14 research outputs found
Recommended from our members
Executive Compensation and Misconduct: Environmental Harm
We explore the relationship between managerial incentives and misconduct using the setting of environmental harm. We find that high powered executive compensation can increase the odds of environmental law-breaking by 40-60% and the magnitude of environmental harm by over 100%. We document similar results for the setting of executive compensation and illegal financial accounting. Finally, we outline some managerial and policy implications to blunt these adverse incentive effects
Recommended from our members
The Value of Corporate Citizenship: Protection
We explore the notion that corporate citizenship, as obtained through Corporate Social Responsibility (CSR), is used by managers to protect firm value, helping their firm better withstand negative business shocks. We formally explore two parallel mechanisms for such protection .one of building moral capital (CSR Contributions) and another of improving investor posteriors (CSR Investments). We find some theoretical and empirical support for both of these, but in different settings. In particular, we find that firms with higher CSR Investments enjoy an average of $1 billion of saved firm value upon an adverse event. In contrast, CSR Contribution firms lose value (on average) upon an event, possibly due to disingenuous contributions. Meanwhile, due to managerial moral hazard, firms with high levels of CSR Contributions face adverse events more often, whereas those with high levels of CSR Investments face them less often
Recommended from our members
Toxic Workers
While there has been a lot of research on finding and developing top performers in the workplace, less attention has been paid to the question of how to manage those workers who are harmful to organizational performance. In extreme cases, in addition to hurting performance, such workers can generate enormous regulatory and legal liabilities for the firm. We explore a large novel dataset of over 50,000 workers across 11 different firms to document a variety of aspects of workers’ characteristics and circumstances that lead them to engage in "toxic" behavior. We also find that avoiding a toxic worker (or converting him to an average worker) enhances performance to a much greater extent than replacing an average worker with a superstar worker
Recommended from our members
CSR as Reputation Insurance: Primum Non Nocere
We provide a theoretical framework showing how CSR activities can insure a firm against lost reputation in the face of adverse events. We offer evidence for this linkage through a case study and a multi-year analysis of stock price responses for S&P 500 companies following product recalls. We find that firms with better CSR ratings fare better than those that do not. Furthermore, a firm that is exceptional in both doing good and avoiding harm suffers virtually no reputational damage following events. Using the results of the study, we offer a guide to managers for determining the appropriate amount and mix of CSR to undertake
Recommended from our members
Misconduct in Financial Services: Differences across Organizations
We examine misconduct in financial services. We propose a theory in which experts extract surplus based on the value of their firm’s brand and their own skills. Using sales complaint data for insurance agents, we find that agents working exclusively for large branded firms are more likely to be the subject of justified sales complaints, relative to smaller independent experts, despite doing substantially less business. In addition, more experienced experts attract more complaints per year
Recommended from our members
Do People Who Care About Others Cooperate More? Experimental Evidence from Relative Incentive Pay
We experimentally study ways in which the social preferences of individuals and groups affect performance when faced with relative incentives. We also identify the mediating role that communication and leadership play in generating these effects. We find other-regarding workers tend to depress efforts by 15% on average. However, selfish workers are nearly three times more likely to lead workers to coordinate on minimal efforts when communication is possible. Hence, the other-regarding composition of a team of workers has complex consequences for organizational performance
Recommended from our members
Essays on Competition: Contests, Personnel Economics, and Corporate Citizenship
I explore competition in three different settings. First, I examine how a contest designer can increase total efforts through softening incentives. In particular, softer incentives are called for when the following is met: contestants have more convex costs, there are many contestants, or designers have (sufficient) concave valuation of effort. In the extreme, more total effort can be generated from offering a larger second than first prize.Next, I test this theory experimentally in the lab under the framing of personnel economics. I find the general comparative statics given above hold. However, on an individual basis, people depart from the theoretical predictions. Workers use a heuristic of going "all in" or abstaining from work when they find themselves above or below, respectively, some private target level of ability. Additionally, most workers take on different roles-slackers, quitters, or consistent workers--depending on the institutional setting (i.e., degree of competition and incentives structure). The consequence of such behavior is the comparative statics for optimal organizational design are softened.Finally, I study empirically and theoretically how firms compete on the dimension of corporate social responsibility (CSR). More efficient firms are able to use CSR as an insurance mechanism. That is, some firms invest ex-ante in higher levels of CSR, which enables them to better withstand the tumult of negative business shocks; stakeholders give higher CSR firms the benefit of the doubt in terms of the cause of an adverse event (i.e., the cause is more often attributed to bad luck over bad management), resulting in an insurance like benefit to CSR. This finding is validated empirically by studying S&P500 firms over a 16 year period
Recommended from our members
Risk Preferences and Misconduct: Evidence from Politicians
When seeking new leaders, business and government organizations alike often need individuals that are less risk averse, or even risk-seeking, in order to improve performance. However, individuals amenable to increased risk-taking may be more likely to engage in misconduct. To study this issue, we explore US political scandals and the implicated politicians’ portfolio choices. We find that a politician allocating all of her portfolio to risky investments has double the odds of being involved in a political sandal compared to a politician allocating all of her portfolio to safe investments. This suggests that those who are more willing to take risks in their personal finances are also more likely to engage in misconduct. We validate portfolio choice as a measure of risk preferences by correlating actual high-stakes investment choices (average 51 US) of wealthy investors
Recommended from our members
From Netscape to eHarmony: The High Risks and Big Rewards of Platform Markets
Recommended from our members
Political Identity and Trust
We explore how political identity affects trust. Using an incentivized experimental survey conducted on a representative sample of the U.S. population, we vary information about partners’ partisan identity to elicit trust behavior, beliefs about trustworthiness, and actual reciprocation. By eliciting beliefs, we are able to assess whether differences in trust rates are due to stereotyping or a "taste for discrimination." By measuring actual trustworthiness, we are able to determine whether beliefs are statistically correct. We find that trust is pervasive and depends on the partisan identity of the trustee. Differential trust rates are explained by incorrect stereotypes about the other’s lack of trustworthiness rather than by a "taste for discrimination." Given the importance of beliefs, we run additional treatments in which we disclose previous reciprocation rates before participants decide whether to trust. We find that beliefs are slightly more optimistic compared with the previous treatments, suggesting that incorrect stereotypes are hard to change