TEXT SIZE A A A

Findings Banner

Wednesday, January 4, 2017

At the helm

 

Pilot CEOs and Corporate Innovation

Jayanthi Sunder, Shyam Sunder & Jingjing Zhang

Journal of Financial Economics, January 2017, Pages 209–224

Abstract:
We find evidence that chief executive officers’ (CEOs’) hobby of flying airplanes is associated with significantly better innovation outcomes, measured by patents and citations, greater innovation effectiveness, and more diverse and original patents. We rule out alternative explanations, leading us to conclude that CEO pilot credentials capture the personality trait of sensation seeking. Sensation seeking combines risk taking with a desire to pursue novel experiences and has been associated with creativity. Our evidence highlights sensation seeking as a valuable personality trait that can be used to identify CEOs who are likely to drive innovation success.

---------------------

How Destructive is Innovation?

Daniel Garcia-Macia, Chang-Tai Hsieh & Peter Klenow

NBER Working Paper, December 2016

Abstract:
Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all non-farm private businesses from 1976–1986 and 2003–2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own-product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.

---------------------

Impact of Financial Leverage on the Incidence and Severity of Product Failures: Evidence from Product Recalls

Omesh Kini, Jaideep Shenoy & Venkat Subramaniam

Review of Financial Studies, forthcoming

Abstract:
We study the impact of the financial condition of firms on firms’ ability to produce safer products that result in fewer recalls. Using a variety of tests, including two quasi-natural experiments that result in exogenous negative industry cash-flow shocks, we find that firms with higher leverage or distress likelihood have a greater probability of a product recall. These firms also face more frequent and severe recalls. Further, firms with more debt due at the onset of the financial crisis experience a greater likelihood and frequency of recalls. We conclude that a firm’s financial condition has real effects that impact product safety.

---------------------

Earnings Expectations and Employee Safety

Judson Caskey & Bugra Ozel

Journal of Accounting and Economics, February 2017, Pages 121–141

Abstract:
We examine the relation between workplace safety and managers’ attempts to meet earnings expectations. Using establishment-level data on workplace safety from the Occupational Safety and Health Administration, we document significantly higher injury/illness rates in firms that meet or just beat analyst forecasts compared to firms that miss or comfortably beat analyst forecasts. The higher injury/illness rates in firms that meet or just beat analyst forecasts are associated with both increases in employee workloads and in abnormal reductions of discretionary expenses. The relation between benchmark beating and workplace safety is stronger when there is less union presence, when workers’ compensation premiums are less sensitive to injury claims, and among firms with less government business. Our findings highlight a specific consequence of managers’ attempts to meet earnings expectations through real activities management.

---------------------

The Payoff to Consistency in Performance

Christian Deutscher et al.

Economic Inquiry, forthcoming

Abstract:
This study investigates whether firms are willing to pay higher wages to workers who demonstrate consistent performance than to those whose performance is more volatile. A formal model reflects a production technology view, assuming the law of diminishing marginal product. This model suggests that a more consistent worker produces higher expected output and therefore receives a higher wage. The test of the model uses data from the National Basketball Association. The empirical data support the model: Players whose performances were more consistent than the performances of other players received higher wages on average.

---------------------

Customer-Base Concentration, Profitability and the Information Environment: The U.S. Government as a Major Customer

Daniel Cohen & Bin Li

University of Texas Working Paper, October 2016

Abstract:
While prior research focuses on a firm’s relationships with corporate customers, we examine a firm’s interaction with the U.S. government as a unique and important customer. Specifically, we compare government customers vis-à-vis corporate customers by investigating their different economic implications for supplier firms. The evidence suggests that firms with more concentrated sales to government customers exhibit greater economies of scale as reflected in their better profitability, whereas firms with more concentrated sales to corporate customers do not. Our further analyses imply that relative to corporate customers, government customers help suppliers in achieving higher efficiencies in asset turnover and customer-specific SG&A investments, a consequence of lower operational uncertainty and a more transparent external information environment.

---------------------

Let them go? How losing employees to competitors can enhance firm status

David Tan & Christopher Rider

Strategic Management Journal, forthcoming

Abstract:
Because employees can provide a firm with human capital advantages over competitors, firms invest considerably in employee recruiting and retention. Departing from the retention imperative of strategic human capital management, we propose that certain employee departures can enhance a firm's competitiveness in the labor market. Specifically, increased rates of career-advancing departures by a firm's employees can signal to potential future employees that the firm offers a prestigious employment experience that enhances external mobility opportunities. Characterizing advancement based on subsequent employers and positions, we analyze data on U.S. law firm hiring and industry surveys of perceived firm status between 2004 and 2013. We find that increased rates of employee departures lead to increases in a firm's prestige when these departures are for promotions with high-status competitors.

---------------------

The Employee Clientele of Corporate Leverage

Jie He, Tao Shu & Huan Yang

University of Georgia Working Paper, November 2016

Abstract:
Using the Longitudinal Employer-Household Dynamics (LEHD) data from the Census Bureau, we document a robust, negative correlation between corporate leverage and employee job risk aversion. Specifically, we find that a firm uses less debt in its capital structure when its employees are more risk averse towards their jobs in the company, i.e., when a larger fraction of the employees’ total personal labor income or total household labor income is accounted for by their income from this particular firm. Meanwhile, firms with a lower existing level of leverage are more likely to recruit risk averse employees in terms of new hires. Our results continue to hold after we control for firm fixed effects, other employee characteristics such as wages, gender, age, race, and education, and the risk attitude of firm managers. Further, the matching between leverage and employee job risk attitude is more pronounced for firms with higher labor intensity and those in financial distress. Overall, our paper provides novel evidence for a clientele effect of corporate leverage with respect to employees, consistent with the theoretical predictions of Titman (1984) and Berk, Stanton, and Zechner (2010).

---------------------

Killer Incentives: Status Competition and Pilot Performance during World War II

Philipp Ager, Leonardo Bursztyn & Hans-Joachim Voth

NBER Working Paper, December 2016

Abstract:
A growing theoretical and empirical literature shows that public recognition can lead to greater effort amongst employees. At the same time, status competition can be associated with excessive expenditure on status goods, higher risk of bankruptcy, and more risk taking amongst money managers. In this paper, we look at the effects of recognition and status competition jointly: We focus on the spillover effects of public recognition on the performance and risk taking of peers. Using newly collected data on monthly victory scores of over 5,000 German pilots during World War II, we find corrosive effects of status competition: When the daily bulletin of the German armed forces mentioned the accomplishments of a particular fighter pilot, his former peers perform markedly better. Outperformance is differential across skill groups. When a former squadron peer is mentioned, the best pilots try harder, score more, and die no more frequently; average pilots win only a few additional victories, but die at a markedly higher rate. Our results suggest that the overall efficiency effects of non-financial rewards can be ambiguous in settings where both risk and output affect aggregate performance.

---------------------

The Contribution of Managers to Organizational Success: Evidence from German Soccer

Gerd Muehlheusser et al.

Journal of Sports Economics, forthcoming

Abstract:
We study the impact of managers on the success of professional soccer teams using data from the German Bundesliga, where we are exploiting the high turnover rate of managers between teams to disentangle the managers’ contributions. Teams employing a manager from the top of the ability distribution gain on average considerably more points than those employing a manager from the bottom. Moreover, estimated abilities have significant predictive power for future performance. Managers also affect teams’ playing style. Finally, teams whose manager has been a former professional player perform worse on average compared to managers without a professional player career.

---------------------

Expecting the Unexpected: Using Team Charters to Handle Disruptions and Facilitate Team Performance

Therese Sverdrup, Vidar Schei & Øystein Tjølsen

Group Dynamics, forthcoming

Abstract:
Teams are increasingly relied on to manage and adapt to a changing world. Previous studies have found adaptive teams to be less susceptible to disruptive events. In this study, we test whether or not the development of a team charter 2 weeks prior to a given task increases a team’s ability to adapt to disruptions and overall performance. We find that teams that develop team charters are better able to handle disruptive events, which in turn increases their performance.

---------------------

Fitting In or Standing Out? The Tradeoffs of Structural and Cultural Embeddedness

Amir Goldberg et al.

American Sociological Review, December 2016, Pages 1190-1222

Abstract:
A recurring theme in sociological research is the tradeoff between fitting in and standing out. Prior work examining this tension tends to take either a structural or a cultural perspective. We fuse these two traditions to develop a theory of how structural and cultural embeddedness jointly relate to individual attainment within organizations. Given that organizational culture is hard to observe, we develop a novel approach to assessing individuals’ cultural fit with their colleagues based on the language expressed in internal e-mail communications. Drawing on a unique dataset that includes a corpus of 10.24 million e-mail messages exchanged over five years among 601 employees in a high-technology firm, we find that network constraint impedes, whereas cultural fit promotes, individual attainment. More importantly, we find evidence of a tradeoff between the two forms of embeddedness: cultural fit benefits individuals with low network constraint (i.e., brokers), whereas network constraint promotes attainment for people with low cultural fit.

---------------------

Procrastination in the Workplace: Evidence from the U.S. Patent Office

Michael Frakes & Melissa Wasserman

NBER Working Paper, December 2016

Abstract:
Despite much theoretical attention over the concept of procrastination and much exploration of this phenomenon in laboratory settings, there remain few empirical investigations into procrastination in real world contexts, especially in the workplace. In this paper, we attempt to fill these gaps by exploring procrastination among U.S. patent examiners. We find that nearly half of examiners’ first substantive reports are completed immediately prior to the operable deadlines. Moreover, we find a range of additional empirical markers to support that this “endloading” of reviews results from a model of procrastination rather than various time-consistent models of behavior. In one such approach, we take advantage of the natural experiment afforded by the Patent Office’s staggered implementation of its telecommuting program, a development that we theorize might exacerbate employee self-control problems. Supporting the procrastination theory, we estimate an immediate spike in application endloading and other indicia of procrastination upon the onset of telecommuting. Finally, we assess the consequences of procrastination for the quality of the completed reviews. This analysis suggests that the primary harm stemming from procrastination is delay in the ultimate application process, with rushed reviews completed at deadlines resulting in the need for revisions in subsequent rounds of review.

---------------------

The Labor Market Signaling Value of Promotions

Bobak Moallemi, Ramana Ramakrishnan & Ryan Shyu

Stanford Working Paper, November 2016

Abstract:
Do firms learn from other firms' human resource allocation decisions? This paper studies this question in the context of worker promotions, which according to theory serve as informative signals to external employers under asymmetric learning about employee ability. Using variation in the timing of promotion reports on LinkedIn CVs, we implement a differences-in-differences strategy to demonstrate that online promotion reports increase recruiter-initiated worker contacts ("InMails''). The signaling impact of promotions is concentrated among those who have recently attracted previous recruiter interest, consistent with a higher expected value of firm information acquisition among such workers.

By KEVIN LEWIS | 09:00:00 AM