Findings

Master of Business Administration

Kevin Lewis

May 03, 2011

The Effect of Ethics on Labor Market Success: Evidence from MBAs

Andrew Hussey
Journal of Economic Behavior & Organization, forthcoming

Abstract:
This paper empirically investigates the link between ethics, earnings and gender. Using a self-reported measure from a longitudinal survey of registrants for the Graduate Management Admissions Test, we find that ethical character is negatively associated with males' wages. For females, however, this relationship doesn't hold. In addition, using measures of the degree to which ethics is emphasized in business school curricula as an indicator for enhancement of individual ethical standards of graduates, we investigate variation in the returns to an MBA degree. We find that the larger the degree to which males report that business education enhanced their ethical character, the lower their wages, holding other aspects of their education constant. For females, however, enhanced ethics through business school is positively and significantly associated with returns to the MBA degree. More objective measures of ethics emphasis in business school curricula provide further support of these findings.

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Mattel, Inc.: Global Manufacturing Principles (GMP) - A Life-Cycle Analysis of a Company-Based Code of Conduct in the Toy Industry

Prakash Sethi et al.
Journal of Business Ethics, April 2011, Pages 483-517

Abstract:
Over the last 20+ years, multinational corporations (MNCs) have been confronted with accusations of abuse of market power and unfair and unethical business conduct especially as it relates to their overseas operations and supply chain management. These accusations include, among others, worker exploitation in terms of unfairly low wages, excessive work hours, and unsafe work environment; pollution and contamination of air, ground water and land resources; and, undermining the ability of natural government to protect the well-being of their citizens. MNCs have responded to these accusations by creating voluntary codes of conduct which commit them to specific standards for addressing these issues. These codes are created at both the industry-wide and the individual company level. Unfortunately, these codes have generated little credibility and public trust because their compliance claims cannot be independently verified, and they lack transparency and full public disclosure. In this article, we present a case study of the voluntary code of conduct by Mattel, Inc., the world's largest toy company. The code, called the Global Manufacturing Principles (GMP), confronts the general criticism leveled against voluntary codes of conduct by (a) creating detailed standards of compliance, (b) independent external monitoring of the company's compliance with its code of conduct, and (c) making full, and uncensored public disclosure of the audit findings and company's response in terms of remedial action. We present a detailed account of how Mattel's voluntary code of conduct was created, implemented, and ultimately abandoned over 9 years. We provide an evaluative analysis of the company's GMP compliance throughout its life span, which suggests a bell-shaped curve, where early top management commitments were met with pockets of resistance from operational groups, who were concerned about balancing GMP compliance efforts with traditional performance criteria. The early stage response from Mattel's top management was quick and supported with the requisite resources. As a result, the compliance process accelerated, becoming increasingly more robust and effective. The success of code compliance and increased transparency in public disclosure energized field managers with a sense of professional satisfaction and publicly recognized accomplishments. The decline in GMP compliance was equally steep. When all the easily attainable targets had been reached at the company-operated plants, addressing vendor plants' compliance presented a new set of challenges, which taxed corporate resources and management commitment. It would seem that value-based and ethics-oriented considerations, i.e., doing the right thing for the right reason, were no longer the driving force for Mattel's management. Mattel did not see any economic benefit from its proactive stance, when competitors did not seem to suffer adverse consequences for not following suit. The final contributing factor to the code's abandonment was a widely publicized series of product recalls which absorbed top management's attention.

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Does the stock market fully value intangibles? Employee satisfaction and equity prices

Alex Edmans
Journal of Financial Economics, forthcoming

Abstract:
This paper analyzes the relationship between employee satisfaction and long-run stock returns. A value-weighted portfolio of the "100 Best Companies to Work For in America" earned an annual four-factor alpha of 3.5 benchmarks. The results are robust to controls for firm characteristics, different weighting methodologies, and the removal of outliers. The Best Companies also exhibited significantly more positive earnings surprises and announcement returns. These findings have three main implications. First, consistent with human capital-centered theories of the firm, employee satisfaction is positively correlated with shareholder returns and need not represent managerial slack. Second, the stock market does not fully value intangibles, even when independently verified by a highly public survey on large firms. Third, certain socially responsible investing ("SRI") screens may improve investment returns.

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Avoiding Bad Press: Interpersonal Influence in Relations Between CEOs and Journalists and the Consequences for Press Reporting About Firms and Their Leadership

James Westphal & David Deephouse
Organization Science, forthcoming

Abstract:
In this study we consider how and when interpersonal relations between chief executive officers (CEOs) and journalists can influence the content of journalists' reporting about corporate leaders and their firms. Specifically, we draw from the social psychological literature on interpersonal influence and social exchange to suggest (i) how the disclosure of relatively low corporate earnings may prompt the CEO to engage in ingratiatory behavior toward journalists, and (ii) how such behavior may be effective in prompting journalists to issue relatively positive reports about the CEO's firm. We also extend our theory to consider how relatively negative journalist reports may prompt CEOs to retaliate against individual journalists by limiting or cutting off communication with the offending journalist, and how such retaliation may deter other journalists from issuing negative reports about the firm in the future. We find support for our hypotheses in a unique data set that includes large-sample survey data on CEO-journalist relations. We discuss how our research contributes to the growing literature in organization theory and strategy on the social processes by which corporate leaders influence the behavior of information intermediaries and other external constituents toward their firms. Moreover, we suggest that an implication of our findings is that top executives can actively influence the reputation of their firms, as well as their own reputations as corporate leaders, by engaging in interpersonal influence processes toward journalists.

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Perils and Profits: A Reexamination of the Link Between Profitability and Safety in U.S. Aviation

Peter Madsen
Journal of Management, forthcoming

Abstract:
In many industries, for-profit business organizations make decisions that critically impact the safety of their employees and the public. Managers in such organizations often argue that there is no trade-off between profitability and safety because "safety is good business." However, prior studies examining the profitability-safety relationship report inconsistent and conflicting results. In the present study, the author reexamines this issue, building on insights into managerial risk taking from the behavioral theory of the firm and hypothesizing that the slope of the profitability-safety relationship reaches an inflection point at the organizational profitability aspiration. Using data from the U.S. airline industry, the author finds support for this hypothesis, with results indicating a positive association between airline profitability and airline accident rates for airlines performing below their aspirations but a negative association for airlines performing above their aspirations.

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When Is Employee Retaliation Acceptable at Work? Evidence from Quasi-Experiments

Gary Charness & David Levine
Industrial Relations, October 2010, Pages 499-523

Abstract:
When is employee retaliation acceptable in the workplace? We use a quasi-experimental design to study the acceptability of several forms of retaliatory behavior at work, gathering data in this untested area. Consistent with hypotheses from theories of fairness, we find that employee retaliation in the workplace is perceived to be more acceptable if it is an act of omission instead of an act of commission. We do not find that a more damaging retaliatory act is significantly less acceptable than a less damaging one, suggesting a qualitative rather than a quantitative relationship. We also find individual differences: Respondents who are older, female, politically conservative, and managers typically show less tolerance for retaliation, while union members are a bit more accepting than average.

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Do people become healthier after being promoted?

Christopher Boyce & Andrew Oswald
Health Economics, forthcoming

Abstract:
This paper examines the hypothesis that greater job status makes a person healthier. It begins by successfully replicating the well-known cross-section association between health and job seniority. Then, however, it turns to longitudinal patterns. Worryingly for the hypothesis, the data-on a large sample of randomly selected British workers through time-suggest that people who start with good health go on later to be promoted. The paper can find relatively little evidence that health improves after promotion. In fact, promoted individuals suffer a significant deterioration in their psychological well-being (on a standard General Health Questionnaire (GHQ) mental ill-health measure).

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CFOs versus CEOs: Equity incentives and crashes

Jeong-Bon Kim, Yinghua Li & Liandong Zhang
Journal of Financial Economics, forthcoming

Abstract:
Using a large sample of U.S. firms for the period 1993-2009, we provide evidence that the sensitivity of a chief financial officer's (CFO) option portfolio value to stock price is significantly and positively related to the firm's future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

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Corporate Ethical Trading in an Economic Downturn: Recessionary Pressures and Refracted Responsibilities

Alex Hughes
Journal of Economic Geography, forthcoming

Abstract:
This article investigates the effects of an economic downturn on corporate social responsibility, with a focus on how UK food and clothing retailers responded to recessionary pressures between 2008 and 2009 in their corporate strategies for ethical trade. In contrast to the view that corporate ethical trading might contract in scale during recession, its (uneasy) resilience is charted and explained by embeddedness in strategies of reputational risk management. However, the metaphor of refraction is adopted to capture the changing directions of ethical trading strategy as retailers moved from a period of economic stability to one of crisis.

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Managerial Mystique: Magical Thinking in Judgments of Managers' Vision, Charisma, and Magnetism

Maia Young, Michael Morris & Vicki Scherwin
Journal of Management, forthcoming

Abstract:
Successful businesspeople are often attributed somewhat mystical talents, such as the ability to mesmerize an audience or envision the future. We suggest that this mystique-the way some managers are perceived by observers-arises from the intuitive logic that psychologists and anthropologists call magical thinking. Consistent with this account, Study 1 found that perceptions of a manager's mystique are associated with judgments of his or her charismatic vision and ability to forecast future business trends. The authors hypothesized that mystique arises especially when success is observed in the absence of mechanical causes, such as long hours or hard-won skills. In Study 2, managers who succeeded mysteriously rather than mechanically evoked participants' attributions of foresight and their expectations of success at visionary tasks yet not at administrative tasks. The authors further hypothesized that as mystique is assumed to spread through contagion, observers desire physical contact with managers who are attributed mystique and with these managers' possessions. Study 3 found that managers described as visionary as opposed to diligent are judged to be charismatic and ultimately magnetic. The authors discuss the implications of these judgment patterns for the literatures on perception biases and impression management in organizations.

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Growing Out of Trouble? Corporate Responses to Liability Risk

Todd Gormley & David Matsa
Review of Financial Studies, forthcoming

Abstract:
This article analyzes corporate responses to the liability risk arising from workers' exposure to newly identified carcinogens. We find that firms, especially those with weak balance sheets, tend to respond to such risks by acquiring large, unrelated businesses with relatively high operating cash flows. The diversifying growth appears to be primarily motivated by managers' personal exposure to their firms' risk in that the growth has negative announcement returns and is related to firms' external governance, managerial stockholdings, and institutional ownership. The results suggest that corporate governance is particularly important when firms are exposed to the risk of large, adverse shocks.


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