Social Capital
Female Hires and the Success of Start-Up Firms
Andrea Weber & Christine Zulehner
American Economic Review, May 2010, Pages 358-361
Abstract:
In this paper we investigate the relationship between females among the first hires of start-up companies and business success. Our results show that firms with female first hires have a higher share of female workers at the end of the first year after entry. Further, we find that firms with female first hires are more successful and stay longer in the market. We conclude that our results support the hypothesis that gender-diversity in leading positions is an advantage for start-up firms.
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CEO Overconfidence and Innovation
Alberto Galasso & Timothy Simcoe
NBER Working Paper, May 2010
Abstract:
Are CEOs' attitudes and beliefs linked to their fims' innovative performance? This paper uses Malmendier and Tate's measure of overconfidence, based on CEO stock-option exercise, to study the relationship between a CEO's "revealed beliefs" about future performance and standard measures of corporate innovation. We begin by developing a career concern model where CEOs innovate to provide evidence of their ability. The model predicts that overconfident CEOs, who underestimate the probability of failure, are more likely to pursue innovation, and that this effect is larger in more competitive industries. We test these predictions on a panel of large publicly traded firms for the years 1980 to 1994. We find a robust positive association between overconfidence and citation-weighted patent counts in both cross-sectional and fixed-effect models. This effect is larger in more competitive industries. Our results suggest that overconfident CEOs are more likely to take their firms in a new technological direction.
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Are Successful Women Entrepreneurs Different from Men?
McGrath Cohoon, Vivek Wadhwa & Lesa Mitchell
Kauffman Foundation Working Paper, May 2010
Abstract:
Women are one particularly understudied group of entrepreneurs. We know very little about female entrepreneurs, and our ignorance of this important demographic is a serious blind spot in any effort to increase the total number of entrepreneurs participating in our economy. What little we do know suggests that women are not nearly as active in the entrepreneurial space as they could be. This study attempts to address part of this knowledge gap. This based on data were collected in 2008-2009 from 549 respondents from randomly selected high-tech companies who were invited to participate. It compares the backgrounds, and experiences and motivations of men and women entrepreneurs. Our findings show that successful women and men entrepreneurs are similar in almost every respect. They had equivalent levels of education (slightly less than half earned graduate degrees), early interest in starting their own business (about half had at least some interest), a strong desire to build wealth or capitalize on a business idea, access to funding, and they largely agreed on the top issues and challenges facing any entrepreneur. The data also identify some small but potentially informative gender differences among successful entrepreneurs. For instance, motivations for starting a business differed slightly between men and women. The latter were more likely to cite a business partner's encouragement as a key incentive to take the plunge. Women also were more likely than men to get early funding from their business partners.
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Strategy and Powerpoint: An Inquiry into the Epistemic Culture and Machinery of Strategy Making
Sarah Kaplan
University of Toronto Working Paper, March 2010
Abstract:
PowerPoint has come to dominate organizational life in general and strategy making in particular. The technology is lauded by its proponents as a powerful tool for communication and excoriated by its critics as dangerously simplifying. This study takes a deeper look into how PowerPoint is mobilized in strategy making through an ethnographic study inside one organization. It treats PowerPoint as a technology embedded in the discursive practices of strategic knowledge production and suggests that these practices make up the epistemic or knowledge culture of the organization. Conceptualizing culture as composed of practices foregrounds the "machineries" of knowing. Results from a genre analysis of PowerPoint use suggest that it should not be characterized simply as effective or ineffective as current PowerPoint controversies do. Instead, I show how the affordances of PowerPoint enabled the difficult task of collaborating to negotiate meaning in an uncertain environment, creating spaces for discussion, making recombinations possible, allowing for adjustments as ideas evolved and providing access to a wide range of actors. These affordances also facilitated cartographic efforts to draw boundaries around the scope of a strategy by certifying certain ideas and allowing document owners to include or exclude certain slides or participants. These discursive practices - collaboration and cartography - are part of the "epistemic machinery" of strategy culture. This analysis demonstrates that strategy making is not only about analysis of industry structure, competitive positioning or resources as assumed in content-based strategy research but also about the production and use of PowerPoint documents that embody these ideas.
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Openness, Open Source, and the Veil of Ignorance
Suzanne Scotchmer
American Economic Review, May 2010, Pages 165-171
Abstract:
Open source collaborations are increasingly among commercial firms whose interest is profit. Why would profit-motivated firms voluntarily share code? One reason is that cost reductions can outweigh increases in rivalry. This is especially persuasive when the contributors make complementary products. However, cost reductions do not explain why open source is a more profitable way of sharing than other forms of licensing. Why would firms use an inflexible contract like the GPL? I present a model that shows how open source licensing can lead to higher industrywide profit than would result if a first innovator could choose the most profitable license once it finds itself in the position of first innovator. From behind a veil of ignorance, that is, not knowing which firm will be first, open source licensing creates higher expected profit for the industry as a whole, and thus for each firm, than if first innovators were allowed to choose.
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Knut Ivar Karevold & Karl Halvor Teigen
Journal of Economic Psychology, forthcoming
Abstract:
This study explores how managers' framing of project progress can reveal investment intentions. In three experiments managers were asked to evaluate hypothetical progress statements related to a failing project. Experiment 1 showed that past oriented statements, describing the amount of work done and amount of budget and time spent (75%), were perceived as revealing a preference for the sunk costs option to a larger extent than future-oriented statements describing the magnitude of work, budget and time remaining (25%). In the next two experiments, progress was described relative to explicit reference points: in Experiment 2 more than 70%, or less than 80% was done/spent, while more than 20%, or less than 30% was remaining; in Experiment 3 almost half was done/spent, or almost half remaining. These different ways of framing progress in terms of work, money, and time were readily interpreted either as arguments in support of continued investments, or as arguments for switching to a novel project, dependent upon the perceived (rather than the numerical) magnitudes of achievements, investments, and remaining resources. The studies contribute to a communicative view of framing, and give an indication of managers' implicit theories of the psychology of sunk costs.
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Network Diversity and Economic Development
Nathan Eagle, Michael Macy & Rob Claxton
Science, 21 May 2010, Pages 1029-1031
Abstract:
Social networks form the backbone of social and economic life. Until recently, however, data have not been available to study the social impact of a national network structure. To that end, we combined the most complete record of a national communication network with national census data on the socioeconomic well-being of communities. These data make possible a population-level investigation of the relation between the structure of social networks and access to socioeconomic opportunity. We find that the diversity of individuals' relationships is strongly correlated with the economic development of communities.
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What Is the Cost of Venting? Evidence from eBay
Lingfang Li
Economics Letters, forthcoming
Abstract:
This paper uses data collected from eBay's website to identify why buyers fail to leave (negative) feedback in online markets. Empirical results confirm that the fear of retaliation may be an important motivation for buyers not to leave (negative) feedback, while the time and effort cost of reporting may not be as important.
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Christina Fang, Jeho Lee & Melissa Schilling
Organization Science, May-June 2010, Pages 625-642
Abstract:
The classic trade-off between exploration and exploitation in organizational learning has attracted vigorous attention by researchers over the last two decades. Despite this attention, however, the question of how firms can better maintain the balance of exploration and exploitation remains unresolved. Drawing on a wide range of research on population and organization structure, we argue that an organization divided into semi-isolated subgroups may help strike this balance. We simulate such an organization, systematically varying the interaction pattern between individuals to explore how the degree of subgroup isolation and intergroup connectivity influences organizational learning. We also test this model with a range of contingency variables highlighted in the management research. We find that moderate levels of cross-group linking lead to the highest equilibrium performance by enabling superior ideas to diffuse across groups without reducing organizational diversity too quickly. This finding is remarkably resilient to a wide range of variance in factors such as problem complexity, environmental dynamism, and personnel turnover.
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Swinging a double-edged sword: The effect of slack on entrepreneurial management and growth
Steven Bradley, Johan Wiklund & Dean Shepherd
Journal of Business Venturing, forthcoming
Abstract:
Resource slack represents a double-edged sword, simultaneously fueling and hindering growth. Drawing on Penrose's growth theory and Stevenson's entrepreneurial management theory, we have developed and tested a conceptual model that provides a more nuanced account of the resource slack-growth relationship. Using a large dataset spanning six years, we have found that slack has a positive direct effect on growth but a negative effect on entrepreneurial management, and that entrepreneurial management has a positive effect on growth. Our empirical and conceptual findings are important to the development of firm growth theory and explicate causal mechanisms transforming slack into firm-level outcomes.
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The Pay-What-You-Like Business Model: Warm Glow Revenues and Endogenous Price Discrimination
Mark Isaac, John Lightle & Douglas Norton
Florida State University Working Paper, May 2010
Abstract:
We explore the potential benefits of an up-and-coming business model called "pay-what-you-like" in an environment where consumers experience a warm glow by patronizing a particular firm. We show that, given a social norm regarding minimum contributions, a pay-what-you-like firm should announce a minimum suggested contribution, which is positive - but smaller than the profit-maximizing single price - so as to benefit from "endogenous price discrimination," whereby consumers differentially contribute more than the suggested minimum. Furthermore, a pay-what-you-like scheme can improve market efficiency by drastically reducing deadweight loss relative to a single price scheme. These results are robust to alternate motivations for generosity, including gift-exchange.
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The Value of Online Trust Seals: Evidence from Online Retailing
Koray Özpolat, Guodong Gao, Wolfgang Jank & Siva Viswanathan
University of Maryland Working Paper, April 2010
Abstract:
Although third-party trust seals have been in use for long by online retailers, systematic studies of the effectiveness of these trust signaling mechanisms are scarce. Using a unique dataset of over a quarter million online transactions across 493 online retailers, this study seeks to empirically measure the value and effectiveness of trust seals on the likelihood of purchase by shoppers. The dataset is collected from a randomized field experiment by a large trust seal provider, which enables us to infer the causal impacts of the presence of an online trust seal. We find that the presence of the online trust seal increases the odds of completion of purchase. We further find that online trust seals serve as partial substitutes for both shopper experience and seller size. Interestingly, the effect of the number of trust seals is not linear - we find that the presence of too many seals lower completion rates. We discuss the implication of our findings for online retailers, third-party certifiers, as well as for policy makers.