Research Colloquia
The Sharing of New Ideas
 The Research Colloquium provides a forum for interaction among faculty, students, and visitors interested in the applications of business and management. The colloquium includes presentations by faculty from UC Irvine and other universities, as well as research institutes.
Colloquia Events are open to the public unless otherwise noted; please see event description for more details.
Past Colloquia
2010-2011 Research Colloquia Events
2009-2010 Research Colloquia Events
(Host: Sreya Kolay)
May 3, 2013
Turn-and-Earn in a Product Line
SPEAKER: Professor Debu Purohit, Joe B. White Professor of Business Administration
UNIVERSITY: The Fuqua School of Business, Duke University
TIME: 2:30pm - 4:00pm
WHERE: SB 111
ABSTRACT:
When manufacturers do not have sufficient capacity to meet demand and they cannot increase prices, they have to determine other methods to allocate goods among retailers. A common allocation mechanism is based on a retailer's sales history: a retailer that has ordered larger quantities in the past should get a greater allocation than a retailer that has historically ordered smaller quantities. This mechanism is known as a turn-and-earn allocation rule and is commonly used in many industries such as automobiles, microprocessors, video game consoles, etc. The existing literature has considered the effect of turn-and-earn allocation for a case of a manufacturer selling one product. However, when we consider a product line, it is not clear whether the manufacturer is better off basing its allocation on the sales history of the entire product line or basing allocation solely on the sales history of the product in short supply. In particular, a shortage of one product can lead retailers and consumers to move toward other products in the line. This, in turn, can have an effect on the manufacturer's optimal allocation mechanism. We examine this issue by developing a model of a supplier selling two substitutable goods through two retailers. Within this setup, we introduce a general turn-and-earn allocation rule that allows the entire sales history to influence allocation levels. Counter to previous work, we show that certain turn-and-earn rules not only help the manufacturer but they also help the retailer and increase total supply chain profits.
(Host: Christine Beckman)
May 2, 2013
The Innovator’s Dilemma: The Tradeoffs of Behaving in Ways to Generate and Implement Creative Ideas
SPEAKER: Jennifer Mueller
UNIVERSITY: Associate Professor at University of San Diego, Visiting Scholar at University of Southern California
TIME: 12:00pm - 1:30pm
WHERE: SB 117
ABSTRACT:
Innovation is the generation and implementation of creative (novel and useful) idea, and yet the literatures describing the two components—idea generation and implementation—have developed separately. This is partly because the prior literature has assumed that the two components are complementary, so engaging in processes to promote one component (e.g., idea implementation) should not deter or conflict with the processes required to successfully complete the second component (e.g., idea generation). Yet the current presentation will show a series of laboratory and one field study employing data from 514 employees in an organization which encourages creativity to build theory and provide initial evidence showing that innovators face two central dilemmas. First, when employees behave in ways the literature has shown can promote creative idea generation they incur a reputation cost which deters their ability to implement creative ideas. Second, when employees behave in ways the literature has theorized will likely aid implementation—this promotes a focus on feasibility which activates an overall aversion to novelty and subsequent diminished ability to generate creative ideas. In sum, I develop and empirically test theory showing that organizational actors face both a reputation and novelty aversion cost when they behave in ways to generate and implement creative ideas respectively. The current presentation will provide an initial glimpse of the innovator’s dilemma to ultimately propose a new take on longstanding puzzle in the creativity and innovation literatures, why organizations and the people within them often desire but reject creativity.
(Host: Rajeev Tyagi & Imran Currim)
April 26, 2013
UC/USC Marketing Colloquium
SPEAKER: Sreya Kolay (UCI), Ye Li (UCR), Matt Selove (USC), Raphael Tomasdsen (UCLA), Nora Williams (UCSD)
TIME: 12:00pm - 7:30pm
WHERE: MPAA 120
ABSTRACT:
Sreya Kolay (UCI) - Topic: "Optimal Selling Strategies for Sequentially Offered Events"
Ye Li (UCR) - Topic: "Cognitive and Emotional Determinants of Temporal Discounting"
Matt Selove (USC) - Topic: "The Strategic Importance of Predictive Uncertainty in Conjoint Design"
Raphael Tomadsen (UCLA) - Topic: "The Impact of Switching Stores on State Dependence in Brand Choice"
Nora Williams (UCSD) - Topic: "Double Standards in the Use of Enhancing Produts by Self and Others"
(Host: Rick So)
April 12, 2013
Public Forecast Information Sharing in a Market with Competing Supply Chains
SPEAKER: Professor Hyoduk Shin
UNIVERSITY: Rady School of Management, UC San Diego
TIME: 2:00pm - 3:30pm
WHERE: SB 112
ABSTRACT:
Studying the operational motivation of a retailer to publicly announce his forecast information, this paper shows that by making forecast information publicly available to both his manufacturer and to the competitor, a retailer is able to credibly share his forecast information -an outcome that cannot be achieved by merely exchanging information within the supply chain. We model a market comprised of an incumbent supply chain facing the possible entry of a competing supply chain. In each supply chain, a retailer sources the product from a manufacturer, and the manufacturers must secure capacity prior to the beginning of the selling season. Due to the superior knowledge of the incumbent retailer about the consumer market, he privately observes a forecast signal about consumer demand. We first show that the retailer cannot credibly share this forecast information only with his manufacturer, since regardless of the observed signal, the retailer has an incentive to induce the manufacturer to secure a high capacity level. However, when the information is also shared with the competitor, the incumbent retailer faces the trade-off between the desire to secure an ample capacity level and the fear of intense competition. By making information publicly available, it is possible to achieve truthful information sharing; an incumbent retailer observing a high forecast benefits from the increased capacity level to such an extent that he is willing to accommodate competition to prove his accountability for the shared information. On the other hand, an incumbent retailer with a low forecast is not willing to accommodate competition in exchange for the high level of capacity; thus, he truthfully reveals his low forecast to deter competition. Moreover, we demonstrate that this public information sharing can benefit all the firms in the market as well as consumers. In addition, we show that compared to the advance purchase contract, all the firms except the incumbent manufacturer can be better off using public information sharing with a simple wholesale price contract.
(Host: Christine Beckman)
March 28, 2013
Intergroup competition as a double-edged sword: How sex composition regulates the effects of competition on group creativity
SPEAKER: Greg Oldham, Professor, J. F. Jr. and Jessir Lee Seinsheimer Chair of Business
UNIVERSITY: Stephen M. Ross School of Business
TIME: 12:00pm - 1:30pm
WHERE: SB 117
ABSTRACT:
Integrating social role theory with insights from social identity theory, we extend a contingency perspective on intergroup competition proposing that having groups compete against one another is stimulating to the creativity of groups composed largely or exclusively of men but detrimental to the creativity of groups composed largely or exclusively of women. We tested this idea in two laboratory experiments and in one field study. Study 1 showed that competition had the expected positive effects on the creativity of groups composed of all men but did not produce the predicted negative effects on the creativity of groups composed of all women. Study 2 extended the earlier findings and showed that the anticipated effects of competition on group creativity emerged at the higher end of the competition spectrum and also emerged in sex heterogeneous groups. This study also found that a measure of group collaboration mediated the joint effects of competition and sex composition on group creativity. Finally, Study 3 replicated the results of Study 2 in a field setting involving R&D teams. We discuss the implications of these findings for theory and practice.
(Host: Chris Schwarz)
March 19, 2013
600 Years of Stock Returns: The Bazacle Company of Toulouse from 1372 to 1946
SPEAKER: William Goetzmann, Edwin J. Beinecke Professor of Finance and Management Studies & Director of the International Center for Finance
UNIVERSITY: Yale School of Management
TIME: 3:00pm - 4:30pm
WHERE: SB 223
ABSTRACT:
A time series of prices and dividends for the earliest documented corporation in the current era is collected and analyzed for what it reveals about the required rate of return for equity investment over several centuries. The capital appreciation of share prices over six centuries was near zero but highly volatile. The yield over the firm’s lifespan was relatively consistent at 5.5%. Tests of the yield as a measure of expected return suggest that it reflected variation in macroeconomic risks and forecasted long horizon total returns.
(Host: Siew Hong Teoh)
March 15, 2013
SPEAKER: Lisa Koonce
UNIVERSITY: University of Texas at Austin
TIME: 1:30pm - 3:00pm
WHERE: SB112
Evaluating Firms' Benchmark Performance Over Time: The Counting Heuristic
ABSTRACT:
Market participants frequently evaluate a firm’s ability to meet or beat their earnings expectations over time. Although research reports that firms that consistently beat their earnings expectations are rewarded with a market valuation premium, most firms are inconsistent in their benchmark performance. We use multiple experiments to test the idea that investors, evaluating firms with inconsistent benchmark performance, use a counting heuristic to discriminate among firms. Our results provide strong support for the hypothesis that investors distinguish among firms by counting the number of misses and beats they experience over some time period. This simple counting heuristic is used even though investors also have available (and use) information about the magnitude of the firms’ earnings. We also find that investors draw conclusions about a firm’s future prospects and management credibility from the frequency of its benchmark beats and misses. Our study has implications for researchers and firm managers.
(Host: Libby Weber)
March 15, 2013
SPEAKER: Haiyang Li
UNIVERSITY: Jesse H. Jones Graduate School of Business, Rice University
TIME: 2:00pm - 3:30pm
WHERE: SB117
Innovation Search and Collaboartive Innovation in an Emerging Market: Are They Complements of Substitutes
ABSTRACT:
In this study we propose that external innovation search and collaborative innovation function as substitutes in firms’ product innovation in emerging markets which are characterized with a lack of market-supporting institutions and high search cost. This substitute effect will become weaker as market-supporting institutions are better developed and search costs are reduced. With a sample of manufacturing firms in China, we find empirical support for these arguments. These findings demonstrate that external innovation search and collaborative innovation are two distinctive innovation choices and their roles in product innovation are constrained by institutional development in emerging markets.
(Host: Chris Schwarz)
March 14, 2013
Contracting with Synergies
SPEAKER: Alex Edmans, Assistant Professor of Finance
UNIVERSITY: The Wharton School, University of Pennsylvania
TIME: 10:00am - 11:30am
WHERE: SB 117
ABSTRACT:
This paper studies the effor of synergies on a principal's choice of effor levels and wages for her agents. We model synergies as the extent to which effor by one agent reduces his colleague's marginal cost of effort. It may be optimal to "over-work" and "over-incentivize" a synergistic agent, due to the spillover efforts on his colleagues. This effort can rationalize equity grants to rank-and-file employees even if they have little direct effort on productivity, and a high pay differential between CEOs and divisional managers. An agent's pay and effort depend not only the synergies that he exerts (parameters specific to him) but also the synergies exerted by his colleagues (parameters outside his control). An increase in the synergy between two agents can lead to the third agent being excluded from the team, even if his productivity is unchanged. This result has implications for optimal team composition and firm boundaries.
(Host: Shivendu Shivendu)
March 8, 2013
Innovation, Openness & Platform Control
SPEAKER: Marshall Van Alstyne, Associate Professor/Dean's Research Fellow, Information Systems
UNIVERSITY: School of Management, Boston University
TIME: 10:00am - 11:30pm
WHERE: SB 117
ABSTRACT:
To build a business platform, how do you manage the ecosystem to promote growth? Closed systems can have difficulty attracting developers. Open systems can have difficulty making money. We develop an analytic model to examine the optimal level of openness and the optimal duration of property rights for platforms such as those of Apple, Google, Facebook, or Microsoft. We consider two periods of sequential innovation and the subsidies that the platform owner provides to developers in order to increase innovation for that platform. Intuitions are also shaped by dozens of hours with executives at platform firms. Platform Envelopment, Firms in one platform market can use bundling strategies to enter and take over adjacent markets. This can happen without significant technological innovation. Envelopers capture market share by foreclosing an incumbent’s access to users; in doing so, they harness the network effects that previously had protected the incumbent. This strategy can also be used to forecast where competition is likely to emerge in seemingly unrelated markets.
(Host: Christine Beckman)
February 27, 2013
Toward an Emplaced and Eventful Organizational Theory
SPEAKER: Chris Marquis, Associate Professor of Business Administration
UNIVERSITY: The Paul Merage School of Business
TIME: 12:00pm -1:30pm
PLACE: SB 117
ABSTRACT:
One paper (Tilcsik and Marquis ASQ 2013) develops an institutionally-oriented theoretical framework to unpack how and why major events within communities affect organizations in the context of corporate philanthropic contributions. To test this framework, we examine how mega-events (the Olympics, the Super Bowl, political conventions) and natural disasters (such as floods and hurricanes) affected the philanthropic spending of locally headquartered Fortune 1000 firms between 1980 and 2006. A second paper, (Marquis and Tilcsik, Working Paper) also in the context of corporate philanthropy of Fortune 1000 firms examines how the influence of community varies over time and depends on the how the firms' community and industry characteristics intersect.
(Host: Libby Weber)
February 22, 2013
Cash is Surprisingly Valuable
SPEAKER: Richard Bettis, Ellison Distinguished Professor of Strategy and Entrepreneurship
UNIVERSITY: University of North Carolina, Kenan-Flagler Business School
TIME: 3:00pm - 4:30pm
WHERE: SB 117
ABSTRACT:
Politicians, journalists and social activists are often highly critical of U.S. firms for holding too much cash. Cash holdings are stockpiled free-cash flow and incur substantial opportunity costs from the perspectives of economics. However, behavioral and strategic theory highlight the benefits of cash holdings as fungible slack resources facilitating adaptive advantages. We use the countervailing forces embodied in these two approaches to hypothesize and test a quadratic functional relationship of returns to cash measured by Tobin’s q. We also build and test a related novel hypothesis of scale-dependent returns to cash based on the competitive strategy concept of strategic deterrence. Tests for both of these hypotheses are positive and show that positive returns to cash continue far beyond transactional needs.
(Host: Libby Weber)
February 15, 2013
Ties That Bind? The Differential Ability Of De Alio And De Novo Firms To Leverage External Relationships When Confronted With A Disruptive Technology
SPEAKER: Glenn Hoetker, Dean's Council Distinguished Scholar and Associate Professor, Sandra Day O'Connor College of Law Affiliate Professor
UNIVERSITY: Arizona State University
TIME: 2:00pm - 3:30pm
WHERE: SB 112
ABSTRACT:
We examine the impact of a firm’s pre-entry experience in strategic renewal on its post-entry dynamic capability to confront disruptive technological changes, with a focus on their relative ability to manage external relationships. Building on prior work that highlights differences in transformational experience and integrative knowledge possessed by de alio firms—diversifying firms into the focal industry—and de novo firms—firms that are born in the focal industry context, we hypothesize that de alio firms will be more likely to switch to the disruptive technology than de novo firms. Further, we examine the moderating effect of pre-entry experience on the firms’ ability to manage external relationships, and hypothesize that de alio firms are also better able to leverage their external relationships when confronted with disruptive change than de novo firms. We propose to test these hypotheses in the context of the wireless telecommunications industry when the analog incumbents were faced with the disruptive digital technology. Preliminary results suggest that de alio firms are better able to transition to disruptive technology than de novo firms. Further, we find that while de alio firms with more supplier relationships are more likely to transition to the disruptive technology than de novo firms, there is no significant difference between the two in managing the inertial effects of having longer relationships with suppliers.
(Host: Christine Beckman)
February 14, 2013
The Network Dynamic of Absorptive Capacity: Distinguishing selection from assimilation
SPEAKER: Alessandro Lomi, Professor of Economics & Communication Sciences
UNIVERSITY: The University of Lugano, Switzerland
TIME: 10:30am - 12:00pm
WHERE: SB 111
ABSTRACT:
According to one vision of network evolution organizations are more likely to establish network ties with partners having similar operational experiences. A second vision suggests that interdependent organizations connected by network ties are more likely to assimilate each other’s knowledge and develop progressively more similar portfolios of internal activities. In this paper we reframe the notion of absorptive capacity as a micro-relational mechanism to investigate which one of these two visions best characterizes the co-evolution of interorganizational networks and organizational structures in a regional community of health care organizations. We estimate newly developed stochastic actor-oriented models which specify how interorganizational networks affect organizational decisions to change the portfolio of internal organizational activities by adding or abandoning clinical activities. At the same time, the model allows examination of how the common affiliation to internal activities affects decisions to change network ties defined in terms of patient sharing relations between partner hospitals. We find that interorganizational network ties through which information and resources flow are more likely to be established and less likely to be dissolved between organizations sharing the same activities. We also find, however, that organizations linked by network ties are not significantly more likely to develop similar activities. Considered together these results suggest that absorptive capacity operates more strongly through social selection rather than social influence mechanisms activated by vicarious learning. We discuss some of the implications of the study for the evolution of interorganizational fields and communities.
(Host: Libby Weber)
February 8, 2013
Learning by Exporting: The Contingent Role of Capability
SPEAKER: Charles Dhanaraj, Associate Professor of Management, Schmenner Faculty Fellow
UNIVERSITY: Indiana University
TIME: 3:00pm - 4:30pm
WHERE: SB 112
ABSTRACT:
Exporting can be a significant source of competitive advantage and we explore in this study how a firm’s prior capability influences its learning by exporting (LBE). We explore in this study how learning by exporting (LBE) is contingent upon a firm’s ex-ante R&D capability. We argue that there are two concurrent processes operating in opposite directions, absorptive capacity and diminishing returns to R&D investments. Below the minimum efficient scale of R&D, firms with superior ex-ante R&D capability gain more from exporting relative to an inferior firm, owing to superior absorptive capacity. However, above the minimum efficient scale of R&D, inferior firms gain more than superior firms due to the dominance of diminishing returns to R&D investments. Using a novel dataset of Indian generic drug producers, we empirically demonstrate that the extent to which a firm's ex-ante capability moderates LBE depends on where the focal firm lies along the capability spectrum. We show that firms with intermediate R&D capability benefit the most from export participation relative to firms with high and low R&D capability. We present some key implications for research, practice, and policy.
(Host: Siew Hong Teoh)
February 8, 2013
On Persistence and Pricing of Industry-Wide and Firm-Specific Earnings, Cash Flows, and Accruals
SPEAKER: Karen Nelson, Professor of Accounting
UNIVERSITY: Rice University
TIME: 1:30pm - 3:00pm
WHERE: SB 116
ABSTRACT:
Economic theory suggests that the industry-wide component of firm performance is more persistent than the firm-specific component. This paper tests whether investors fail to fully appreciate the relatively higher (lower) persistence of industry-wide (firm-specific) earnings. Consistent with predictions, we find that the industry-wide component of earnings is a significant predictor of future stock returns. We show that this form of mispricing is distinct from the accrual anomaly (Sloan 1996). A hedge portfolio trading strategy that exploits signals from both industry fundamentals and accounting accruals generates abnormal returns in excess of either strategy alone. Additional evidence suggests that the market underreacts (overreacts) to industry-wide cash flows (firm-specific accruals), but correctly prices both industry-wide accruals and firm-specific cash flows.
(Host: Chris Bauman)
February 1, 2013
The Penn State Scandal: An Autoethnographic Journey
SPEAKER: Linda Treviño, Distinguished Professor of Organizational Behavior and Ethics
UNIVERSITY: Smeal College of Business, Pennsylvania State University
TIME: 12:00pm - 1:30pm
WHERE: SB 117
ABSTRACT:
In November, 2011, everything changed at Penn State, the author's institution of 25 years, when a former assistant football coach was indicted (and later convicted) for being a serial child sexual abuser. Some of the abuse had occurred on campus. In addition, two university administrators (now 3 - the former President) were charged with lying to the grand jury and failing to report abuse. Those trials have not yet been held. Former legendary football coach Joe Paterno, an iconic figure at Penn State (and beyond) was implicated for not doing more than report up the chain of command what he had heard from a graduate assistant. Two months later he died of lung cancer. He was 85. The narrative that developed in the media was one of an institutional cover-up. The Freeh report (commissioned by the university board) supported that narrative and the NCAA imposed severe sanctions in summer, 2012. The author, a leader in the study of organizational ethics and ethical leadership for 25 years was on sabbatical and immediately immersed herself in the ongoing saga. She kept a journal and worked with colleagues to launch multiple research projects related to the scandal. She will talk about these research projects and her ongoing autoethnographic journey, including what she has learned about ethical decision making from this experience.
(Host: Libby Weber)
January 21, 2013
Constrained Delegation: Allocation of Decision rights and Resources in Firms That Compete Across Multiple Industries
SPEAKER: Javier Gimeno, Professor of Strategy, Aon Dirk Verbeek Chaired Professor in International Risk and Strategic Management, Academic Director, INSEAD European Competitiveness Initative
UNIVERSITY: INSEAD
TIME: 10:00am - 11:30am
WHERE: SB 306
ABSTRACT:
This paper explores the influence of intrafirm competitive spillovers on the design of headquarters-subsidiary relationships. Focusing on multi-industry firms, we argue that these firms delegate most business-level decisions to subsidiaries, but adapt to multimarket competition by limiting the subsidiaries’ action space for resource commitments through constraints on the scope of decisions that can be made and constraints on available resources –a phenomenon that we refer to as constrained delegation. Accordingly, the extent of multimarket contact in a given market (1) is associated with lower subsidiary discretion in decisions pertaining to resource commitments, and (2) counteracts the tendency of internal capital markets to provide financial resources to subsidiaries that have low market share and operate in high growth industries. Regression results, based on the population of majority-owned subsidiaries of groups operating in France between 1997 and 2004, and supplementary checks are strongly congruent with the predictions. This study, a first to explore empirically the impact of multimarket contact on internal organizational choices of multi-industry firms, suggests that organizational choices are endogenous to the competitive context and that organization design and competitive dynamics should not be seen as distinct processes.
(Host: Mingdi Xin)
January 18, 2013
Bounded Rationality: In Search of a Definition, with an Application
SPEAKER: Roy Radner, Leonard N. Stern School Professor of Business and Professor of Economics, Information Systems, and Environmental Studies
UNIVERSITY: NYU Stern School of Business
TIME: 10:30am - 12:00pm
WHERE: SB 112
ABSTRACT:
In the term "bounded rationality,” the word “bounded” is apparently an adjective modifying the work “rationality.” In this talk I adopt the view that the term "bounded rationality” is concerned with how "smart" decision-makers deal with “bounded cognition,” i.e., cognitive limitations that preclude fully rational procedures in the sense of (say) L. J. Savage. This is in the spirit of the work of H. A. Simon, J. Marschak, and also, to some extent, Savage himself. Thus I see the topic as a subfield, but only a proper subfield, of what has come to be called "behavioral economics" (or the equivalent in psychology and sociology). I shall here confine my attention to situations with a single decision-maker, leaving it to other occasions to deal with games, markets, and evolution. After a brief review of the Savage paradigm, I review in that context the problems raised by various aspects of bounded cognition, and various suggested models of corresponding behavior. A few of these models seem promising as being relevant to some concept of “rationality,” but none successfully addresses the cognitive limitation of the “failure of logical omniscience.”
As an example, I present a model of dynamic monopoly pricing for a good that displays network effects. In contrast with the standard use of a rational-expectations equilibrium to model demand for a network good, we model consumers as boundedly rational, and unable either to pay immediate attention to each price change, or to make accurate forecasts of the adoption of the network good. Our analysis shows that the seller's optimal price trajectory has the following structure: the price is low when the user base is below a target level, is high when the user base is above the target, and is set to keep user base stationary once the target level has been attained. We show that this pricing policy is robust to a number of extensions, which include the product's user base evolving over time, and consumers basing their choices on a mixture of a myopic and a "stubborn" expectation of adoption. Our results differ significantly from those that would be predicted by a model based on rational-expectations equilibrium, and are more consistent with the pricing of network goods observed in practice.
(Host: Siew Hong Teoh)
December 14, 2012
What Have We Learned About Earnings Management? Correcting Disinformation about Discontinuities
SPEAKER: David Burgstahler, Julius A. Roller Professor of Accounting
UNIVERSITY: Michael G. Foster School of Business, University of Washington
TIME: 1:30pm - 3:00pm
WHERE: SB 112
ABSTRACT:
Earnings distributions commonly exhibit statistically significant discontinuities at prominent performance benchmarks. Discontinuities at zero earnings are widely interpreted as evidence of earnings management to avoid a loss, and discontinuities at zero earnings change or zero earnings surprise as evidence of management to avoid an earnings decrease or negative earnings surprise, respectively. In contrast, two recent papers by Durtschi and Easton (2005, 2009, hereafter DE) assert that discontinuities are instead explained by some combination of prior researchers' choice(s) of sample selection and scaling as well as a systematic relation between the sign of earnings and market prices. Resolution of the conflicting interpretations of discontinuities is important because 1) it affects how investors, regulators, and scholars view earnings management and 2) it demonstrates the importance of a close linkage between theory and research design choices. We evaluate the three alternative explanations proposed by DE. We point out that DE provide no evidence that their explanations create discontinuities, but only evidence showing that their modified research designs eliminate discontinuities. We demonstrate why the research designs used by DE eliminate discontinuities and show that alternative designs using the same data show highly significant discontinuities. Finally, we outline key characteristics of the extensive body of discontinuity evidence that are consistent with the theory that earnings are managed but inconsistent with most artifactual explanations for discontinuities.
(Host: Libby Weber)
December 14, 2012
Input-Level Spillovers: Investor Reactions to Chemical Accidents
SPEAKER: Nandini Rajagopalan, Captain Henry Simonson Chair in Strategic Entrepreneurship & Professor of Management and Organization
UNIVERSITY: Marshall School of Business, University of Southern California
TIME: 2:00pm - 3:30pm
WHERE: SB 223
ABSTRACT:
We build on signaling theory to develop and test an empirical model of input-level spillover effects. We find that after an environmental accident at one firm with a toxic chemical, firms who are not responsible for that accident suffer declines in their market value in proportion to their toxic chemical usage. Further, these negative investor reactions are amplified for non-responsible firms that lack third-party certification, are geographically close to the responsible organization, and share high input relatedness with the responsible organization. Finally, we also find that ex-ante regulatory sanctions against that chemical strengthen the negative investor reactions while the presence of input-level associations weakens them.
(Host: Siew Hong Teoh)
November 30, 2012
Honoring One's Word: CEO Integrity and Accruals
SPEAKER: Shane Dikolli, Associate Professor
UNIVERSITY: The Fuqua School of Business, Duke University
TIME: 1:30pm - 3:00pm
WHERE: SB 306
ABSTRACT:
In this study, we propose a linguistic-based measure of CEO integrity, defined as honoring one’s word, based on CEOs' excessive use of causation words. We validate our linguistic-based integrity measure using the results of a proprietary survey given to CEOs and their employees that includes the employees’ perceptions of their CEOs' integrity. We document a negative association between (1) the extent of causation words in CEO survey responses; and (2) employees’ perceptions of the extent to which their CEOs honor their word, suggesting the linguistic-based score captures the construct of integrity. After validating the measure, we derive CEO integrity scores for a large archival sample by measuring unexpected use of causation words in the annual shareholder letter. Because accruals are “placeholders for cash flows”(Wahlen et al., 2010), we use accruals to represent a CEO’s word regarding cash flows of the firm. We test the prediction that the financial reports of firms with high-integrity CEOs will exhibit better accruals quality. We document the influence of CEO integrity on financial reporting by showing a positive association between our linguistic-based integrity score and both an accrual-based and a market-based measure of accruals quality.
(Host: Chris Schwarz)
November 30, 2012
Post-Retirement Benefits Plan, Leverage, and Real Investment
SPEAKER: Sohnke M. Bartram, Professor
TIME: 10:30am - 12:00pm
WHERE: SB 117
ABSTRACT:
This paper shows that defined benefit pension and health care plans are important for firm leverage and real investment around the world. While consolidating off-balance sheet post-retirement plans typically increases effective leverage by 32%, firms reduce their level of regular debt by only 23 cents for every dollar of projected benefit obligation, yielding overall higher total leverage of plan sponsors by 24% compared to similar firms without post-retirement plan. Substitution rates between regular debt and post-retirement obligations are lower in countries with weaker employment laws and protection, more labor market freedom, pension guarantee funds, stricter rule of law as well as larger private bond market capitalization and private credit. Since post-retirement benefit obligations have more flexible terms than regular debt, they can be used to investigate the effect of financial flexibility on real investment. The results show that post-retirement benefit obligations are positively related to R&D, which generates growth options, and negatively related to capital expenditures, which exercises growth options. Compared to an otherwise similar firm without a post-retirement plan, the average plan sponsor has 5% less capital expenditures and 12% more research and development. The results are robust to other dimensions of financial policy, such as debt maturity, dividends, preferred stock, convertible debt, and leverage that also affect real investment.
(Host: Siew Hong Teoh)
November 19, 2012
Management Earnings Forecasts and Forward-Looking Statements
SPEAKER: Zahn Bozanic, Assistant Professor of Accounting & MIS
UNIVERSITY: Fisher College of Business, The Ohio State University
TIME: 11:30am - 1:00pm
WHERE: SB 116
ABSTRACT:
Firms provide a significant amount of forward-looking disclosure to investors, but only a small fraction of that disclosure is provided in the form of quantitative earnings forecasts. We use textual analysis to examine managers’ disclosures of forward-looking statements, looking at both earnings-related and non-earnings-related prospective statements. We find that earnings-related forward-looking statements are similar to traditionally-studied (i.e., First Call) earnings forecasts, in terms of both determinants and investor response. However, we show that the vast majority of forward-looking statements (~80%) do not refer directly to earnings or earnings components and, more importantly, are significantly different from earnings-related statements. For example, while managers are less likely to issue earnings forecasts when uncertainty is high, they issue more non-earnings-related forward-looking statements when uncertainty is high. This suggests that, contrary to results in prior literature, managers may actually respond to increased investor demand for information by issuing more forward-looking statements, but do so in ways that prior research has overlooked. In short, the well-documented attributes of quantitative earnings forecasts cannot be extended to most forward-looking statements.
(Host: Siew Hong Teoh)
November 9, 2012
R&D Reporting Rule and Firm Efficiency
SPEAKER: Ram Venkataraman, Assistant Professor
UNIVERSITY: Cox School of Business, Southern Methodist University
TIME: 1:30pm - 3:00pm
WHERE: SB 112
ABSTRACT:
US GAAP (SFAS 2) requires immediate expensing of R&D. Critics contend that the rule prompts myopic managers to cut R&D to manage short-term profits, which could lead to longer-term adverse consequences for firms. Other observers argue that little rigorous evidence exists in support of this claim. We exploit a setting in Germany when the accounting for R&D changed from immediate expensing to partial capitalization when Germany adopted IFRS in 2005. This setting enables a firm to act as its own control, mitigating concerns regarding self-selection and correlated omitted firm attributes. We employ an econometric technique called Stochastic Frontier Analysis to generate firm-specific efficiency estimates. We find that efficiency of German firms improved significantly in the post-IFRS period relative to the pre period. In contrast, we find no evidence of efficiency gain for a control sample of German companies that have never reported R&D. Our results are robust to a battery of sensitivity tests. Our analyses suggest that partial capitalization under IFRS is the likely catalyst for the improvement in efficiency.
(Host: Chris Schwarz)
October 30, 2012
The Media and the Diffusion of Information in Financial Markets: Evidence from Newspaper Strikes
SPEAKER: Joel Peress, Associate Professor
UNIVERSITY: INSEAD
TIME: 11:30am - 1:00pm
WHERE: SB 223
ABSTRACT:
This paper investigates the causal impact of the media in financial markets by exploiting exogenous newspaper blackouts resulting from national strikes in several countries. Trading volume falls 12% on strike days. Stock return volatility is also reduced by 7%, but only cross-sectionally and within the day. These effects are stronger for small firms. Moreover, the power of lagged stock returns for predicting current returns of small firms vanishes on media strike days, consistent with newspapers propagating fundamental news from the previous day. These findings demonstrate that the media influence the stock market by increasing the speed with which information diffuses across investors, and is impounded into stock prices.
(Host: Chris Schwarz)
October 19, 2012
Stock Options as Lotteries
SPEAKER: Brian Boyer, Professor
UNIVERSITY: Brigham Young University
TIME: 2:00pm
WHERE: SB 223
ABSTRACT:
We find strong evidence of a negative cross-sectional relationship between ex-ante total skewness and risk-adjusted returns on individual equity options, consistent with the predictions of recent theoretical asset-pricing models. The alphas of option portfolios with high ex-ante skewness in some cases are less than -50 percent per week, even though the alphas of the underlying stocks are insignificant from zero. We demonstrate that the negative relationship between ex-ante skewness and option returns is not subsumed by moneyness. Simulations further indicate that our findings are also robust to various statistical features of option returns such as non-normality, non-linearity, and peso problems. Our results suggest that the ability of intermediaries to effectively hedge short positions in individual options deteriorates with ex-ante skewness. Intermediaries are therefore compensated for bearing unhedgable risk when accomodating the relatively high investor demand for lottery-like options.
(Host: Siew Hong Teoh)
October 19, 2012
IPO Pricing Mechanisms and Financial Reporting Quality
SPEAKER: Bin Ke, Professor of Accounting
UNIVERSITY: Nanyang Technological University
TIME: 1:30pm - 3:00pm
WHERE: SB 116
ABSTRACT:
We examine how different IPO pricing mechanisms affect the financial reporting quality of IPO firms in a representative weak investor protection country. We show that IPO firms’ financial reporting quality is higher when IPO offering prices are determined by market forces (referred to as the market-based approach) rather than by securities regulators (referred to as the government-based approach). However, we find no evidence that the market-based approach leads to greater inflation of IPO offering prices than the government-based approach.
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