Administration
The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry
Albert Sheen & Shai Bernstein
Harvard Working Paper, June 2013
Abstract:
What, if anything, do private equity firms do with businesses they acquire? We find evidence of significant operational changes in 101 restaurant chain buyouts between 2002 and 2012. Establishment-level analysis of more than 50,000 restaurants in Florida shows that health and sanitation violations, particularly those most attributed to foodborne illness, decline after private equity takeover. These violations are strongly correlated with overall consumer satisfaction. Within a chain, we use independently owned franchised stores, over which private equity owners have limited control, as carbon copy counterfactuals to directly owned stores to support a causal interpretation. Improvements in sanitation and food safety occur while target chains employ fewer workers per store, and menu prices decline. This evidence suggests that private equity firms are not simply financial engineers but rather active investors that improve operations management practices in the firm. Moreover, cost-cutting activities do not come at the expense of consumer product quality.
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Job Titles as Identity Badges: How Self-Reflective Titles Can Reduce Emotional Exhaustion
Adam Grant, Justin Berg & Dan Cable
Academy of Management Journal, forthcoming
Abstract:
Job titles help organizations manage their human capital and have far-reaching implications for employees' identities. Because titles do not always reflect the unique value that employees bring to their jobs, some organizations have recently experimented with encouraging employees to create their own job titles. To explore the psychological implications of self-reflective job titles, we conducted field research combining inductive qualitative and deductive experimental methods. In Study 1, a qualitative study at the Make-A-Wish Foundation, we were surprised to learn that employees experienced self-reflective job titles as reducing their emotional exhaustion. We triangulated interviews, observations, and archival documents to identify three explanatory mechanisms through which self-reflective job titles may operate: self-verification, psychological safety, and external rapport. In Study 2, a field quasi-experiment within a healthcare system, we found that employees who created self-reflective job titles experienced less emotional exhaustion five weeks later, whereas employees in two control groups did not. These effects were mediated by increases in self-verification and psychological safety, but not external rapport. Our research suggests that self-reflective job titles can be important vehicles for identity expression and stress reduction, offering meaningful implications for research on job titles, identity, and emotional exhaustion.
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Can a leader be seen as too ethical? The curvilinear effects of ethical leadership
Jeroen Stouten et al.
Leadership Quarterly, forthcoming
Abstract:
Ethical leadership predicts important organizational outcomes such as decreased deviant and increased organizational citizenship behavior (OCB). We argued that due to the distinct nature of these two types of employee behaviors, ethical leadership decreases deviance in a linear manner (i.e., more ethical leadership leading to less deviance), but we expected ethical leadership to reveal a curvilinear relationship with respect to OCB. Specifically, we expected that, at lower levels, ethical leadership promotes OCB. However, at high levels, ethical leadership should lead to a decrease in these behaviors. We also examined a mechanism that explains this curvilinear pattern, that is, followers' perceptions of moral reproach. Our predictions were supported in three organizational field studies and an experiment. These findings offer a better understanding of the processes that underlie the workings of ethical leadership. They also imply a dilemma for organizations in which they face the choice between limiting deviant employee behavior and promoting OCB.
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Prosocial Bonuses Increase Employee Satisfaction and Team Performance
Lalin Anik et al.
Harvard Working Paper, May 2013
Abstract:
In two field studies, we explore the impact of providing employees and teammates with prosocial bonuses, a novel type of bonus spent on others rather than on oneself. In Experiment 1, we show that prosocial bonuses in the form of donations to charity lead to happier and more satisfied employees at an Australian bank. In Experiment 2, we show that prosocial bonuses in the form of expenditures on teammates lead to better performance in both pharmaceutical sales teams in Belgium and sports teams in Canada. These results suggest that a minor adjustment to employee bonuses - shifting the focus from the self to others - can produce measurable benefits for employees and organizations.
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Joseph Hughes & Loretta Mester
Journal of Financial Intermediation, forthcoming
Abstract:
The Great Recession focused attention on large financial institutions and systemic risk. We investigate whether large size provides any cost advantages to the economy and, if so, whether these cost advantages are due to technological scale economies or too-big-to-fail subsidies. Estimating scale economies is made more complex by risk-taking. Better diversification resulting from larger scale generates scale economies but also incentives to take more risk. When this additional risk-taking adds to cost, it can obscure the underlying scale economies and engender misleading econometric estimates of them. Using data pre- and post-crisis, we estimate scale economies using two production models. The standard model ignores endogenous risk-taking and finds little evidence of scale economies. The model accounting for managerial risk preferences and endogenous risk-taking finds large scale economies, which are not driven by too-big-to-fail considerations. We evaluate the costs and competitive implications of breaking up the largest banks into smaller banks.
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Do Wage Cuts Damage Work Morale? Evidence from a Natural Field Experiment
Sebastian Kube, Michel André Maréchal & Clemens Puppe
Journal of the European Economic Association, August 2013, Pages 853-870
Abstract:
Employment contracts are often incomplete, leaving many responsibilities subject to workers' discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20%. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.
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Joel Maxcy
Journal of Sports Economics, forthcoming
Abstract:
This article develops a model of managerial efficiency for National Collegiate Athletic Association's top division college football coaches. The derived efficiency measures are then linked to the hiring and firing process. The work concludes with an evaluation of the effect of head coach succession on team performance. This study evaluates coaching efficiency in terms of both use of talent and recruiting talent. The constructed efficiency rankings are used to evaluate hiring and firing decisions and determine the degree that each type of efficiency plays in these decisions. Last, the efficiency of the market is assessed by evaluating whether universities are making a good choice and are able on average to improve performance when replacing an underperforming coach. The empirical results indicate that both constructs of efficiency matter. Coaches who exhibit high level of both types of efficiencies regularly move up to the most lucrative jobs. Replacement of poor performing coach is most often a wise decision.
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Workspace satisfaction: The privacy-communication trade-off in open-plan offices
Jungsoo Kim & Richard de Dear
Journal of Environmental Psychology, December 2013, Pages 18-26
Abstract:
Open-plan office layout is commonly assumed to facilitate communication and interaction between co-workers, promoting workplace satisfaction and team-work effectiveness. On the other hand, open-plan layouts are widely acknowledged to be more disruptive due to uncontrollable noise and loss of privacy. Based on the occupant survey database from Center for the Built Environment (CBE), empirical analyses indicated that occupants assessed Indoor Environmental Quality (IEQ) issues in different ways depending on the spatial configuration (classified by the degree of enclosure) of their workspace. Enclosed private offices clearly outperformed open-plan layouts in most aspects of IEQ, particularly in acoustics, privacy and the proxemics issues. Benefits of enhanced ‘ease of interaction' were smaller than the penalties of increased noise level and decreased privacy resulting from open-plan office configuration.
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And The Winner is...? The Motivating Power of Employee Awards
Susanne Neckermann & Bruno Frey
Journal of Socio-Economics, October 2013, Pages 66-77
Abstract:
This paper reports the findings from a survey experiment conducted online at IBM to assess the impact of employee awards on behavior in the workplace. We document that the introduction of a hypothetical award has statistically significant effects on the stated willingness to contribute to a public good. Our design allows us to estimate the impact of different award characteristics related to, for example, how public or how valuable the award is. The stated willingness to share important information with colleagues increases monotonically with the value of the monetary payment or gift that comes with the award and is lower for gifts than payments of equal value. Moreover, publicity has a substantial positive effect: a ceremony increases stated contributions by as much as increasing the value of the award from $ 0 to $ 1,000.
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Less is Sometimes More: Consequences of Overpayment on Job Satisfaction and Absenteeism
Carsten Sauer & Peter Valet
Social Justice Research, June 2013, Pages 132-150
Abstract:
This article investigates the responsive and purposive consequences of overpayment by studying changes in job satisfaction and absenteeism over time. Overpayment is defined as the positive deviation from the net earnings subjectively considered being fair. Two theoretical approaches are tested providing differing predictions: The self-interest model predicts that any increase in earnings always increases individual job satisfaction and that no changes arise in the number of days absent. The justice model predicts that overpayment reduces individual job satisfaction, and that absenteeism decreases in the period that follows. These predictions are tested with longitudinal data from a large-scale survey by means of fixed-effects regression analysis. The results show that increases in pay that are perceived as overpayment decrease job satisfaction and reduce absenteeism in the subsequent period.
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Risk Management and Firm Value: Evidence from Weather Derivatives
Francisco Pérez-González & Hayong Yun
Journal of Finance, forthcoming
Abstract:
This paper shows that active risk management policies lead to an increase in firm value. To identify the effect of hedging and to overcome endogeneity concerns, we exploit the introduction of weather derivatives as an exogenous shock to firms' ability to hedge weather risks. This innovation disproportionately benefits weather-sensitive firms, irrespective of their future investment opportunities. Using this natural experiment and data from energy firms, we find that derivatives lead to higher valuations, investments and leverage. Overall, our results demonstrate that risk management has real consequences on firm outcomes.
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Collective Bargaining and Faculty Job Satisfaction
John Krieg et al.
Industrial Relations, July 2013, Pages 619-644
Abstract:
Estimates of the impact of union membership on job satisfaction suffer from nonrandom self-selection of employees into unions. In this paper, we circumvent this problem by examining the impact on satisfaction of collective bargaining representation, rather than of union membership. We use a two-stage technique that controls for nonrandom selection of faculty into institutions, and apply that to a panel of faculty at repeatedly observed four-year universities. We find that bargaining agreements increase satisfaction with compensation but reduce satisfaction with faculty workload. Bargaining has no statistically measurable impact on overall job satisfaction or on faculty's satisfaction with their authority to make decisions regarding their instructional duties.
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The Dark Side of Competition for Status
Gary Charness, David Masclet & Marie Claire Villeval
Management Science, forthcoming
Abstract:
Unethical behavior within organizations is not rare. We investigate experimentally the role of status-seeking behavior in sabotage and cheating activities aiming at improving one's performance ranking in a flat-wage environment. We find that average effort is higher when individuals are informed about their relative performance. However, ranking feedback also favors disreputable behavior. Some individuals do not hesitate to incur a cost to improve their rank by sabotaging others' work or by increasing artificially their own performance. Introducing sabotage opportunities has a strong detrimental effect on performance. Therefore, ranking incentives should be used with care. Inducing group identity discourages sabotage among peers but increases in-group rivalry.
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The genetics of entrepreneurial performance
Scott Shane & Nicos Nicolaou
International Small Business Journal, August 2013, Pages 473-495
Abstract:
Behavioral genetics techniques were applied to a sample of self-employed monozygotic (MZ) and dizygotic (DZ) twins from the USA to examine whether genetic factors influence entrepreneurial performance. The study found that genetics affects the amount of income earned by self-employed people. In addition, the study found that common genes influenced the phenotypic correlations between three of the ‘big five' personality characteristics - agreeableness, openness to experience and extraversion - and self-employment income, but due to the small sample size, the confidence intervals were high. The implications of a genetic component to self-employment income for research on entrepreneurship are discussed.
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Seth Carnahan & Deepak Somaya
Academy of Management Journal, forthcoming
Abstract:
Research examining the impacts of employee mobility on inter-firm relationships suggests that firms earn positive relational spillovers when their former employees, or alumni, depart to join other organizations. Drawing on the theory of relational advantage (Dyer & Singh, 1998), we extend this line of work by examining how a supplier firm is affected when a buyer hires alumni from the supplier's competitors. Using detailed data on mobility between patent law firms and their Fortune500 clients, we find that supplier firms receive less outsourced business when buyers hire employees from the focal supplier's competitors. Further, this negative effect decreases when the focal supplier has its own alumni already working for the buyer firm, and increases when the buyer firm has higher turnover or hires locally from competing suppliers. The paper thus underscores the importance of former employees (firm alumni) in the competition for valuable business relationships.
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Hierarchy, Coercion, and Exploitation: An Experimental Analysis
Nikos Nikiforakis, Jörg Oechssler & Anwar Shah
Journal of Economic Behavior & Organization, forthcoming
Abstract:
The power to coerce workers is important for the efficient operation of hierarchically structured organizations. However, this power can also be used by managers to exploit their subordinates for their own benefit. We examine the relationship between the power to coerce and exploitation in a laboratory experiment where a senior and a junior player interact repeatedly for a finite number of periods. We find that senior players try repeatedly to use their power to exploit junior workers. These attempts are successful only when junior workers have incomplete information about how their effort impacts on the earnings of senior players, but not when they have complete information. Evidence from an incentive-compatible questionnaire indicates that the social acceptability of exploitation depends on whether the junior worker can detect she is being exploited. We also show how a history of exploitation affects future interactions.
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Star Performers in Twenty-First-Century Organizations
Herman Aguinis & Ernest O'Boyle
Personnel Psychology, forthcoming
Abstract:
We argue that changes in the nature of work in twenty-first-century organizations have led to the emergence of star performers - a few individuals who contribute a disproportionate amount of output. We describe how stars negate the long-held belief that the distribution of individual performance is normal and, instead, suggest an underlying power law distribution. Also, we offer nine propositions to guide future empirical research on star performers and an underlying power law distribution of individual performance. We describe how the presence of stars is likely to affect all individual-, team-, and firm-level-level management theories addressing individual performance directly or indirectly, but focus on specific implications for those addressing human capital, turnover, compensation, downsizing, leadership, teamwork, corporate entrepreneurship, and microfoundations of strategy. In addition, we discuss methodological considerations necessary to carry out our proposed research agenda. Finally, we discuss how a consideration of star performers has important implications for management practice.