Manage it
Hierarchy, leadership, and construal fit
Yair Berson & Nir Halevy
Journal of Experimental Psychology: Applied, forthcoming
Abstract:
Three studies tested the hypothesis, derived from construal-level theory, that hierarchical distance between leaders and followers moderates the effectiveness of leader behaviors such that abstract behaviors produce more positive outcomes when enacted across large hierarchical distances, whereas concrete behaviors produce more positive outcomes when enacted across small hierarchical distances. In Study 1 (N = 2,206 employees of a telecommunication organization), job satisfaction was higher when direct supervisors provided employees with concrete feedback and hierarchically distant leaders shared with them their abstract vision rather than vice versa. Study 2 orthogonally crossed hierarchical distances with communication type, operationalized as articulating abstract values versus sharing a detailed story exemplifying the same values; construal misfit mediated the interactive effects of hierarchical distance and communication type on organizational commitment and social bonding. Study 3 similarly manipulated hierarchical distances and communication type, operationalized as concrete versus abstract calls for action in the context of a severe professional crisis. Group commitment and participation in collective action were higher when a hierarchically proximate leader communicated a concrete call for action and a hierarchically distant leader communicated an abstract call for action rather than vice versa. These findings highlight construal fit’s positive consequences for individuals and organizations.
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Selfish Play Increases during High-Stakes NBA Games and Is Rewarded with More Lucrative Contracts
Eric Luis Uhlmann & Christopher Barnes
PLoS ONE, April 2014
Abstract:
High-stakes team competitions can present a social dilemma in which participants must choose between concentrating on their personal performance and assisting teammates as a means of achieving group objectives. We find that despite the seemingly strong group incentive to win the NBA title, cooperative play actually diminishes during playoff games, negatively affecting team performance. Thus team cooperation decreases in the very high stakes contexts in which it is most important to perform well together. Highlighting the mixed incentives that underlie selfish play, personal scoring is rewarded with more lucrative future contracts, whereas assisting teammates to score is associated with reduced pay due to lost opportunities for personal scoring. A combination of misaligned incentives and psychological biases in performance evaluation bring out the “I” in “team” when cooperation is most critical.
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Workforce Reductions at Women-Owned Businesses in the United States
David Matsa & Amalia Miller
Industrial and Labor Relations Review, Spring 2014
Abstract:
The authors find that privately held firms owned by women were less likely than those owned by men to downsize their workforces during the Great Recession. Year-to-year employment reductions were as much as 29% smaller at women-owned firms, even after controlling for industry, size, and profitability. Using data that allow the authors to control for additional detailed firm and owner characteristics, they also find that women-owned firms operated with greater labor intensity after the previous recession and were less likely to hire temporary or leased workers. These patterns extend previous findings associating female business leadership with increased labor hoarding.
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Andrew Oswald, Eugenio Proto & Daniel Sgroi
Journal of Labor Economics, forthcoming
Abstract:
Some firms say they care about the well-being and ‘happiness’ of their employees. But are such claims hype, or scientific good sense? We provide evidence, for a classic piece-rate setting, that happiness makes people more productive. In three different styles of experiment, randomly selected individuals are made happier. The treated individuals have approximately 12% greater productivity. A fourth experiment studies major real-world shocks (bereavement and family illness). Lower happiness is systematically associated with lower productivity. These different forms of evidence, with complementary strengths and weaknesses, are consistent with the existence of a causal link between human well-being and human performance.
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The Risk Preferences of U.S. Executives
Steffen Brenner
Management Science, forthcoming
Abstract:
In this paper, I elicit risk attitudes of U.S. executives by calibrating a subjective option valuation model for option exercising data (1996 to 2008), yielding approximately 65,000 values of relative risk aversion (RRA) for almost 7,000 executives. The observed behavior is generally consistent with moderate risk aversion and a median (mean) RRA close to one (three). Values are validated for chief executive officers (CEOs) by testing theory-based predictions on the influence of individual characteristics on risk preferences such as gender, marital status, religiosity, and intelligence. Senior managers such as CEOs, presidents, and chairpersons of the boards of directors are significantly less risk averse than non-senior executives. RRA heterogeneity is strongly correlated with sector membership and firm-level variables such as size, performance, and capital structure. Alternative factors influencing option exercises are tested for their influence on RRA values.
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Hollywood Deals: Soft Contracts for Hard Markets
Jonathan Barnett
Duke Law Journal, forthcoming
Abstract:
Hollywood film studios, talent and other deal participants regularly commit to, and undertake production of, high-stakes film projects on the basis of unsigned “deal memos,” informal communications or draft agreements whose legal enforceability is uncertain. These “soft contracts” constitute a hybrid instrument that addresses a challenging transactional environment where neither formal contract nor reputation effects adequately protect parties against the holdup risk and project risk inherent to a film project. Parties negotiate the degree of contractual formality, which correlates with legal enforceability, as a proxy for allocating these risks at a transaction-cost savings relative to a fully formalized and specified instrument. Uncertainly enforceable contracts embed an implicit termination option that provides some protection against project risk while maintaining a threat of legal liability that provides some protection against holdup risk. Historical evidence suggests that soft contracts substitute for the vertically integrated structures that allocated these risks in the “studio system” era.
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Matthew Bidwell et al.
Strategic Management Journal, forthcoming
Abstract:
How does employer status benefit firms in the market for general human capital? On the one hand, high status employers are better able to attract workers, who value the signal of ability that employment at those firms provides. On the other hand, that same signal can help workers bid up wages and capture the value of employers’ status. Exploring this tension, we argue that high status firms are able to hire higher ability workers than other firms, and do not need to pay them the full value of their ability early in the career, but must raise wages more rapidly than other firms as those workers accrue experience. We test our arguments using unique survey data on careers in investment banking.
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Ajay Agrawal, John McHale & Alexander Oettl
NBER Working Paper, March 2014
Abstract:
The growing peer effects literature pays particular attention to the role of stars. We decompose the causal effect of hiring a star in terms of the productivity impact on: 1) co-located incumbents and 2) new recruits. Using longitudinal university department-level data we report that hiring a star does not increase overall incumbent productivity, although this aggregate effect hides offsetting effects on related (positive) versus unrelated (negative) colleagues. However, the primary impact comes from an increase in the average quality of subsequent recruits. This is most pronounced at mid-ranked institutions, suggesting implications for the socially optimal spatial organization of talent.
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Born Lucky? A Study of the Birthdates and Ages of Paradigm-Shifting Entrepreneurs
Julian Lange et al.
Babson College Working Paper, March 2014
Abstract:
We studied the age of entrepreneurs at the time when they started companies that made significant contributions to the birth and growth of the micro/personal computer industry; we also looked at their birthdates. The main reason for our study was to test Gladwell’s widely disseminated assertion that paradigm changers in that industry were born between 1953 and 1955 and were 25 years old or younger when they started their ventures. In contrast to Gladwell’s sample of just three companies, Apple, Microsoft, and Sun Microsystems, and the seven entrepreneurs who founded them, our data set comprised 74 companies and 89 entrepreneurs. Unlike Gladwells’s seven entrepreneurs, all of whom were born between 1953 and 1955, our 89 entrepreneurs — including the Gladwell seven — were born between 1917 and 1965 and their average age when they started their ventures was 34.
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Benjamin Hermalin
University of California Working Paper, April 2014
Abstract:
When a leader makes a purely emotional appeal, rational followers realize she is hiding bad news. Despite such pessimism and even though not directly influenced by emotional appeals, rational followers' efforts are nonetheless greater when an emotional appeal is made by a more rather than less charismatic leader. Further, they tend to prefer more charismatic leaders. Although organizations can do better with more charismatic leaders, charisma is a two-edged sword: more charismatic leaders will tend to substitute charm for real action, to the organization's detriment. This helps explain the literature's "mixed report card" on charisma.
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Anne-Marie van Prooijen & Naomi Ellemers British
Journal of Management, forthcoming
Abstract:
Based on a social identity analysis, the authors argue that people are attracted to teams and organizations with positive features. Such features can refer to the competence and achievements of the organization, or to its moral values and ethical conduct. However, in work contexts, ethics and achievements do not necessarily go together. The paper reports three studies that examine the relative and combined impact of perceived competence vs morality of a team or organization on its attractiveness to individuals. Study 1 (n = 44) reveals that students prefer to seek employment in a moral rather than a competent organization, when forced to choose between these organizational features on a bipolar scale. Study 2 (n = 100) replicates these findings in a design where the competence and morality of a fictitious organization were manipulated orthogonally. Study 3 (n = 89) examines responses to experimental task teams that systematically differed from each other in their competence and morality. Results of all three studies converge to demonstrate that the perceived morality of the team or organization has a greater impact on its attractiveness to individuals than its perceived competence. The authors discuss the theoretical and practical implications of these findings.
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Explaining Changes in Organizational Form: The Case of Professional Baseball
Andrew Hanssen, James Meehan & Thomas Miceli
Journal of Sports Economics, forthcoming
Abstract:
In this article, we investigate changes over time in the organization of the relationship between Major League Baseball and minor league baseball teams. We develop a model in which a minor league team serves two functions: talent development and local entertainment. The model predicts different modes of organizing the relationship between majors and minors based on the value of these parameters. We then develop a discursive history. Consistent with the model’s predictions, we find that when the value of minor league baseball’s training function was low but the value of its entertainment function was high, major and minor league franchises operated independently, engaging in arms’-length transactions. However, as the training function became more important and the local entertainment function less important, formal agreements ceded control of minor league functions to major league franchises. Finally, as the value of local entertainment rose once again in the late 20th century, the two roles were split, with control of local functions accruing to local ownership and training functions to major league teams. This analysis helps shed light on factors that influence the boundaries of the firm.
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Susanne Neckermann, Reto Cueni & Bruno Frey
Labour Economics, forthcoming
Abstract:
Social incentives like employee awards are widespread in the corporate sector and may be important instruments for solving agency problems. To date, we have little understanding of their effect on behavior. Unique panel data from the call center of a Fortune 500 financial services provider allow us to estimate the impact of awards on performance. Winning an award for voluntary work behaviors significantly increases subsequent core call center performance. The effect is short-lived, mainly driven by underperforming agents, and is reflected mostly in dimensions of the job that are hard to observe. We discuss various theories that could explain the effect.
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Uncovering unknown unknowns: Towards a Baconian approach to management decision-making
Alberto Feduzi & Jochen Runde
Organizational Behavior and Human Decision Processes, forthcoming
Abstract:
Bayesian decision theory and inference have left a deep and indelible mark on the literature on management decision-making. There is however an important issue that the machinery of classical Bayesianism is ill equipped to deal with, that of “unknown unknowns” or, in the cases in which they are actualised, what are sometimes called “Black Swans”. This issue is closely related to the problems of constructing an appropriate state space under conditions of deficient foresight about what the future might hold, and our aim is to develop a theory and some of the practicalities of state space elaboration that addresses these problems. Building on ideas originally put forward by Bacon (1620), we show how our approach can be used to build and explore the state space, how it may reduce the extent to which organisations are blindsided by Black Swans, and how it ameliorates various well-known cognitive biases.
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Not too much, not too little: The influence of constraints on creative problem solving
Kelsey Medeiros, Paul Partlow & Michael Mumford
Psychology of Aesthetics, Creativity, and the Arts, May 2014, Pages 198-210
Abstract:
Although, traditionally, constraints are held to inhibit creative thinking, more recent research indicates that constraints can, at times, prove beneficial. Constraints, however, come in many forms. In the present study, 318 undergraduates were asked to develop advertising campaigns for a new product, a high-energy root beer, where campaigns were evaluated for quality, originality, and elegance. Prior to starting work on these campaigns different constraints were, or were not imposed, with constraints being established based on fundamentals in marketing, themes in marketing, environmental information, and task objectives. It was found that task objective constraints resulted in better creative problem solving when participants were motivated. However, imposition of multiple constraints led to poorer creative problem solving. Thus the number and nature of the constraints imposed on creative problems must be balanced. The implications of these observations for understanding creative problem solving are discussed.
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The Productivity of Working Hours
John Pencavel
Stanford Working Paper, April 2014
Abstract:
Observations on munition workers, most of them women, are organized to examine the relationship between their output and their working hours. The relationship is nonlinear: below an hours threshold, output is proportional to hours; above a threshold, output rises at a decreasing rate as hours increase. Implications of these results for the estimation of labor supply functions are taken up. The findings also link up with current research on the effects of long working hours on accidents and injuries.
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Phillip Kim, Kyle Longest & Stephen Lippmann
Journal of Business Venturing, forthcoming
Abstract:
Social science researchers have long pursued answers to the puzzle of why some people achieve certain milestones more quickly than others and whether rate of progress matters for long-run outcomes. This “tortoise versus hare” puzzle raises the question of whether speed is a valid indicator of viability in an undertaking: Are those with slower rates of progress any less off in terms of long-run achievement when compared to their faster counterparts? We investigate this “tortoise and hare” puzzle in the context of business formation, an activity pursued by millions in the United States. Our analysis of a nationally representative survey of U.S. business founders revealed that leisure-based founders were slower to make progress initially, but after a certain time threshold, their progress was no different than other conventional types of founders. More importantly, leisure-based founders showed more favorable initial economic and non-economic outcomes, as these founders were more likely to consistently report early sales and profitability and were more committed to investing time into their ventures. Our study findings have both theoretical and practical implications for the evaluation of venture performance, when the rate of progress is considered to be a leading indicator of new business viability.
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The Effects of Opportunities and Founder Experience on New Firm Performance
John Dencker & Marc Gruber
Strategic Management Journal, forthcoming
Abstract:
Much prior research in entrepreneurship has focused on the role of the founder's knowledge in affecting new firm performance. Yet, little is known about how and why the entrepreneurial opportunity itself shapes outcomes in this arena. We begin filling in this critical gap in the literature by examining how the riskiness of the opportunity not only affects start-up performance, but also conditions the relevance of the founder's distinct knowledge endowments. Analyses of a sample of 451 new firms shows that the riskier the opportunity, the greater the performance of the start-up, above and beyond founder characteristics. Moreover, the value of founder knowledge is relative to the type of opportunity exploited: high-risk opportunities favor founders with managerial experience, whereas low-risk opportunities favor founders with industry experience.
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The Pric(z)e of Hard Work. Different Incentive Effects of Non-Monetary and Monetary Prizes
Andrea Hammermann & Alwine Mohnen
Journal of Economic Psychology, August 2014, Pages 1–15
Abstract:
Do non-monetary or monetary prizes induce the highest work performances in competitions? We conducted a real-effort lab experiment to test for differences in the effect of both incentives on work productivity. Our main findings are that the performances of subjects in pursuit of a monetary prize exceed those of subjects in pursuit of non-monetary incentives. However, the work quality and the retrospective feeling of having had fun at work, which is associated with the received prizes, decrease in combination with greater effort. Furthermore, a competition with monetary prizes appears to label winners and losers. If non-monetary prizes are used, losers are, to a certain extent, more able to adjust their feeling of satisfaction by changing the subjectively perceived prizes.
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The Effects of Corporate Spin-offs on Productivity
Thomas Chemmanur, Karthik Krishnan & Debarshi Nandy
Journal of Corporate Finance, August 2014, Pages 72–98
Abstract:
Using a unique sample of plant level data from the Longitudinal Research Database of the U.S. Census Bureau, which enables us to correctly identify the parent and spun-off entities prior to spin-offs, we establish that efficiency improves following spin-offs. A spin-off refers to the separation of the management of some assets of a firm into a separate entity (which we term as the spun-off entity or subsidiary). We investigate the underlying mechanisms and the real effects of spin-offs after correcting for potential endogenous selection using treatment effect estimators and propensity score matching in our analysis. We identify how (the precise channel and mechanism), where (parent or subsidiary), and when (the dynamic pattern) efficiency improvements arise following spin-offs. We show that spin-offs increase total factor productivity (TFP) and that such productivity improvements are long-lived. This post spin-off productivity improvement can be attributed to cost savings but not to higher sales. Further, such improvements arise primarily in plants remaining with the parent. However, contrary to speculation in the previous literature, we show that plants that are spun-off do not underperform parent plants prior to the spin-off. We identify acquisitions following spin-offs and find that while productivity improvements occur immediately after the spin-off in non-acquired plants, they start only after being taken over by another firm in acquired plants. Finally, we show that unrelated spun-off entities show greater improvements in productivity compared to related spun-off entities.
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When Does the Devil Make Work? An Empirical Study of the Impact of Workload on Worker Productivity
Tom Fangyun Tan & Serguei Netessine
Management Science, forthcoming
Abstract:
We analyze a large, detailed operational data set from a restaurant chain to shed new light on how workload (defined as the number of tables or diners that a server simultaneously handles) affects servers' performance (measured as sales and meal duration). We use an exogenous shock — the implementation of labor scheduling software — and time-lagged instrumental variables to disentangle the endogeneity between demand and supply in this setting. We show that servers strive to maximize sales and speed efforts simultaneously, depending on the relative values of sales and speed. As a result, we find that, when the overall workload is small, servers expend more and more sales efforts with the increase in workload at a cost of slower service speed. However, above a certain workload threshold, servers start to reduce their sales efforts and work more promptly with the further rise in workload. In the focal restaurant chain, we find that this saturation point is currently not reached and, counterintuitively, the chain can reduce the staffing level and achieve both significantly higher sales (an estimated 3% increase) and lower labor costs (an estimated 17% decrease).
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Pay Harmony: Peer Comparison and Executive Compensation
Claudine Madras Gartenberg & Julie Wulf
Harvard Working Paper, March 2014
Abstract:
This study suggests that peer comparison affects both wage setting and productivity within firms. We report three changes in division manager compensation following a 1991-1992 controversy over executive pay. We argue that this controversy increased wage comparisons within firms, particularly those with geographically-dispersed managers – managers with the greatest information frictions. Following the controversy, pay in dispersed firms co-moves more and is less sensitive to individual performance. Relatedly, pay disparity between managers located in different states decreases relative to that of co-located managers. Finally, division productivity falls in dispersed firms, particularly among managers at the low end of the wage distribution.
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Shahidul Hassan, Bradley Wright & Gary Yukl
Public Administration Review, May/June 2014, Pages 333–343
Abstract:
Recent ethical scandals involving managers in government organizations have highlighted the need for more research on ethical leadership in public sector organizations. To assess the consequences of ethical leadership, 161 managers in a large state government agency and 415 of their direct reports were surveyed, and personnel records were obtained to measure absenteeism. Results indicate that after controlling for the effects of employee characteristics, perceptions of procedural fairness, and supportive leader behavior, ethical leadership reduced absenteeism and had a positive influence on organizational commitment and willingness to report ethical problems. Implications of the findings and suggestions for future research are presented.
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Getting to Know Each Other: The Role of Toeholds in Acquisitions
Paul Povel & Giorgo Sertsios
Journal of Corporate Finance, June 2014, Pages 201–224
Abstract:
We analyze the role of toeholds (non-controlling but significant equity stakes) as a source of information for a bidder. A toehold provides an opportunity to interact with the target and its management and in the process get a better sense of the possible synergies from a merger or takeover. A bidder considering taking over a target will take a toehold beforehand if the informational benefits are large. Our model makes the following predictions: (i) a toehold is more beneficial if a target is opaque, i.e., if it is generally harder to value potential synergies with the target; (ii) a toehold is incrementally more beneficial if a bidder initially finds it harder than others to assess the value of potential synergies; (iii) that incremental benefit is less important, however, if the target is opaque; (iv) the benefits from having a toehold are smaller if the number of potential rival bidders is higher. We test these predictions using a large sample of majority acquisitions of private and public companies for which we have information regarding whether the acquirer had a toehold in the target company prior to the majority acquisition. We find evidence consistent with our hypotheses, and thus with the idea that potential acquirers of a target use toeholds to improve their information about possible synergies with the target.
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Sorting Effects of Performance Pay
Maris Goldmanis & Korok Ray
Management Science, forthcoming
Abstract:
Compensation not only provides incentives to an existing manager but also affects the type of manager attracted to the firm. This paper examines the dual incentive and sorting effects of performance pay in a simple contracting model of endogenous participation. Unless the manager is highly risk averse, sorting dampens optimal pay-performance sensitivity (PPS) because PPS beyond a nominal amount transfers unnecessary (information) rent to the manager. This helps explain why empirical estimates of PPS are much lower than predictions from models of moral hazard alone. The model also predicts that sorting under asymmetric information causes the firm to turn away more candidates than would be efficient; PPS increases in the cost of hiring the manager and in the manager's outside option, but decreases in output risk, information risk, and managerial risk aversion; and the firm becomes more selective in hiring as either the manager's outside option, the cost of hiring, risk aversion, output risk, or information risk increases.