Coles Research Magazine Eighth Issue | 2022
Strong research challenges expectations while hinting at exciting new possibili- ties. The articles presented here from faculty and Ph.D. candidates in the Michael J. Coles College of Business not only enhance our current understanding of busi- ness practices and theory, but also provide a possible glimpse into the future. In this 8th edition of The Coles Research Magazine, you will find four papers published in Financial Times Top 50 journals, research that earned its authors Coles College Outstanding Journal Publication and Community Engagement awards, the winners of the Coles Working Paper Series awards, papers presented at the Coles Research Symposium on Homeland Security, and the work of three summer research fellows. In addition to faculty research, the issue includes two Ph.D. candidate executive summaries. Highlighting the exceptional work of the College’s faculty and students is not the only goal of The Coles Research Magazine. Equally as important is presenting the research so that it is relatable and – more importantly – actionable to real mem- bers of the business community. Each article includes an easy-to-understand executive summary along with a listing of each paper’s key takeaways. I invite you to explore the latest edition of The Coles College Research Magazine and discover the cutting-edge research today that will define how you conduct business tomorrow.
Robin Cheramie Dean, Michael J. Coles College of Business Tony and Jack Dinos Eminent Scholar Chair of Entrepreneurial Management Kennesaw State University
Table of Contents
Journal Publications - Financial Times Top 50 Journals 6 Do Alma Mater Ties Between the Auditor and Audit Committee Affect Audit Quality? By Divesh S. Sharma, Madhukar K. Singh, and Arvind Patel 8 Earnings Forecasts and Price Efficiency after Earnings Realizations: Reduction in Information Asymmetry through Learning from Price By Guojin Gong, Hong Qu, and Ian Tarrant 10 Disparate Safety Enforcement: Curvilinear Effects, Mechanisms, and Boundary Conditions of Supervisor-Rated Leader-Member Exchange By Sara Jansen Perry, Natalia M. Lorinkova, and Melih Madanoglu 12 Are Dealers Still Relevant? How Dealer Service Quality Impacts Manufacturer Success By Sina Golara, Kevin J. Dooley, and Nasim Mousavi Journal Publications - Distinguished Journal 14 Workdays Are Not Created Equal: Job Satisfaction and Job Stressors Across the Workweek By Shani Pindek, Zhiqing E. Zhou, Stacey R. Kessler, Alexandra Krajcevska, and Paul E. Spector 16 A Generalized Ordinal Finite Mixture Regression Model for Market Segmentation By Yifan Zhang, Duncan K. H. Fong, and Wayne S. DeSarbo
Community Engagement 18 Pro-Bono Research and Reports on Georgia Film Tax Credits By JC Bradbury
* Coles College of Business faculty highlighted in bold.
Table of Contents
PhD Summaries 20 When Leaders Ostracize: Bottom-Line Mentality Climate and Emotional Labor as Predictors of Workplace Ostracism By Darrin E. Theriault, James A. Meurs, Saurabh Gupta, and Graham H. Lowman 22 The Evolution of Sales: Assessing the Integration of Social Selling into Professional Sales and the Sales Cycle By Jen Riley, Brian N. Rutherford, Adriane B. Randolph, and Stefan Sleep Coles Research Symposium 24 Detecting and Rectifying the Non-Malicious Insider Threat in a Healthcare Setting By Humayun Zafar 26 A Strategic Model of Cyber-Security with Multiple Agents and Actions By Jomon A. Paul and Abhra Roy 28 Immigration, Terrorism, and the Economy By Jomon A. Paul and Aniruddha Bagchi 30 A Scenario Robust Bi-Objective Model for Integrating Disaster Mitigation and Preparedness By Jomon A. Paul and Xinfang (Jocelyn) Wang Summer Research Fellowship 32 Loneliness in the Workplace By Stacey R. Kessler 34 The Truth in the Lie: The Effect of Fear of Missing Out on Stakeholder Enrollment By Susan Young
* Coles College of Business faculty highlighted in bold.
Table of Contents
Summer Research Fellowship (Continued) 36 Marijuana Use and Health By Weiwei Chen
Working Papers 38 The Joint Effect of Justification and Uncertainty on Real Earnings Management By Hong Qu, Lucy F. Ackert, Dana R. Hermanson, and Vellna K. Popova 40 Why Do Bank Boards Have Risk Committees? By René M. Stulz, James Tompkins , Rohan Williamson, and Zhongxia (Shelly) Ye 42 Development of Novel Critical Thinking Assessment Instruments By Jomon A. Paul, Mona Sinha, and Justin D. Cochran 44 Stable Income, Stable Family By Isaac D. Swensen, Jason M. Lindo, and Krishna Regmi 46 Misspecification and Weak Identification in Asset Pricing By Frank Kleibergen, and Zhaoguo Zhan
* Coles College of Business faculty highlighted in bold.
Do Alma Mater Ties Between the Auditor and Audit Committee Affect Audit Quality? Divesh S. Sharma, Madhukar K. Singh, and Arvind Patel
Contemporary Accounting Research Vol. 39, No. 1 (March 2022), pp. 371-403
Overview We examine whether ties between an auditor and the audit committee (AC) based on their former employment at an audit firm are associated with the allocation of significantly more nonaudit services (NAS) to the auditor. We also examine whether the resulting NAS affect audit quality. Predicating our hypotheses on social ties theory, we find that firms with an audit-firm alumn on the AC acquire more NAS from the alumn’s former employer. Further, this association strengthens with the alumn’s tenure, and based on various measures, audit quality suffers. Collectively, our results suggest that audit-firm alma mater ties between the AC and auditor engender economic ties that adversely affect audit quality. Our study provides new evidence on the channels that affect audit quality and raises questions about the composition of the AC, auditor-provided NAS, and client assignment to engagement partners.
6 | Journal Publications - Financial Times Top 50 Journals
■ The appointment of audit-firm alumni to a client’s audit committee can be a double-edged sword for investors in terms of audit quality. ■ Alumni appear to favor their former audit firm, allowing it to provide both audit and consulting services. ■ When alumni on audit committees approve more consulting from their former audit firm, audit quality is impaired. ■ The intricate relationship between alumni and their former audit firm may require scrutiny from various stakeholders.
Divesh S. Sharma, Professor of Accounting
Earnings Forecasts and Price Efficiency After Earnings Realizations: Reduction in Information Asymmetry through Learning from Price Guojin Gong, Hong Qu, and Ian Tarrant
Contemporary Accounting Research Vol. 38, No. 1 (March 2021), pp. 654-675
Overview Financial analysts and corporate managers frequently forecast earnings prior to their realization. Do public forecasts matter after the facts are known? We find that when information asymmetry is a major market friction, earnings forecasts can lead to higher price efficiency even after the earnings become public knowledge. In an experimental market characterized by information asymmetry—that is, some traders have private information—earnings forecasts reduce information asymmetry and lead to prices that reflect a greater amount of private information. Information aggregated in past prices continues to reduce information asymmetry and improve price efficiency even after earnings realizations. We contribute to the disclosure literature by showing that the learning-from-price effect amplifies the impact of public disclosure on price efficiency.
8 | Journal Publications - Financial Times Top 50 Journals
■ Public forecasts improve market efficiency and protect less informed investors. ■ Public forecasts speed up private information aggregation in price. ■ Price information, in turn, gradually reduces information asymmetry.
Hong Qu, Assistant Professor of Accounting
Disparate Safety Enforcement: Curvilinear Effects, Mechanisms, and Boundary Conditions of Supervisor-Rated Leader-Member Exchange Sara Jansen Perry, NataliaM. Lorinkova, and MelihMadanoglu
Journal of Management, 2021
Overview Across three studies, we integrate relational leadership theory with affective events theory to examine how leaders’ relational quality with their subordinates influences leaders’ safety-enforcement behaviors. In two field studies with different high-risk contexts, we find a curvilinear relationship between supervisor-rated leader/member exchange (SLMX) and safety enforcement. The second study also examines the moderating role of leaders’ commitment to safety and the link between safety enforcement and accidents. These two studies reveal that less committed leaders are likely to monitor safety most closely for low- and high-SLMX subordinates, while mid-SLMX subordinates are most likely to be overlooked. ingof three relational dynamics—trust, consideration, and liking— as mechanisms of the effect of SLMX on safety enforcementWe find a U-shaped relationship similar to that in the field studies between liking and enforcement, while the relationship between enforcement and both distrust and consideration is positive. These efforts represent rare direct tests of the hypothesis that LMX includes differential treatment based on affective relationship cues and elucidate how leaders can foster a safer workplace for all.
10 | Journal Publications - Financial Times Top 50 Journals
■ Weak levels of workplace safety enforcement lead to accidents. ■ Less committed leaders rely on relational cues to determine how to enforce safety. ■ Subordinates who have medium relational quality with their leaders receive the least safety-related attention. ■ Liking their subordinates may dominate leaders’ decisions about safety enforcement behaviors.
Melih Madanoglu, Michael A. Leven Endowed Chair and Professor in Hospitality Management
Are Dealers Still Relevant? How Dealer Service Quality Impacts Manufacturer Success Sina Golara, Kevin J. Dooley, and NasimMousavi
Production and Operations Management Vol. 30, No. 10 (October 2021), pp. 3560-3578
Overview Most automobile manufacturers use franchised dealers to distribute their products and to perform sales-related and after-sales services. However, the link between dealers’ service quality and manufacturer performance is not well understood. Some studies suggest that service quality affects initial product sale, repeat sales, and brand reputation. Others posit that dealer services are a commodity, and their quality affects sales only at extremes. We gathered data representing sales and service-quality ratings at 1,078 US automobile dealerships over a year for five different car classes. We find that the quality of after-sales services positively influences sales of the brand in the dealer’s region. Manufacturers whose dealers struggle with after-sales services take a hit in market share even in markets where they enjoy superior competitive status. We also find that sales-related services gain importance in highly competitive markets where the manufacturer has few dealers, and competitors have many.
12 | Journal Publications - Financial Times Top 50 Journals
■ After-sales services are critical for automakers’ success, yet underappreciated. ■ When dealer after-sales services are of poor quality, manufacturers lose market share. ■ This effect persists even if the manufacturer is a clear market leader in the region. ■ Dealers’ sales activities have less impact on automakers than after-sales activities. ■ Sales quality is consequential for manufacturers only when competition is high.
Sina Golara, Assistant Professor of Operations Management
Workdays are Not Created Equal: Job Satisfaction and Job Stressors across the Workweek Shani Pindek, Zhiqing E. Zhou, Stacey R. Kessler, Alexandra Krajcevska, and Paul E. Spector
Human Relations Vol. 74, No. 9 (September 2021), pp. 1447-1472
Overview The traditional US workweek runs from Monday to Friday, but for most employees, not all days are the same. On Monday you might be happy and recharged from the weekend, so this is your best day. On the other hand, on Friday you might be excited that the weekend is about to start making this your best day. Which premise is correct? We recruited 139 university employees who worked a traditional Monday-to-Friday schedule with no overtime. They agreed to complete surveys for two weeks. Each day they indicated the extent to which their jobs were made unnecessarily difficult due to organizational constraints and whether anyone treated them badly. They also indicated how satisfied they were with their job on that day. The days of the week were compared to see which was seen as more stressful and more satisfying. The short answer is Friday is best, and Monday is worst. Employees experienced the least stress and most satisfaction on Fridays, and the most stress and least satisfaction on Mondays. Further, the impact of poor treatment was greater on Monday than Friday; poor treatment on Monday diminished job satisfaction but on Friday had little effect. With the weekend coming up, people were able to take the mistreatment in stride.
The above consists of excerpts from the following: Spector, (2020). What Is the Best Day for Working? (https://paulspector.com/what-is-the-best-day-for-working/) 14 | Journal Publications - Distinguished Journal
■ The days of the week are not equal; Mondays are the most difficult for employees. ■ Stressful problems or bad news might best be tackled toward the end of the week.
Stacey R. Kessler, Associate Professor of Organizational Behavior and Human Resource Management
A Generalized Ordinal Finite Mixture Regression Model for Market Segmentation Yifan Zhang, Duncan K. H. Fong, and Wayne S. DeSarbo
International Journal of Research in Marketing Vol. 38, No. 4 (December 2021), pp. 1055-1072
Overview The importance of market segmentation is widely acknowledged. It can guide a firm’s marketing strategy and resource allocation among products and markets. With recent advancements in information technologies, many firms now have enhanced capabilities to capture data about their customers and business operations. In this article, we show that having more data on customers does not always improve market segmentation analysis; in fact, the inclusion of unimportant variables and erroneous observations can distort and mislead. To solve the problem, we develop a new procedure that simultaneously performs segmentation and variable selection within each derived segment. The procedure is robust to data errors and can include concomitant variables for simultaneous profiling of the derived segments. Using both synthetic and empirical data, our model outperforms other segmentation tools in parameter recovery, segment retention, and segment-membership prediction.
16 | Journal Publications - Distinguished Journal
■ Model-based variable selection is useful to analyze data with many variables. ■ Robust segmentation models are preferred when data has potential outliers. ■ Model-based segmentation analysis helps improve resource allocation.
Yifan Zhang, Assistant Professor of Quantitative Analysis
Pro-Bono Research and Reports on Georgia FilmTax Credits JC Bradbury
Overview In 2020, I published a study on state film-incentive programs in Contemporary Economic Policy. It found that states with film-incentive programs do not accrue positive macroeconomic effects. In response to local interest, I focused on Georgia and published a policy brief, “Film tax credits and the economic impact of the film industry on Georgia’s economy.” The brief presents important data and evidence showing that Georgia’s film tax-credit program cost the state treasury almost $1 billion annually, equivalent to more than $200 per household. The number of workers employed in the film industry (16,000) is far less that claimed, at a subsidy cost of $119,000 per full-time job. Overall, Georgia’s film tax-credit program is costly, largely a transfer from state taxpayers to out-of-state film studios, and does not yield the substantial economic development benefits to the state proponents claim. My findings are consistent with recently conducted state audits.
18 | Community Engagement
■ State film incentives are not associated with positive economic development effects. ■ The cost of Georgia’s film tax-credit program is approaching $1 billion a year and growing. ■ The film industry represents 0.5 percent of Georgia’s economy and employs 16,000 workers a year. ■ Film tax credits cost Georgia taxpayers approximately $220 per household per year. ■ Film tax-credit benefits flow mostly to the film industry and out-of-state stakeholders. Executive Takeaways
JC Bradbury, Professor of Economics
When Leaders Ostracize: Bottom- Line Mentality Climate and Emotional Labor as Predictors of Workplace Ostracism
Darrin E. Theriault (PhDGraduate) James A. Meurs (Dissertation Chair) Saurabh Gupta (Committee Second) GrahamH. Lowman (Reader)
Overview Workplace ostracism—when co-workers ignore or exclude each other—is a passive, low-intensity behavior. It is one of several constructs under a larger framework of workplace aggression that harm the individual target and the organization. Ostracism is particularly detrimental because its covert subtlety often leaves targets wondering if they are imagining it. Researchers have focused almost exclusively on the target, leaving an excellent opportunity to focus on the source. This study investigates organizational and intrapersonal factors that predict leaders will ostracize team members. First, it examines whether a company’s exclusive focus on the bottom-line influences leaders to ostracize team members. Second, it investigates two components of emotional labor, surface acting and deep acting, as potential predictors of workplace ostracism. Framed in a leadership context and using an online survey featuring a quasi-experimental design with hypothetical vignettes, the study found several important managerial outcomes. In brief, a bottom-line climate leads to surface acting and ostracism
20 | PhD Summaries
■ Ostracism is more likely in companies strongly focused on the bottom line. ■ Leaders focused solely on profits are likely to surface act with their teams. ■ Leaders who surface act are more likely to ostracize their team members.
Darrin E. Theriault, PhD Graduate James A. Meurs , Associate Professor of Management Saurabh Gupta , Professor of Information Systems Graham H. Lowman , Assistant Professor of Organizational Behavior and Human Resource Management
The Evolution of Sales: Assessing the Integration of Social Selling into Professional Sales and the Sales Cycle Jen Riley (PhDGraduate) Brian N. Rutherford (Dissertation Chair) Adriane B. Randolph (Committee Second) Stefan Sleep (Reader) Overview Technological advancements, such as social media, have played a key part in the progression of professional sales careers, and have aided in the building of client relationships as well as achieving overall sales success. As one of the strategies often used within the modern professional sales role, social selling, the leveraging of technology platforms like social media within the sales process, has served as a catalyst for the evolution of the sales process and has increasingly integrated into the role over the last decade. However, although social media usage has increased within the sales process, there are competing thoughts about the proper execution of the tactic, its legitimacy as a strategic approach, hesitancies in adoption as a whole, and resistance to training and resources spent on social selling within sales teams. This dissertation explored social selling's place within the sales process and salesperson practices to address the technological changes in society.
22 | PhD Summaries
■ Social selling is a tool salespeople use throughout the entire sales process. ■ B2B salespeople foster relationships via social selling and accelerate the sales process. ■ Of the 16 social selling tools, top outlets are LinkedIn, Email, CRM Systems, & Facebook. Executive Takeaways
Jen Riley, PhD Graduate Brian N. Rutherford , Professor of Marketing & Professional Sales Adriane B. Randolph , Professor of Information Systems Stefan Sleep , Assistant Professor of Professional Sales
Detecting and Rectifying the Non-Malicious Insider Threat in a Healthcare Setting
Humayun Zafar Coles Research Symposium on Homeland Security Special Issue, SIFALL21-02, October 2021
We were tasked by a global leader in healthcare to look into making the organization more secure by creating a training program that focused on employee habits. By adapting a model from consumer behavior to information security, we were able to find strong correlations between habit creation and security threats such as phishing, unauthorized cloud computing use, and password sharing. We were also able to ascertain that traditional security training and awareness programs need to move away from the “one-size” fits all technique to custom models that need to look at employee groups. This study extends literature in habit and information security.
24 | Coles Research Symposium
■ Based on the current design SETA programs do not work as intended. ■ Compliance does not equal security. ■ Training the unconscious mind positively impacts an organization’s security posture. ■ Secure habits are formed in varied contextualized environments. ■ Habits are efficient and pre-potent—more powerful than other types of thoughts.
Humayun Zafar, Professor of Information Security and Assurance
A Strategic Model of Cybersecurity with Multiple Agents and Actions Jomon A. Paul and Abhra Roy
Coles Research Symposium on Homeland Security Special Issue, SIFALL21-03, October 2021
Overview We analyze a model of cybersecurity involving two firms and two strategic attackers by employing a location choice framework embedded in a non- cooperative game. The location aspect of the model captures the vertical and horizontal ties of the firms with others in the network. The firms employ three tools to subvert damage from an attack, namely, a) prevention b) detection and containment. The attacker chooses the ‘location’ of the attack and the amount of effort to exert to avoid detection. This setup allows us to capture all possible types of strategic interaction between the players and the tools of cybersecurity and allows us to compare between the various forms of organizing cyber-defense. We find that the administration of cyber-security may be best handled by a central planner over any other forms of organization. Further, we show that firms are better off when they invest in both prevention and detection.
26 | Coles Research Symposium
■ Firms should invest in prevention and detection simultaneously for an optimal security architecture. ■ Sharing information between firms is beneficial only when the cost of detection is high. ■ Assigning a central planner to administer cybersecurity may be preferable to other forms of organization. ■ Adversarial agents disrupt the more critical functions of a firm to balance achievement of their goals against the probability of detection.
Jomon A. Paul, Professor of Quantitative Analysis Abhra Roy, Associate Professor of Economics
Immigration, Terrorism, and the Economy Jomon A. Paul and Aniruddha Bagchi
Coles Research Symposium on Homeland Security Special Issue, SIFALL21-04, October 2021
Overview This paper looks at the interaction between terrorism and the quality of life of immigrants in Organisation for Economic Co-operation and Development (OECD) countries as measured by their foreign-born unemployment rates and globalization levels, GDP per capita, and exports-to-GDP ratio. We find strong evidence that domestic terrorism adversely affects GDP per capita. The magnitude of this effect is substantial: at the sample mean, a one-standard-deviation increase in the number of domestic incidents decreases GDP per capita between 5.7% and 7.8%, depending on the specification used. We also find strong evidence that domestic terrorism increases the exports-to-GDP ratio, but transnational terrorism tends to decrease it. These results contradict previous research positing that primarily transnational terrorism affects these economic indicators. With either type of terrorism, we find an increase in the foreign-born unemployment rate decreases GDP per capita, and with domestic terrorism, it increases the export-to-GDP ratio.
28 | Coles Research Symposium
■ Local conditions can magnify or dampen the marginal effect of terrorism. ■ Interactions of terrorism with the quality of life of immigrants are considered. ■ GDP per capita is adversely affected by domestic terrorism. ■ Export-GDP ratio increases in response to domestic terrorism and decreases in response to transnational terrorism. ■ An increase in the foreign-born unemployment rate in a given year adversely affects GDP per capita next year. Executive Takeaways
Jomon A. Paul, Professor of Quantitative Analysis Aniruddha Bagchi, Professor of Economics
A Scenario-Robust, Bi-Objective Model for Integrating Disaster Mitigation and Preparedness Jomon A. Paul and XinfangWang
Coles Research Symposium on Homeland Security Special Issue, SIFALL21-01, October 2021
Overview The potential synergy between the mitigation and preparedness phases of disaster management is often overlooked; for example, falling into the cracks between FEMA’s four phases of emergency management. We develop a scenario-robust, bi- objective model to analyze the tradeoff between these two competing objectives; i.e., minimizing mitigation cost associated with the readiness of a disaster-prone region versus minimizing preparedness social cost consisting of logistics, deprivation, and fatality costs. Recognizing the inevitability of data inaccuracy in the disaster- management setting, we model the uncertain parameters within each scenario via easy-to-estimate deterministic uncertainty sets. In addition to adopting an existing medical-supply deprivation framework, we develop complementary deprivation functions to account for the human suffering caused by shortages and delayed arrival of food and water supplies based on empirical studies. Our model shows policymakers tthe intersystem benefits gained from vertical collaboration between agencies charged with the mitigation and preparedness roles that currently operate in silos, thereby engaging in suboptimal policies. Using an extensive case study of a hurricane-prone zone, we illustrate our model application wherein empirical models are utilized to estimate key parameters such as readiness of the region. In a cost-benefit framework, our results provide fresh insights into collaborative strategies policymakers can adopt to unify and improve disaster management.
30 | Coles Research Symposium
■ Bi-objective robust model focusing on two competing objectives- mitigation & preparedness. ■ First to explore and quantify their synergy for improving a region’s resilience. ■ Develop deprivation functions for human suffering due to food & water delay and shortage. ■ Address the urgent need to account for inherent uncertainty in humanitarian logistics. ■ Our model is robust against uncertain scenarios and parameter deviations within scenario.
Jomon A. Paul, Professor of Quantitative Analysis
Loneliness in the Workplace Stacey R. Kessler
Overview The experience of loneliness was at the forefront of public health concerns even before the onset of the COVID-19 pandemic. Loneliness is associated with such serious adverse health effects as impaired cognitive function, elevated blood pressure, diminished immunity, and increased risk of early mortality. Despite these urgent concerns, our understanding of loneliness in the workplace remains inadequate. The proposed study will examine workplace factors that exacerbate loneliness. At the same time, we will also investigate how loneliness impacts employees’ productivity and engagement as well as their health behaviors such as eating and drinking habits, the prevalence of stress-related physical symptoms (e.g., upset stomach and heartburn), and sleep quality. We plan to use a daily diary design that will help us determine whether and how participants’ experience of loneliness in the workplace varies in real time and how this variation relates to their work and health behaviors.
32 | Summer Research Fellowship
■ Loneliness was a public health concern even before the COVID-19 pandemic. ■ We plan to investigate workplace factors that exacerbate loneliness and the impact of loneliness on employees’ work and health.
Stacey R. Kessler, Associate Professor of Organizational Behavior and Human Resource Management
Truth in the Lie: The Effect of Fear of Missing Out on Stakeholder Enrollment Susan Young
Overview During the pre-legitimate startup phase, ventures often need resources such as financing, marketing or product development capabilities, additional human capital, or access to important networks. Stakeholder enrollment is the process by which these entrepreneurs create a deeper psychological bond with stakeholders to secure superior resources and legitimacy. By providing access to such resources, these enrolled stakeholders gain power over entrepreneurs. Stakeholder theory suggests that dishonest ventures will struggle with stakeholder enrollment, thus limiting access to resources and resulting in failure. Yet cases exist where unethical entrepreneurs do enroll stakeholders through deceit, provoking the research question: Why are enrolled stakeholders so willing to accept entrepreneurial lying? We propose that “fear of missing out” (FOMO) on an opportunity aids stakeholder enrollment by encouraging acceptance of information asymmetry in order to stay enrolled, where stakeholders remain purposefully heedless of entrepreneurial behavior, consequently reversing the original power asymmetry between stakeholder and entrepreneur. We examine Theranos, a biotech firm that convinced stakeholders it would revolutionize healthcare, rising to a $10 billion valuation through 15 years of sustained deceit. We contribute to theory by demonstrating this dark side of stakeholder enrollment, where opportunism increases a venture’s power over stakeholders, and deceit can endure long past the startup phase.
34 | Summer Research Fellowship
■ FOMO is a stakeholder enrollment mechanism previously overlooked in the literature. ■ Amoral entrepreneurs can lie to gain stakeholders’ resources. ■ Entrepreneurial lying may continue long past the pre-legitimate phase of a startup. ■ The greater stakeholders’ FOMO, the more likely they will enroll in the venture. ■ Fabricated signals of legitimacy can accumulate to enroll more stakeholders. Executive Takeaways
Susan Young, Assistant Professor of Management
Marijuana Use and Health Weiwei Chen
Overview Despite a trend to legalize marijuana use, the health effects are not well understood. Studies often exploit the staggered adoption of marijuana laws across states to examine the impact of marijuana use on various health outcomes. However, whether the individuals under study ever used marijuana is rarely known. In a few studies that directly link individual marijuana use with health outcomes, the samples are often small, and the observed associations may not be causal. This study applies an instrumental variable approach to examine the impact of marijuana use on individual health. It leverages data from responses to marijuana questions in a nationally representative survey. Considering the potential for reverse causality between marijuana use and health outcomes, we use state marijuana laws as an instrument for marijuana use, and to check robustness, we use cigarette tax as an alternative instrument. Our preliminary results suggest that marijuana use relates to improved health status and fewer days in the last month when physical or mental health was not good. This effect is more pronounced among people with multiple chronic health conditions. The results are robust when the alternative instrumental variable is used.
36 | Summer Research Fellowship
■ The health effects of using marijuana are not well understood. ■ Our preliminary results suggest improved health with marijuana use. ■ The effect was more pronounced among people with multiple chronic health conditions.
Weiwei Chen, Assistant Professor of Economics
The Joint Effect of Justification and Uncertainty on Real Earnings Management Hong Qu, Lucy F. Ackert, Dana R. Hermanson, and Velina K. Popova
Coles Working Paper Series SPRING22-01, March 2022
Overview Real earnings management (REM) is a common way of misleading investors by altering transactions to meet financial reporting goals. The growth of REM is of significant concern because REM is not easily detected or curbed. Some have pointed to greater management disclosure as a way to mitigate the risk of REM. We conduct an experiment to examine the effects of management justification (some participants are asked to justify their project decision to the owners) and uncertainty (greater or lesser uncertainty about future project outcomes) on participants’ REM-type behavior. While some may expect management justification to reduce REM, we find that the opportunity to justify an operating decision actually has the effect of increasing REM-type decisions when there is greater uncertainty about future project outcomes. In essence, it appears that some managers leverage greater uncertainty to make disclosures to the owners that make the managers look like they are protecting the owners, when they are simply maximizing their own payoffs. Overall, the results suggest that management justification may not be an effective way to reduce REM, especially if uncertainty is high.
38 | Working Papers
■ Real Earnings Management (REM) is a common way of misleading investors. ■ Some suggest that greater management disclosure will mitigate the risk of REM. ■ We use an experiment to examine how management justification affects REM-type behavior. ■ We find justification increases REM-type behavior when uncertainty is high. ■ Management justification may not always be an effective way to reduce REM.
Hong Qu, Assistant Professor of Accounting Lucy F. Ackert, Professor of Finance Dana R. Hermanson, Dinos Eminent Scholar Chair of Private Enterprise and Professor of Accounting Velina K. Popova, Associate Professor of Accounting
Why Do Bank Boards Have Risk Committees?
René M. Stulz, James Tompkins, Rohan Williamson, and Zhonxia (Shelly) Ye
Coles Working Paper Series FALL21-03, November 2021
Overview We develop a theory of bank board risk committees that explains why such committees can be valuable to shareholders even when they do not reduce bank risk. As predicted by our theory (1) many large and complex banks voluntarily chose to have a risk committee before the Dodd-Frank Act (DFA) forced bank holding companies with assets in excess of $10 billion to have a board risk committee, and (2) establishing a board risk committee does not reduce a bank’s risk on average. Using unique interview data, we show that the work of risk committees is consistent with our theory.
40 | Working Papers
■ Many banks affected by the DFA requirement already had board risk committees. ■ Any one-size-fits-all regulation of a board operation warrants scrutiny. ■ Large, complex firms should consider whether having a board risk committee is right for them.
James Tompkins, Professor of Finance
Development of Novel Critical Thinking Assessment Instruments Jomon A. Paul, Mona Sinha, and Justin D. Cochran
Coles Working Paper Series FALL21-01, November 2021
Overview The modern work environment and higher education both attach significant value to critical thinking skills as they play a profound role in achieving academic and professional success. However, teaching and assessing critical thinking skills can be a significant challenge for faculty. This research develops two instruments for faculty to better assess critical thinking skills. Specifically, we develop two separate instruments: an essay and an open-ended group discussion for an all-around assessment of these skills. Additionally, we provide guidance for using the instruments effectively in practice. We use qualitative analysis for interpreting and analyzing the verbatim data collected. The ability to assess students’ critical thinking is an important step in the feedback loop that helps improve critical thinking.
42 | Working Papers
■ Critical thinking continues to be a key competency for business and academia. ■ The assessment of critical thinking is important part of the development cycle for critical thinking. ■ Faculty need tools to help them effectively assess critical thinking in student work. ■ The ability to assess critical thinking allows faculty to develop student critical thinking skills.
Jomon A. Paul, Professor of Quantitative Analysis Mona Sinha, Associate Professor of Marketing Justin D. Cochran, Associate Professor of Information Systems
Stable Income, Stable Family JasonM. Lindo, Krishna Regmi, and Isaac D. Swensen
Coles Working Paper Series FALL21-14, November 2021
Overview We document the effects of generous unemployment insurance (UI) on divorce and childbearing using a strategy that leverages state-level changes in maximum benefits over time and compares workers who have been laid off to those who have not. Results indicate that higher maximum benefit levels reduce the probability of divorce and increase the probability of having children for laid-off men. They had no comparable effects on laid-off women.
44 | Working Papers
■ Layoffs are associated with higher risk of divorce and reduced childbearing. ■ More generous UI benefits mitigate these effects for laid-off men but not laid-off women. ■ UI goes beyond helping the unemployed maintain consumption—it promotes family stability.
Krishna Regmi, Limited Term Assistant Professor of Economics
Misspecification and Weak Identification in Asset Pricing Frank Kleibergen and Zhaoguo Zhan
Coles Working Paper Series SPRING22-02, March 2022
Overview The widespread co-existence of misspecification and weak identification in asset pricing has overstated the performance of risk factors, jeopardizing the conventional Fama and MacBeth (1973) methodology. To solve the problem, we infer risk premia using a double robust Lagrange multiplier test. We show how the relative magnitudes of the misspecification J-statistic and the identification IS-statistic govern the identification and resulting appropriate interpretation of the risk premia. We revisit several prominent empirical applications and all specifications with one-to-six factors from the factor zoo of Feng, Giglio, and Xiu (2020) to emphasize the widespread occurrence of misspecification and weak identification.
46 | Working Papers
■ Misspecification and weak identification commonly impair asset- pricing studies. ■ J and IS statistics can be jointly employed to detect them. ■ The DRLM test infers risk premia, regardless of misspecification and weak identification.
Zhaoguo Zhan, Associate Professor of Economics
Special thanks to the following faculty and committees for their significant contributions to the Coles Research Magazine.
Coles Working Paper Series
Editor: Jomon Paul
Editorial Board: Abhra Roy ■ Aniruddha Bagchi ■ Benjamin Scafidi ■ Birton Cowden Brian Albrecht ■ Canan Mutlu ■ Filippo Occhino ■ Gohar Sedrakyan Gregory Phelan ■ Ishtiaque Fazlul ■ James Tompkins ■ Jennifer Hutchins Jennifer Schafer ■ John Abernathy ■ John Thompson ■ Justin Cochran Labanyalata Roy ■ Leo MacDonald ■ Luc Noiset ■ Marcus Caylor Marcus Marktanner ■ Rajaram Veliyath ■ Rongbing Huang ■ Samia Siha Stacy Campbell ■ Sunay Mutlu ■ Susan Young ■ Timothy Mathews Vineeta Sharma ■ Weiwei Chen ■ Xiao Huang Xuepeng Liu ■ Zhaoguo Zhan
Research and Development Committee Andy Green ■ Armen Taschian
Hong Qu ■ Jennifer Hutchins ■ Max North Minjiao Zhang ■ Qi Dong ■ Samia Siha Yoon Hee Kim ■ Xuepeng LIu
PhD Program Executive Director: Saurabh Gupta
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