Staff
Can Super Smart Leaders Suffer From too Much of a Good Thing? The Curvilinear Effect of Intelligence on Perceived Leadership Behavior
John Antonakis, Robert House & Dean Keith Simonton
Journal of Applied Psychology, forthcoming
Abstract:
Although researchers predominately test for linear relationships between variables, at times there may be theoretical and even empirical reasons for expecting nonlinear functions. We examined if the relation between intelligence (IQ) and perceived leadership might be more accurately described by a curvilinear single-peaked function. Following Simonton's (1985) theory, we tested a specific model, indicating that the optimal IQ for perceived leadership will appear at about 1.2 standard deviations above the mean IQ of the group membership. The sample consisted of midlevel leaders from multinational private-sector companies. We used the leaders' scores on the Wonderlic Personnel Test (WPT) - a measure of IQ - to predict how they would be perceived on prototypically effective leadership (i.e., transformational and instrumental leadership). Accounting for the effects of leader personality, gender, age, as well as company, country, and time fixed effects, analyses indicated that perceptions of leadership followed a curvilinear inverted-U function of intelligence. The peak of this function was at an IQ score of about 120, which did not depart significantly from the value predicted by the theory. As the first direct empirical test of a precise curvilinear model of the intelligence-leadership relation, the results have important implications for future research on how leaders are perceived in the workplace.
Choosing the Pond: On-the-Job Experience and Long-Run Career Outcomes
Jie Gong, Ang Sun & Zhichao Wei
Management Science, forthcoming
Abstract:
This paper investigates the value of on-the-job experience for workers' long-run career outcomes. We exploit the effects of team relegation in professional soccer by contrasting players on teams just below and just above the cutoff point of relegation. We find that players on teams relegated to a lower division have more match appearances in the short run, and they play in better leagues and earn higher wages in the long run. This gain is concentrated among individuals who are young or less experienced at the time of relegation. Because other consequences of relegation would tend to work against individuals' long-run success, the positive net gain is most likely to be the result of greater on-the-job experience. The findings have implications for firms on job assignment and for workers on managing their careers.
Wage Disparity, Team Performance, and the 2005 NHL Collective Bargaining Agreement
Craig Depken & Jeff Lureman
Contemporary Economic Policy, forthcoming
Abstract:
This paper provides an empirical analysis of salary disparity and team performance in the National Hockey League during the first decade of the twenty-first century. We find that the 2005 Collective Bargaining Agreement (CBA) reduced average salaries immediately after it was introduced but did not change the trajectory of average salaries nor did it alter the salary disparity on the average team. Salary disparity harms overall team performance primarily through reduced defensive performance and this relationship was not altered by the 2005 CBA.
Eponymous Entrepreneurs
Sharon Belenzon, Aaron Chatterji & Brendan Daley
American Economic Review, forthcoming
Abstract:
We demonstrate that eponymy - firms being named after their owners - is linked to superior firm performance, but is relatively uncommon (about 19 percent of firms in our data). We propose an explanation based on eponymy creating an association between the entrepreneur and her firm that increases the reputational benefits/costs of successful/unsuccessful outcomes. We develop a corresponding signaling model, which further predicts that these effects will be stronger for entrepreneurs with rarer names. We find support for the model's predictions using a unique panel dataset consisting of over 1.8 million firms.
It's All in the Name: Evidence of Founder-Firm Endowment Effects
Paul Brockman et al.
University of Oklahoma Working Paper, February 2017
Abstract:
We show that founder-named firms are 8% less valuable than non-founder-named firms, and that founder-named-and-managed firms are 21% less valuable than their non-founder-named-and-managed counterparts. These results, based on a large sample of 8,062 family-firm-year observations, are robust to the inclusion of multiple control variables and alternative model specifications. What can explain a 21% discount among family firms that are founder-named and founder-managed? We posit that naming the firm after the founder encourages value-destroying endowment effects. The endowment-susceptible founder begins to view the eponymous firm more from a "current personal use" perspective than from a "potential market exchange" perspective (Kahneman, 2011). We explore several implications of this endowment effects hypothesis and find consistently-supportive evidence. We also test several alternative explanations, including the use of dual class structures, differential voting/cash flow rights, corporate opacity, CEO overconfidence, and weak internal governance. None of these alternative explanations can account for our endowment-related results.
Unfair Pay and Health
Armin Falk et al.
Management Science, forthcoming
Abstract:
This paper investigates physiological responses to perceptions of unfair pay. We use an integrated approach that exploits complementarities between controlled laboratory and representative panel data. In a simple principal-agent experiment, agents produce revenue by working on a tedious task. Principals decide how this revenue is allocated between themselves and their agents. Throughout the experiment we record agents' heart rate variability, which is an indicator of stress-related impaired cardiac autonomic control and which has been shown to predict coronary heart disease in the long run. Our findings establish a link between unfair payment and heart rate variability. Building on these findings, we further test for potential adverse health effects of unfair pay using observational data from a large representative panel data set. Complementary to our experimental findings we show a strong and significant negative association between unfair pay and health outcomes, in particular cardiovascular health.
What Drives Differences in Management?
Nicholas Bloom et al.
NBER Working Paper, March 2017
Abstract:
Partnering with the Census we implement a new survey of "structured" management practices in 32,000 US manufacturing plants. We find an enormous dispersion of management practices across plants, with 40% of this variation across plants within the same firm. This management variation accounts for about a fifth of the spread of productivity, a similar fraction as that accounted for by R&D, and twice as much as explained by IT. We find evidence for four "drivers" of management: competition, business environment, learning spillovers and human capital. Collectively, these drivers account for about a third of the dispersion of structured management practices.
Turbulence, Firm Decentralization and Growth in Bad Times
Philippe Aghion et al.
Stanford Working Paper, February 2017
Abstract:
What is the optimal form of firm organization during "bad times"? Using two large micro datasets on firm decentralization from US administrative data and 10 OECD countries, we find that firms that decentralized power from the Central Head Quarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. We present a model where higher turbulence benefits decentralized firms because the value of local information and urgent action increases. Since turbulence rises in severe downturns, decentralized firms do relatively better. We show that the data support our model over alternative explanations such as recession-induced reduction in agency costs (due to managerial fears of bankruptcy) and changing co-ordination costs. Countries with more decentralized firms (like the US) weathered the 2008-09 Great Recession better: these organizational differences could account for about 16% of international differences in GDP post-crisis growth.
Monitoring for Worker Quality
Gautam Bose & Kevin Lang
Journal of Labor Economics, forthcoming
Abstract:
Much nonmanagerial work is routine, with all workers having similar output most of the time. However, failure to address occasional challenges can be very costly, and consequently easily detected, while challenges handled well pass unnoticed. We analyze job assignment and worker monitoring for such "guardian" jobs. If monitoring costs are positive but small, monitoring is nonmonotonic in the firm's belief about the probability that a worker is good. The model explains several empirical regularities regarding nonmanagerial internal labor markets: low use of performance pay, seniority pay, rare demotions, wage ceilings within grade, and wage jumps at promotion.
Blocked But Not Tackled: Who Founds New Firms When Rivals Dissolve?
Seth Carnahan
Strategic Management Journal, forthcoming
Abstract:
This paper examines the role of competitive shocks in creating opportunities for new firm foundings. I argue that the sudden dissolution of rival firms may release resources that create opportunities for firm formation, particularly among employees facing impediments to capturing value in their current organizations. Analyzing microdata from the legal services industry, I use unexpected deaths of solo-practicing attorneys as quasi-exogenous sources of rival dissolution. Results indicate that these shocks increase the odds of founding by about 30%, with stronger effects among attorneys with weaker social connections or higher competition for promotion. The paper thus highlights the role that founders play in reallocating dissolved rivals' resources while demonstrating that founding may be an important outlet for "blocked" employees to capture value from opportunities.
Destructive Creation at Work: How Financial Distress Spurs Entrepreneurship
Tania Babina
Columbia University Working Paper, February 2017
Abstract:
Using US Census employer-employee matched data, I show that employer financial distress accelerates the exit of employees to found start-ups. This effect is particularly evident when distressed firms are less able to enforce contracts restricting employee mobility into competing firms. Entrepreneurs exiting financially distressed employers earn higher wages prior to the exit and after founding start-ups, compared to entrepreneurs exiting non-distressed firms. Consistent with distressed firms losing higher-quality workers, their start-ups have higher average employment and payroll growth. The results suggest that the social costs of distress might be lower than the private costs to financially distressed firms.
Are Applicants More Likely to Quit Longer Assessments? Examining the Effect of Assessment Length on Applicant Attrition Behavior
Jay Hardy et al.
Journal of Applied Psychology, forthcoming
Abstract:
Conventional wisdom suggests that assessment length is positively related to the rate at which applicants opt out of the assessment phase. However, restricting assessment length can negatively impact the utility of a selection system by reducing the reliability of its construct scores and constraining coverage of the relevant criterion domain. Given the costly nature of these tradeoffs, is it better for managers to prioritize (a) shortening assessments to reduce applicant attrition rates or (b) ensuring optimal reliability and validity of their assessment scores? In the present study, we use data from 222,772 job-seekers nested within 69 selection systems to challenge the popular notion that selection system length predicts applicant attrition behavior. Specifically, we argue that the majority of applicant attrition occurs very early in the assessment phase and that attrition risk decreases, not increases, as a function of time spent in assessment. Our findings supported these predictions, revealing that the majority of applicants who quit assessments did so within the first 20 min of the assessment phase. Consequently, selection system length did not predict rates of applicant attrition. In fact, when controlling for observed system length and various job characteristics, we found that systems providing more conservative (i.e., longer) estimates of assessment length produced lower overall attrition rates. Collectively, these findings suggest that efforts to curtail applicant attrition by shortening assessment length may be misguided.
Training Contracts, Employee Turnover, and the Returns from Firm-sponsored General Training
Mitchell Hoffman & Stephen Burks
NBER Working Paper, March 2017
Abstract:
Firms may be reluctant to provide general training if workers can quit and use their gained skills elsewhere. "Training contracts" that impose a penalty for premature quitting can help alleviate this inefficiency. Using plausibly exogenous contractual variation from a leading trucking firm, we show that two training contracts significantly reduced post-training quitting, particularly when workers are approaching the end of their contracts. Simulating a structural model, we show that observed worker quit behavior exhibits aspects of optimization (for one of the two contracts), and that the contracts increased firm profits from training and reduced worker welfare relative to no contract.