Top performer
Underestimating our influence over others at work
Vanessa Bohns & Francis Flynn
Research in Organizational Behavior, 2013, Pages 97-112
Abstract:
Employees at all organizational levels have influence over their subordinates, their colleagues, and even their bosses. But are they aware of this influence? We present evidence suggesting that employees are constrained by cognitive biases that lead them to underestimate their influence over others in the workplace. As a result of this underestimation of influence, employees may be reluctant to spearhead organizational change, discount their own role in subordinates' performance failures, and fail to speak up in the face of wrongdoing. In addition to reviewing evidence for this bias, we propose five moderators that, when present, may reverse or attenuate the underestimation effect (namely, comparative judgments, the objectification or dehumanization of an influence target, the actual degree of influence any one influencer has, the means of influence, and culture). Finally, we offer some practical solutions to help employees more fully recognize their influence over other members of the organization.
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Pay Inequalities and Managerial Turnover
Jayant Kale, Ebru Reis & Anand Venkateswaran
Journal of Empirical Finance, forthcoming
Abstract:
We study how pay inequalities affect (i) a firm's rate of voluntary non-CEO manager (VP) VP resignations, and (ii) the likelihood that an individual VP will voluntarily resign. We consider pay inequalities that a VP faces relative to (i) the CEO in her own firm, (ii) other VPs in the firm, and (iii) VPs in benchmark firms. We use a unique hand-collected dataset of over 1,000 voluntary managerial resignations and find that pay inequality is an important determinant of managerial turnover. We find that managers are more likely to resign when their pay relative to their peers in the firm and outside the firm is lower; and firms with greater levels of pay inequality and greater pay inequality relative to benchmark firms experience higher VP turnover.
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The Value of Corporate Culture
Luigi Guiso, Paola Sapienza & Luigi Zingales
NBER Working Paper, October 2013
Abstract:
We study which dimensions of corporate culture are related to a firm's performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, firm's performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.
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Li Sun & Marty Stuebs
Journal of Business Ethics, December 2013, Pages 251-263
Abstract:
Prior research suggests that participating in corporate social responsibility (CSR) activities can lead to higher future productivity. However, the empirical evidence is still scarce. The purpose of this study is to examine the relationship between CSR and future firm productivity in the U.S. chemical industry. Specifically, this study examines the relationship between CSR in year t and firm productivity in year (t + 1), (t + 2), and (t + 3). We use Data Envelopment Analysis, a non-parametric method, to measure firm productivity. Results from the regression analysis support a significantly positive relationship between CSR and future firm productivity, suggesting that CSR can lead to higher productivity in the chemical industry. The findings add to the validity of the proposition in prior research.
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Empathy wages?: Gratitude and gift exchange in employment relationships
James Baron
Research in Organizational Behavior, 2013, Pages 113-134
Abstract:
Economists have argued that employers sometimes pay above-market premiums (efficiency wages) in order to attract, motivate, and/or retain valued personnel. Drawing on recent work examining reciprocity and gift exchange, this paper proposes the notion of "empathy wages," in which the effect of the premium paid depends on the extent to which it elicits gratitude from recipients. We argue that a particular gift (monetary or otherwise) offered by an employer is likely to elicit more gratitude among "non-stars": workers who are relatively disadvantaged and in the lower part of the performance distribution. In contrast to "stars," "non-stars" are likely to compare the treatment they receive to the inferior opportunities or treatment they (might) have received outside of their present employment situation. Star workers, in contrast, are likely to believe that they are worth whatever they can command. The economic viability of such "empathy wages" thus depends on how much star versus non-star workers vary in gratitude, relative to how they differ in output and compensation. We explore a variety of data bearing on how much stars differ from non-stars in their respective output and earnings (in star contexts such as professional sports and real estate sales). We then review or reanalyze some prior studies on gift exchange, documenting that those who are relatively disadvantaged and/or low performers do appear more grateful (or inclined to reciprocate gifts) than stars. Indeed, the magnitude of the difference is sufficiently large that it could offset quite marked differences in productivity or quite small differences in compensation (both of which would make stars relatively more attractive to employers). We suggest some conditions under which gratitude-based employment systems are more likely to flourish in real-world settings, as well as some fruitful lines for future research on these topics.
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A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value
Jillian Popadak
University of Pennsylvania Working Paper, October 2013
Abstract:
Corporate culture is an important channel through which shareholder governance affects firm value. I develop a novel data set to measure aspects of corporate culture and use it to show that stronger shareholder governance significantly increases results-orientation but decreases customer-orientation, integrity, and collaboration. Consistent with a positive link between governance and value, shareholders initially realize financial gains from the results-oriented corporate culture: increases in sales, profitability, and payout occur. However, by concentrating on tangible benchmarks, managers hurt the intangibles, which is not in the best long-term interest of the firm. Over time, the value of the firm's intangible assets significantly deteriorates. This longer-term negative link between governance and value appears to act via the governance-induced changes in corporate culture. Estimates suggest firm value declines 1.4% via the corporate culture channel. I use regression discontinuity and instrumental variable strategies to address the difficult challenge of endogeneity among shareholder governance, corporate culture, and firm value.
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How Responsive are Quits to Benefits?
Harley Frazis & Mark Loewenstein
Journal of Human Resources, Fall 2013, Pages 969-997
Abstract:
Economists have argued that one function of fringe benefits is to reduce turnover. However, the effect on quits of the marginal dollar of benefits relative to wages is underresearched. We use the benefit incidence data in the 1979 National Longitudinal Survey of Youth and the cost information in the National Compensation Survey to impute benefit costs and estimate quit regressions. The quit rate is much more responsive to benefits than to wages, and total turnover even more so; benefit costs are also correlated with training provision. We cannot disentangle the effects of individual benefits due to their high correlation.
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Entrepreneurial Exits and Innovation
Vikas Aggarwal & David Hsu
Management Science, forthcoming
Abstract:
We examine how initial public offerings (IPOs) and acquisitions affect entrepreneurial innovation as measured by patent counts and forward patent citations. We construct a firm-year panel data set of all venture capital-backed biotechnology firms founded between 1980 and 2000, tracked yearly through 2006. We address the possibility of unobserved self-selection into exit mode by using coarsened exact matching, and in two additional ways: (1) comparing firms that filed for an IPO (or announced a merger) with those not completing the transaction for reasons unrelated to innovation, and (2) using an instrumental variables approach. We find that innovation quality is highest under private ownership and lowest under public ownership, with acquisition intermediate between the two. Together with a set of within-exit mode analyses, these results are consistent with the proposition that information confidentiality mechanisms shape innovation outcomes. The results are not explained by inventor-level turnover following exit events or by firms' preexit window dressing behavior.
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When Power Makes Others Speechless: The Negative Impact of Leader Power on Team Performance
Leigh Plunkett Tost, Francesca Gino & Richard Larrick
Academy of Management Journal, October 2013, Pages 1465-1486
Abstract:
We examine the impact of the subjective experience of power on leadership dynamics and team performance and find that the psychological effect of power on formal leaders spills over to affect team performance. We argue that a formal leader's experience of heightened power produces verbal dominance, which reduces team communication and consequently diminishes performance. Importantly, because these dynamics rely on the acquiescence of other team members to the leader's dominant behavior, the effects only emerge when the leader holds a formal leadership position. Three studies offer consistent support for this argument. The implications for theory and practice are discussed.
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Does Fun Pay? The Impact of Workplace Fun on Employee Turnover and Performance
Michael Tews, John Michel & Kathryn Stafford
Cornell Hospitality Quarterly, November 2013, Pages 370-382
Abstract:
This research demonstrated that fun in the workplace has both beneficial and potentially negative effects on employees in the hospitality industry. This research focused on the impact of fun activities and manager support for fun on employee performance and turnover. Fun activities include such endeavors as productivity contests, social events, teambuilding activities, and public celebrations of work achievements and personal milestones. In turn, manager support for fun reflects whether managers in general allow and encourage employees to have fun on the job. With a sample of 195 servers from a national restaurant chain, we found that fun activities had a favorable impact on performance and manager support for fun had a favorable impact in reducing turnover. Interestingly, manager support for fun had an adverse impact on performance. Thus, whether fun ultimately is beneficial depends on the type of fun and the desired human resource outcome.
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The Effects of Part-Time Workers on Establishment Financial Performance
Clint Chadwick & Carol Flinchbaugh
Journal of Management, forthcoming
Abstract:
Using a sample of 1,468 private sector establishments, this article addresses the relationship among part-time workers, commitment-based human resource (HR) systems, and establishment financial performance. Building on theoretic perspectives about equity perceptions and reciprocal exchanges, we find that the proportion of part-time workers in an establishment workforce is nonlinearly related to establishment financial performance in an inverted U-shaped relationship. In addition, the interaction between part-time workers and commitment-based HR systems is negatively related to establishment performance. The analysis suggests that those deciding about how to structure establishments' workforces should consider how interactions between different types of workers within workforces can influence establishment performance.
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Corporate Social Responsibility and Credit Ratings
Najah Attig et al.
Journal of Business Ethics, November 2013, Pages 679-694
Abstract:
This study provides evidence on the relationship between corporate social responsibility (CSR) and firms' credit ratings. We find that credit rating agencies tend to award relatively high ratings to firms with good social performance. This pattern is robust to controlling for key firm characteristics as well as endogeneity between CSR and credit ratings. We also find that CSR strengths and concerns influence credit ratings and that the individual components of CSR that relate to primary stakeholder management (i.e., community relations, diversity, employee relations, environmental performance, and product characteristics) matter most in explaining firms' creditworthiness. Overall, our results suggest that CSR performance conveys important non-financial information that rating agencies are likely to use in their evaluation of firms' creditworthiness, and that CSR investments - particularly those that extend beyond compliance behavior to reflect what is desired by society - can lead to lower financing costs resulting from higher credit ratings.
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Kirabo Jackson & Henry Schneider
NBER Working Paper, November 2013
Abstract:
Moral hazard is endemic to employment relationships and firms often use performance pay and managerial control to address this problem. While performance pay has received much empirical attention, managerial control has not. We analyze data from a managerial-control field experiment in which an auto-repair firm provided detailed checklists to mechanics and monitored their use. Revenue was 20 percent higher under the experiment. We compare this effect to that of quasi-experimental increases in mechanic commission rates. The managerial-control effect is equivalent to that of a 10 percent commission increase. We find evidence of complementarities between the two, suggesting benefits from an all-of-the-above approach. We also find evidence of incentive gaming under performance pay.
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Can Higher Rewards Lead to Less Effort? Incentive Reversal in Teams
Esteban Klor et al.
Journal of Economic Behavior & Organization, January 2014, Pages 72-83
Abstract:
Conventional wisdom suggests that a global increase in monetary rewards should induce agents to exert higher effort. In this paper we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur, i.e., an increase in monetary rewards (either because bonuses increase or effort costs decrease) may induce agents that are fully rational, self-centered money maximizers to exert lower effort in the completion of a joint task. Incentive reversal happens when increasing one agent's individual rewards alters her best-response function and, as a result, removes other agents' incentives to exert effort as their contributions are no longer required to incentivize the first agent. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.
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Yongwook Paik
Strategic Entrepreneurship Journal, forthcoming
Abstract:
This article investigates the effects of prior firm founding experience, prior venture capital (VC) financing experience, and prior success with regard to subsequent venture survival by distinguishing serial entrepreneurs with and without prior VC financing experience. My analysis shows that ventures founded by serial entrepreneurs perform better than those founded by novice entrepreneurs regardless of whether entrepreneurs had prior success or failure. However, contrary to expectations, this study finds that serial entrepreneurs without prior VC financing experience perform better than serial entrepreneurs with prior VC financing experience, suggesting that there may be an inadvertent cost of learning about the VCs.
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Financial Dependence and Innovation: The Case of Public versus Private Firms
Viral Acharya & Zhaoxia Xu
NBER Working Paper, December 2013
Abstract:
This paper examines the relationship between innovation and firms' dependence on external capital by analyzing the innovation activities of privately-held and publicly-traded firms. We find that public firms in external finance dependent industries generate patents of higher quantity, quality, and novelty compared to their private counterparts, while public firms in internal finance dependent industries do not have a significantly better innovation profile than matched private firms. The results are robust to various empirical strategies that address selection bias. The findings suggest that public listing is beneficial to the innovation of firms in industries with a greater need for external capital.
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Daniel Tzabbar & Rebecca Kehoe
Journal of Management, forthcoming
Abstract:
How do the specific characteristics of a departing star influence the effects of the star's turnover on a firm's innovation processes? Proposing a contingency model of key employee turnover, we argue and demonstrate that the individual characteristics of a star scientist who exits a firm determine the effects of the star's turnover for the organization. Based on a longitudinal study of star scientist turnover in the biotechnology industry (1972-2003), we show that while star turnover disrupts existing innovation routines and thus decreases exploitation, this "shock" creates opportunities for the firm to search beyond existing knowledge boundaries, thereby increasing exploration. However, these effects are moderated by the departing star's innovative and collaborative involvement within the firm. Specifically, the results indicate that a departing star's innovative involvement strengthens the negative effects and weakens the positive effects of the star's turnover on exploitation and exploration in the firm, respectively. On the other hand, a departing star's collaborative involvement within a firm strengthens the negative effect of the star's exit on exploitation but increases the positive effect of star turnover on exploration, thereby fostering opportunities for technological renewal. We suggest therefore that the prognosis for firms losing stars may vary, and may not always be dire. Our findings indicate that the short-term and long-term value of human capital is contingent on the social mechanisms surrounding its utilization. Thus, we offer a redirection for research and extend the resource-based view and human capital theory by introducing a resource dependence perspective into this theoretical context.
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Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management
Maria Guadalupe, Hongyi Li & Julie Wulf
Management Science, forthcoming
Abstract:
Top management structures in large U.S. firms have changed significantly since the mid-1980s. The size of the executive team - the group of managers reporting directly to the CEO - doubled during this period. This growth was driven primarily by an increase in functional managers rather than general managers, a phenomenon we term "functional centralization." Using panel data on senior management positions, we show that changes in the structure of the executive team are tightly linked to changes in firm diversification and information technology investments. These relationships depend crucially on the function involved; those closer to the product ("product" functions, e.g., marketing and R&D) behave differently from functions further from the product ("administrative" functions, e.g., finance, law, and human resources). We argue that this distinction is driven by differences in the information-processing activities associated with each function and apply this insight to refine and extend existing theories of centralization. We also discuss the implications of our results for organizational forms beyond the executive team.
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Adam Kleinbaum & Toby Stuart
Strategic Management Journal, January 2014, Pages 24-47
Abstract:
In multidivisional firms, the corporate staff is central to the implementation of corporate-level strategy, but empirical evidence on its function is limited. We examine one corporate staff through e-mail analysis. We find sharp cross-sectional differences in communication patterns: staff members have networks that are larger, more integrative, and richer in structural holes. However, much of this difference is attributed to sorting processes, rather than being caused by employment in the corporate staff per se. Further, once people receive the 'corporate imprimatur,' they retain aspects of it even when they move back to the line organization. These results imply that the literature's emphasis on structure as a means to achieve coordination undervalues a selection process in which individuals with broad networks match to coordination-focused jobs in the corporate staff.
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Examining Applicant Reactions to the Use of Social Networking Websites in Pre-Employment Screening
William Stoughton, Lori Foster Thompson & Adam Meade
Journal of Business and Psychology, forthcoming
Purpose: Social networking websites such as Facebook allow employers to gain information about applicants which job seekers may not otherwise share during the hiring process. This multi-study investigation examined how job seekers react to this screening practice.
Design/Methodology: Study 1 (N = 175) employed a realistic selection scenario examining applicant reactions to prospective employers reviewing their social networking website. Study 2 (N = 208) employed a simulated selection scenario where participants rated their experience with a proposed selection process.
Findings: In Study 1, social networking website screening caused applicants to feel their privacy had been invaded, which ultimately resulted in lower organizational attraction. Applicants low in agreeableness had the most adverse reactions to social networking website screening. In Study 2, screening again caused applicants to feel their privacy had been invaded, resulting in lower organizational attraction and increased intentions to litigate. The organization's positive/negative hiring decision did not moderate the relationship between screening and justice.
Implications: The results suggest organizations should consider the costs and benefits of social media screening which could reduce the attractiveness of the organization. Additionally, applicants may need to change their conceptualization of social networking websites, viewing them through the eyes of a prospective employer.
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Testing the Theory of Multitasking: Evidence from a Natural Field Experiment in Chinese Factories
Fuhai Hong et al.
NBER Working Paper, November 2013
Abstract:
A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.