectedly received recognition after two hours of work. We find that recognition increases subsequent performance substantially, and particularly when recognition is exclusively provided to the best performers. Remarkably, workers who did not receive recognition are mainly responsible for this performance increase. Our results are consistent with workers having a preference for conformity and being reciprocal at the same time.
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John Lyneis & John Sterman
Academy of Management Discoveries, March 2016, Pages 7-32
Abstract:
Can managers enhance social responsibility while also improving profitability? Research demonstrates that there are "win-win" investments that improve both socially desirable outcomes and the bottom line, from energy and the environment to wages and workplace safety. Yet many such opportunities are not taken — money is left on the table. Here we explore this puzzle using the case of energy efficiency in a large research university, a setting that should favor implementation of win-win actions. However, despite a long time horizon, large endowment and pro-social mission, the university failed to implement many programs offering both large environmental and financial benefits. Using ethnographic field study and panel regression we develop a novel simulation model integrating energy use, maintenance, and facilities renewal. We find that the organization inadvertently fell into a capability trap in which poor performance prevented investments in win-win opportunities and the capabilities needed to realize them, perpetuating poor performance. Escaping the trap requires investments large enough and sustained long enough to cross tipping thresholds that convert the vicious cycle into a virtuous cycle of better performance, greater investment and still better performance. We discuss how the organization is escaping from the trap and whether the results generalize to other contexts.
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Why do firms use high discount rates?
Ravi Jagannathan et al.
Journal of Financial Economics, forthcoming
Abstract:
We present evidence consistent with operational constraints leading firms to use high discount rates that average twice the firms’ cost of financial capital. Based on a survey of Chief Financial Officers matched to archival data, we find that firms with abundant access to capital but limited qualified management or manpower appear to forgo profitable projects in preparation for more profitable future investment opportunities. Consistent with this explanation, firms that use high discount rates have strong balance sheets, low leverage, and large cash holdings. In addition, firms appear to increase discount rates to account for idiosyncratic risk.
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Captive Finance and Firm’s Competitiveness
Andriy Bodnaruk, William O’Brien & Andrei Simonov
Journal of Corporate Finance, forthcoming
Abstract:
We study the effects of establishment of a captive finance subsidiary on parent firm’s competitiveness. Firms with captives have higher profitability, larger market share, lower volatility of sales, and maintain lower cash balances. Following the establishment of a captive, a firm’s profitability and its industry market share gradually increase, but it takes about four years to become economically relevant. Stock returns of companies with captive finance subsidiaries correlate more with finance industry returns than stock returns of companies without captives. We estimate that captives generate about 17% of parents’ net income. Thus, significant part of profits of the largest US industrial corporations comes from what in essence are financial services.
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Going Entrepreneurial? IPOs and New Firm Creation
Tania Babina, Paige Parker Ouimet & Rebecca Zarutskie
University of North Carolina Working Paper, November 2015
Abstract:
Using matched employee-employer data from the US Census, we examine the impact of a successful initial public offering (IPO) on a firm's existing employees and their future career choices. Using an instrumental variables strategy, we find strong evidence that going public induces employees to depart for start-ups. Moreover, this result is specific to start-ups. We find no change in the rate of employee departures to established firms. We suggest and find evidence consistent with two non-mutually exclusive mechanisms which can explain this pattern. First, following an IPO, many employees who received large stock grants in the past are able to cash out. This shock to employee wealth may allow employees to better tolerate the risks associated with joining a start-up. Alternatively, employees may leave following an undesirable cultural change following the IPO. Our results suggest that the recent secular decline in IPO activity and new firm creation in the U.S. may be causally linked. The recent decline in IPOs means fewer workers move to startups, decreasing overall new firm creation in the economy.