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Accounting & Management

Jody Grewal

Abstract:
Disclosure of Emerging Trends: Evidence from Climate Change Business Opportunities
Responding to social, technological and environmental trends can be critical to firm survival and competitiveness. I use the development and sale of low-carbon products in response to the business opportunities that arise from climate change (‘green opportunities’) as the setting to study firms’ disclosure strategies of emerging trends and their consequences. I find, on average, firms delay disclosing green opportunities in their 10-K until 2.5 years after disclosing green opportunities in their sustainability report. Despite both disclosure channels providing reliable information about future revenues from low-carbon products, withholding disclosure from the 10-K has capital market implications. A value-weighted portfolio of firms disclosing only in the sustainability report earned an annual alpha of 3.09%, while a portfolio of 10-K disclosers does not earn abnormal returns. Firms disclosing only in their sustainability report also exhibited significantly more positive forecast errors and earnings announcement returns. I find that the disclosure delay is shorter when there is greater shareholder support for climate change resolutions consistent with managerial perceptions of shareholder preferences influencing disclosure decisions.
Faculty Advisor(s): P. Healy (Co-Chair), G. Serafeim (Co-Chair), S. Datar, K. Palepu, and E. Riedl
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Matthew Shaffer

Abstract:
Truth and Bias in M&A Target Fairness Valuations: Appraising the Appraisals
Accepting or declining a takeover offer is among the most important decisions a corporation can make. It is also a decision that is riddled with conflicts of interest which have not been and cannot be fully resolved through incentive contracts. One complementary governance mechanism that has a surprisingly prominent role in M&A law and practice is third-party appraisal. In the U.S., target directors are effectively required to seek and consider a “fairness opinion” and supporting valuations before accepting a takeover offer. Despite their legal status, fairness opinions have been criticized for bias. I develop and implement tests for the validity and the bias of fairness opinion valuations, and find tight evidence for both. They impound information about fundamental mispricing in targets, and prospective deal synergies, which could make them useful to directors in exercising their duties. They also exhibit predictable bias: providers toggle their discount-rate assumptions ex post to rationalize negotiated deal prices, though this bias has been constrained by judicial scrutiny in recent years. These findings suggest that third-party appraisal could have a useful role in M&A governance, though the bias in the current process undermines this usefulness.
Faculty Advisor(s): S. Srinivasan, J. Coates, and C. Wang
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Business Economics

Christopher Anderson

Abstract:
Consumption-Based Asset Pricing Without Optimal Consumption Choice
The predictions of consumption-based asset pricing models rely heavily on the assumption that consumers optimize perfectly. Slight deviations from optimal consumption, such as consumers who react to news with a delay, can completely break these models' predictions. To address this problem, I separate consumption and portfolio choice in order to identify which predictions hold when consumption is non-optimal. I build a model in which a portfolio manager selects portfolio weights on behalf of a consumer. The consumer has a potentially non-optimal consumption policy which could reflect a range of realistic consumption frictions. In the case of power utility, risk premia depend on exposure to long-horizon consumption and expected return shocks, not single-period consumption as in the standard model. My results apply to a wide range of environments and generalize beyond power utility. In the general case, long-horizon risks matter when consumers do not react to shocks optimally. I provide empirical evidence that expected return shocks are negatively priced in the cross section of stock returns, as the model predicts, and can account for 1.3 percentage points of the equity premium.
Faculty Advisor(s): J. Campbell, M. Maggiori, and M. Baker
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Oren Danieli

Abstract:
"Outside Options in the Labor Market" (joint with Sydnee Caldwell)
This paper develops a method to estimate the outside employment opportunities available to each worker, and to assess the impact of these outside options on wage inequality. We outline a matching model with two-sided heterogeneity, from which we derive a sufficient statistic, the “outside options index” (OOI), that relates outside options to wages. This OOI uses the cross-sectional concentration of similar workers across job types to quantify the availability of outside options as a function of workers' commuting or moving costs, preferences, and skills. We use administrative data from Germany to estimate the OOI for every worker in a representative sample of the German workforce. We estimate the elasticity between the OOI and wages using two sources of quasi-random variation: the introduction of high-speed commuter rail stations, and a shift-share (“Bartik”) instrument. Using this elasticity and the observed distribution of options, we find that differences in options explain 30% of the gender wage gap, 88% of the citizen-non-citizen wage gap, and 25% of the premium for higher education. Differences in options between genders and education groups are driven mostly by differences in commuting costs.
Faculty Advisor(s): L. Katz, R. Fryer, and C. Farronato
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Yizhou Jin

Abstract:
Buying Data from Consumers: The Impact of Monitoring Programs in U.S. Auto Insurance (joint with Shoshana Vasserman)
This paper studies the design and impact of auto-insurance monitoring programs, in which insurers offer financial incentives to consumers who choose to have their driving behavior monitored. We gather proprietary datasets from a major U.S. auto insurer that offers a monitoring program. The data is matched with price menus of the firm’s main competitors. This creates a panel of over one million observations and 50 million insurance quotes. A tractable framework is developed to analyze consumers’ accident risk, their demand for insurance and monitoring, and firm pricing. The framework makes use of rich data variation in accident claims, prices, contract space, and monitoring status. We find three main results. (i) Drivers become 29% safer when monitored. Monitoring also reveals large unobserved differences in risk across drivers. (ii) Consumers incur large costs (or disutility) to be monitored or to switch firms. Many who can financially benefit from monitoring do not opt in. Nonetheless, compared to a counterfactual with no monitoring, firm profit increases by 26%, while annual consumer and total surplus increase by $23 and $19 per driver, respectively. (iii) Proprietary data enhance the firm’s market power. However, a counterfactual simulation shows that requiring the firm to disclose its monitoring data reduces total surplus despite curbing price discrimination. This is because the firm offers less upfront incentive for monitoring opt-in, so that fewer drivers are monitored in equilibrium.
Faculty Advisor(s): A. Pakes, L. Dafny, N. Hendren, R. Lee, and D. Yao
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Yosub Jung

Abstract:
Engineers vs. Business-People: Who Should Manage High-Tech Firms?
I develop a corporate life-cycle view of high-tech firms’ CEOs: as high-tech firms mature, they replace CEOs with STEM with CEOs without STEM degrees. This CEO transition happens because CEOs with STEM degrees have a preference for innovation. CEOs with STEM degrees retain valuable R&D workers who want to do innovation but may focus too much on innovation and overlook other business obligations. Corporate life-cycle theories suggest that such bias for innovation becomes costly as firms mature and need to do less innovative projects (e.g., commercialization). So mature firms replace CEOs with STEM with CEOs without STEM degrees. These ideas are consistent with my empirics. Inventors leave firms when CEOs with STEM degrees retire due to exogenous, health reasons and CEOs without STEM degrees succeed. Text analysis suggests a channel: CEOs with STEM degrees emphasize innovation over finance and thus retains inventors. De- spite high inventor outflows after these CEO transitions, the stock market reacts positively. Furthermore, firms never replace CEOs without STEM degrees with CEOs with STEM degrees, although the reverse is common. These findings suggest a cost to having CEOs with STEM degrees. Corporate life-cycle theories suggest why: mature firms need late-stage innovation, but CEOs with STEM degrees focus on early-stage innovation. Consistent with this hypothesis, under CEOs with STEM degrees, firms do more academic-related, early-stage innovation.
Faculty Advisor(s): J. Lerner (Chair), D. Scharfstein, S. Greenstein, and S. Kominers
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Weiling Liu

Abstract:
The Shadow Price of Intermediary Constraints (joint with Christopher Anderson)
The risk constraints of intermediaries are key for understanding market stability and asset prices, yet they remain difficult to pin down. We propose a novel measure of risk constraints called the interdealer broker (IDB) ratio, which is the percent of total trade volume conducted between dealers through an IDB. Theoretically, we show that when when risk constraints tighten, dealers will use IDBs more in order to share idiosyncratic risk. Empirically, we find that the IDB ratio has a 74\% correlation with dealers' interest rate Value-at-Risk. Furthermore, a one standard deviation increase in the IDB ratio forecasts a 1.4 percentage point higher annual excess return on a five-year Treasury bond. This return predictability holds across fixed income classes, varying maturities, as well as out-of-sample.
Faculty Advisor(s): J. Campbell (Co-chair), R. Greenwood (Co-Chair), L. Cohen, and A. Sunderam
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Janelle Schlossberger

Abstract:
The Distribution of Outcomes for a Networked Economy
This work develops a set of mathematical tools that allows us to map the topology of an economic network to a probability distribution of possible outcomes for the economy. We can apply these tools to analyze complex economic systems in closed form and to construct error bounds about the paths of aggregated networked economies. To generate this mapping from network topology to probability distribution, we focus on a class of economies that has the following three features: (1) a population of N agents, each with a binary-valued attribute, (2) a network on which these N agents are organized, and (3) decision-making by each networked agent that depends on the local relative frequency of the attribute's unit value. This class of economies also has an aggregate feature: the global relative frequency of the attribute's unit value. Given the system's aggregate feature, underlying network, and population size, we construct in closed form the distribution of possible local relative frequencies of the attribute. The topology of the network determines the extent to which the local relative frequency of the attribute can deviate from its global relative frequency, thereby determining the extent to which the outcome of the economy can deviate from a benchmark outcome. Given this distribution and agents' decision-making behavior, we then construct the distribution of possible outcomes for the economy. For realistic agent interaction structures featuring a very large population of agents, the distribution of outcomes is meaningfully non-degenerate. We adapt the theoretical framework and mathematical tools developed in this work to study locally formed macroeconomic sentiment and how agents' interaction structure shapes the capacity for there to exist non-fundamental swings in aggregate sentiment, with implications for the outcome of the 2016 U.S. presidential election and for our understanding of animal spirits.
Faculty Advisor(s): E. Farhi, X. Gabaix, D. Laibson, and T. Strzalecki.
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Management

Daniel A. Brown

Abstract:
Zero-Sum Games & Zero-Sum Frames: Employee Cognitive Consequences of Financial Firm Performance
Despite extensive research on how worker satisfaction positively affects the financial performance of firms, we know little about how firms’ measurement and reporting of financial performance affects the satisfaction of workers. Through seven field experiments, I find that operationalizing firm performance through financial performance measures paradoxically reduces workers’ satisfaction with the firm due to increased zero-sum perceptions of firm financial performance and the zero-sum nature of exchange value capture, which reduce the perceived meaningfulness of work and ultimately workers’ satisfaction (Studies 1-5). A field experiment with managers across a diverse sample of firms further supports these findings, revealing an increase in managers’ zero-sum perceptions toward the firm-employee relationship when considering financial performance measures (Study 6). However, workers with more zero-sum mental models of society more broadly may actually prefer financial performance measures. In support of this explanation, I find that whereas workers with lower zero-sum beliefs about society are less satisfied with a firm that measures performance financially, workers with stronger zero-sum beliefs are actually more satisfied with such firms, despite exhibiting lower satisfaction overall (Study 7).
Faculty Advisor(s): L. Ramarajan (Co-Chair), N. Hsieh (Co-Chair), J. Battilana, and M. Luca
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Michael Y. Lee

Abstract:
Self-Managing Organizations: The Dynamics and Consequences of Radically Decentralizing Authority
Contemporary management rhetoric is filled with talk about shifting from hierarchical structures to decentralized structures that empower employees and enable organizational flexibility. My dissertation explores less-hierarchical organizing at its extremes by studying organizations that radically decentralize authority, eliminating hierarchical authority altogether. In this research, I explore the dynamics and consequences of radical decentralization through two empirical studies. First, I study the dynamics of how radically decentralized organizations can balance the need for control with the desire to preserve employee autonomy through a 12-month ethnographic case study. My second study examines the consequences of radical decentralization in a 12-month controlled field experiment in a 500-person government agency. My dissertation contributes to the literatures on organizational structure, organizational control and employee autonomy. A core finding of my research is that less-hierarchical organizations are not necessarily less structured, in contrast to prevailing theory (e.g. Burns & Stalker, 1961; Kellogg et al., 2006). This research expands our conception of what a “flat” organizations can be, and highlights the importance of compensatory structures, such as role formalization, for enabling control without hierarchical authority and for reinforcing employee autonomy.
Faculty Advisor(s): A. Edmondson (Chair), L. Perlow, and T. Amabile
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Organizational Behavior

Alicia DeSantola

Abstract:
Ahead of the Curve? New Venture Scaling and the Influence of Early Joiners with Entrepreneurial Experience
This study explores the relationship between new ventures’ survival outcomes and their decisions to hire early joiners with prior experience in the entrepreneurial ecosystem. I posit that tacit knowledge of early-stage entrepreneurial domains constitutes an important resource for new ventures and that they can acquire this resource via early joiners. However, overweighting this resource in teams that already possess an ample stock of such experience can have diminishing and even negative returns; doing so during early hiring risks imprinting a growth-oriented venture with routines, assumptions, and practices that will become outmoded as the venture adopts more structure. I test these predictions using a novel dataset on the internal organization of 1,470 U.S.-based, VC-financed ventures, supplemented with 44 semi-structured interviews. The data suggest that ventures’ founding and growth stages are less distinct than is conventionally acknowledged in organizational scholarship and that growth-oriented ventures may need to take pains to anticipate their more structured future configurations, even while they are still assembling their early-stage teams.
Faculty Advisor(s): R. Gulati (Chair), L. Huang, R. McDonald, and F.Dobbin
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Stefan Dimitriadis

Abstract:
Entrepreneurial Social Capital Acquisition in Emerging Markets: A field experiment in Togo
My dissertation studies entrepreneurs and their social networks in the context of developing country markets. In particular, I study entrepreneurs in the context of Togo, a small, impoverished country in West Africa. In the first essay of my dissertation, I study the effect of framing interactions on the formation of ties. To test this, I ran a field experiment with entrepreneurs in Togo in which I exposed a randomly selected subgroup of entrepreneurs to reciprocity frames. Reciprocity frames describe and present interactions as the reciprocated exchange of help. I causally showed that reciprocity framing increased the number of ties that entrepreneurs formed, the skill complementarity of those ties, and the performance of those entrepreneurs’ ventures. In the second essay of my dissertation, I study the effect of participating in formal institutions on the formation of social ties. I find that entrepreneurs who participate in formal institutions in Togo experience a change in their networks, whereby the number of weak ties they possess increases, while the number of strong ties decreases. Finally, in the last essay of my dissertation, I study how social ties mitigate the negative effects of political protests on entrepreneurs’ ventures. In particular, I show that entrepreneurs with more ties to family members who are also entrepreneurs are better able to weather political upheaval and protests. These studies leverage new data and innovative methodologies to study entrepreneurship in one of the most difficult places in the world to start and run a business. As a result, I make contributions to research on entrepreneurial firm performance, social network effects, framing effects, institutions in emerging and developing markets, as well as social movements.
Faculty Advisor(s): J. Battilana, M.Sengul, R. Koning, and P.Marsden
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Alexandra Feldberg

Abstract:
Butchers, Bakers, and Barcharts: How digitized information affects gender differences in performance
Does increased access to digitized information affect the performance of men and women workers differently? In this study, I find that the availability of information in digital platforms disproportionately improves women’s performance in a male-dominated organization. I theorize that digitized information helps women by serving as a relationship substitute, an alternative channel to traditional relationship networks through which peripheral group members can gain access to performance-enhancing information. Using interviews, observations, and archival data, I take advantage of an intervention occurring within a 100-store grocery chain—when it introduced a weekly online report providing managers with a high-level summary of their departments’ performance along key metrics. Comparing sales across 152 departments twelve weeks prior to and following the report’s implementation shows that women managers benefit disproportionately from the report’s introduction but stronger network ties with peers and supervisors attenuate its benefits. Findings offer new directions for research on gender inequality and knowledge transfer by suggesting that digital channels of knowledge distribution can offset disparities arising from relationship networks in organizations.
Faculty Advisor(s): K. McGinn, M. Tushman, F.Dobbin, and P.Marsden
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Catarina Fernandes

Abstract:
Do We See the Same Hierarchy? Status Disagreement in Multicultural Teams and its Consequences for Team Performance
My job market paper explores how the cultural context that team members bring with them to the table can shape the status hierarchy dynamics. It develops and tests a theory of how status disagreement – differing perceptions among team members about who has how much status – emerges in multicultural contexts and ultimately impacts team performance. We posit that, in multicultural teams, the diversity of members’ cultural backgrounds leads to implicit disagreements about who has how much status in the team. More specifically, when team members come from countries that vary along the individualism-collectivism spectrum, status disagreements are more likely to emerge. This effect can be reduced, however, by the amount of time team members have spent time studying or working abroad. When status disagreement does emerge, we expect it to negatively impact team performance, namely by creating coordination problems among team members. Lastly, given that status attributions are expected to be most relevant in informing and influencing team coordination patterns in the absence of a formally elected leader, we predict that the negative effect of status disagreement on team performance is strongest in teams without a formal leadership structure. We test these hypotheses in a study of 784 multinational teams (4,177 participants) collaborating over the course of eight weeks, and find strong support for our theory.
Faculty Advisor(s): J. Polzer, L. Ramarajan, A. Brooks, and S.Jang
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Martha Jeong

Abstract:
Do as I Say, Not as I Do: Decision-makers choose to follow their own intuitive judgment, but recommend others adhere to a structured process
Important decision-making tasks often feature a choice between using one’s own intuitive judgment versus following a structured process. We investigate whether people endorse systematically different judgment strategies for others as compared to themselves, and find that individuals are more likely to choose their own intuitive judgment, while recommending process for others (Studies 1-3). This preference for one’s own intuitive judgment is detrimental to judgment accuracy (Studies 1, 3, and 4) and emerges under incentivized conditions (Studies 1 and 4), and even in professional contexts (Study 4). Interestingly, this preference is driven less by confidence in one’s intuitive judgment, but instead by differing beliefs regarding the enjoyability of both strategies (Study 2). Our data also suggest an intervention: merely considering how someone else should behave, leads individuals to abandon their own intuitive judgment in favor of a less enjoyable, but more accurate structured process (Studies 2 and 3).
Faculty Advisor(s): F. Gino, J.Minson, L. John, and L. Huang
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Strategy

J. Yo-Jud Cheng

Abstract:
When to Take the Leap: The Antecedents and Consequences of Leapfrog CEOs
Much of the prior research on CEO successions focuses on differences between CEOs appointed from within the firm and those appointed from outside; however, this dichotomy neglects significant heterogeneity in CEOs’ career trajectories. In this study, I examine the environmental antecedents and performance consequences of appointing a “leapfrog” CEO: an internal candidate who is fast-tracked past more senior executives to be appointed as CEO. I propose that under certain conditions, leapfrog CEOs may perform more effectively than traditional-track CEOs because they embody both insider and outsider characteristics. I analyze CEO transitions that occurred between 2001–2013 in large, publicly-traded U.S. firms and find that 16% of transitions involve leapfrog CEOs. Among firms with high pre-succession performance, I find that firms are more likely to appoint a leapfrog CEO when their industry environment is declining – but only when the board engages in CEO succession planning; in addition, I find that leapfrog CEOs are associated with an increase in ROA of approximately 4 percentage points under these conditions and are more likely than other CEO types to shift resources away from legacy businesses. This study offers implications for how firms can use leapfrog CEO successions as a mechanism to adapt to changing environmental conditions and lay the groundwork for strategic change, corporate entrepreneurship, and innovation.
Faculty Advisor(s): B. Groysberg (Chair), J. Rivkin, and P. Healy
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Do Yoon Kim

Abstract:
Responding to Openness: Ecosystem Changes From Open Source Software
A long literature in technology strategy documents the importance of protecting intellectual property (IP). However, little is understood about when firms should open parts of their IP, particularly in ecosystem contexts. In this paper, I study how the loss of IP can affect value creation and value capture by creating downstream complementary goods. In particular, I call to attention the role of customers’ costs and benefits of complement adoption in determining value creation and capture. I document how licensing violations by Cisco/Linksys in the wireless router industry led to the dissemination of its source code, allowing for complementary software innovations. Overall, I find that opening IP can create complementary goods that create value. On average, customers’ perceived value of products and sales increase following the availability of the complementary good. I find the increase in perceived value is driven by customers with low adoption costs. Additionally, I find complementary goods can lead customers with lower adoption costs to sort into those goods. Finally, I find that value capture depends on the value created: enterprise products are able to capture more value. These findings have implications for firms’ strategic decisions in ecosystem settings, potentially allowing firms to affect their ecosystem.
Faculty Advisor(s): S. Greenstein, C. Baldwin, D. Yao, and P. Choudhury
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Technology & Operations Management

Ohchan Kwon

Abstract:
When Do User Innovators Become Entrepreneurs? Examining the Role of Design Cost
Recent digital transformations reduce the cost of technology commercialization greatly, particularly the cost of translating ideas into products. I examine how such a decrease in design cost affects individual innovators’ career transition into entrepreneurship, as well as their performance. The empirical setting is the video game industry, in which user innovators have created high-quality contents that could be further developed as standalone games. Examining an unexpected business model change of a major game engine software company, which results in providing low-cost development option to some user innovators, I find that users whose contents are compatible with affected game engine are more likely to become entrepreneurs. These user entrepreneurs are also more likely to successfully release standalone games and profit from their innovations. Several factors explain the performance advantages, including their ability to reuse existing knowledge and attract entrepreneurial joiners from prior communities. Together, the findings suggest that the access to complementary assets may act as a significant barrier for potential entrepreneurs, and that a decrease in design cost may facilitate a gale of creative destruction by innovative individuals.
Faculty Advisor(s): S. Greenstein, P. Choudhury, and F. Zhu
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“Working with spectacular doctoral students is a real joy, and I take great pride in seeing my former students thrive as professors at the best management schools in the world.”
Max Bazerman
Professor