Session 85

Governance

Track P

Date: Monday, October 5, 2015

 

Time: 16:45 – 18:00

Common Ground

Room: Plaza Court 4


Facilitator:

  • Tomi Laamanen, University of St. Gallen

Title: Assurances between Managers and Securities Analysts

Authors

  • Rebecca Ranucci, University of Hartford
  • David Souder, University of Connecticut

Abstract: This proposal draws on agency theory and applies game theoretic reasoning to examine interdependence between managers and securities analysts. We develop a model in which managers offer greater internal firm access in exchange for optimistic earnings forecasts from analysts. Consistent with the “assurance game,” when managers offer internal access while analysts are optimistic, external scrutiny over managerial behavior is minimized and more consistent. Using data from the insurance industry, we observe the level of external scrutiny through changes in reserve levels. Specifically, we expect managers to increase reserves when analysts issue optimistic forecasts, but we also expect optimistic forecasts to have diminishing returns in reducing external scrutiny, as managers perceive overly optimistic forecasts as challenging performance targets.

Title: Do Companies Benefit from Unfair Regulation? A Behavioral Perspective on Environmental Regulation and Firm Performance

Authors

  • Sebastian Krakowski, University of Geneva
  • Dirk Martignoni, University of Zurich
  • Sebastian Raisch, University of Geneva

Abstract: Mainstream economic theory assumes that regulation negatively affects firm profitability. Conversely, some scholars argue from a behavioral perspective that well-designed regulation can sometimes have neutral or even positive effects. Yet, this perspective had little impact on management studies of firm responses to regulation. We argue that this may be due to the field’s narrow scope on the economic criterion of regulatory efficiency, while the equally important ethical criterion of regulatory fairness has received scarce attention. Drawing on behavioral theory, we claim that unfair regulation can, under certain conditions, have surprisingly positive effects on firm performance. We model our propositions in the empirical setting of environ-mental regulation in the lighting industry. Our contribution is a comprehensive behavioral perspective of regulation explaining varying firm responses and performance.

Title: Is Good Governance Always Good? Performance Position and Dynamic Effects of Governance

Authors

  • Dongil Keum, New York University

Abstract: Is good governance good for innovation? Innovation requires tolerance for failure, but reduced accountability can also be prone to moral hazard, creating tension in the effects of reducing managerial entrenchment on innovation. Leveraging insights from the behavioral model of performance evaluation, we theorize that managerial preference for risk-taking and moral hazard varies with the risk and cost of missing performance targets. As a result, increasing managerial entrenchment has positive effects in firms that face the risk of underperformance but reduces the quality of innovation in overperforming firms. We find empirical support using staggered adoptions of anti-takeover statutes and different types of institutional ownership and suggest that the consequences of governance choice are dynamic, having different effects over time depending on its relative performance position.

Title: Regulatory Uncertainty and Firm Response in the U.S. Electricity Industry

Authors

  • Nilanjana Dutt, Bocconi University
  • Colleen Cunningham, Duke University

Abstract: This paper explores the relationship between regulatory uncertainty and firm responses across regulated and unregulated states in the U.S. Electric Utilities industry. We employ behavioral and evolutionary frameworks to propose that regulatory uncertainty drives firms in regulated states to respond by hedging their business and technological investments across multiple options, and firms in unregulated states to respond by investing in collecting information via lobbying. In turn, these differential responses shape long-term strategy by rewarding diversified firms in regulated states, and rewarding lobbying in unregulated states. Our paper contributes by uniquely testing these ideas on a panel of publicly-owned firms in the U.S. Electric Utilities industry from 2000 to 2010, and finding support for our hypotheses.

Title: Status in the Inner Circle: The Effect of Board Network Embeddedness on CEO Pay Gap

Authors

  • Anja Tuschke, University of Munich
  • Toru Yoshikawa, Singapore Management University
  • Miriam Flickinger, LMU Munich

Abstract: In this study, we focus on how the board’s social status influences the gap in compensation between a firm’s CEO and its other top executives. Based on insights from economic and behavioral views, we interpret the CEO-TMT pay gap not only as a measure of CEO compensation but also as an expression of a CEO’s rank within the TMT. Our study, therefore, aims at the question of what role high- or respectively low-status boards want their CEOs to fulfill. Additionally, we analyze whether the social status associated with board members’ role as CEO, board chair, or committee chair in another firm has a similar or divergent effect on the CEO-TMT pay gap. Preliminary results from a longitudinal sample of S&P 500 firms confirm our predictions.

Title: The Price is Right: Cognitive and Organizational Influences on Strategic Pricing Decisions

Authors

  • Scott Mitchell, University of Kansas

Abstract: While management researchers have studied the causes of suboptimal pricing decisions, previous research has emphasized experimental or aggregate corporate data. This research examines both the role and strength of cognitive and organizational factors on the likelihood of systematic pricing errors using non-experimental data. The study utilizes a hand-collected, longitudinal dataset of prices and performance outcomes for a set of California retail gas stations to determine a daily, station specific profit-maximizing price. These prices are then compared to the actual prices charged to assess the accuracy of firm pricing decisions. Hypotheses from strategy, economics, and behavioral decision theory are tested to examine the influence of both organizational and cognitive factors on the accuracy of firm strategic pricing decisions.

All Sessions in Track P...

Sun: 08:00 – 09:15
Session 281: Models and Evidence in Behavioral Strategy
Sun: 09:45 – 11:00
Session 280: Neuro-science in Behavioral Strategy Research
Sun: 11:15 – 12:30
Session 282: The Origins and Future Development of Behavioral Strategy
Sun: 16:15 – 17:30
Session 77: Organization Level Cognition
Sun: 17:45 – 00:00
Session 325: Behavioral Strategy Business Meeting
Mon: 08:00 – 09:15
Session 72: External Influences: Audiences and Media
Session 83: Behavioral Strategy at the Firm Level
Mon: 11:15 – 12:30
Session 68: Behavioral Theory & Learning
Mon: 13:45 – 15:00
Session 69: Problematizing Categories: Performance, Audiences, Innovation and Status
Session 169: The Role of Attention in Organizational Processes (Evaluation, Promotion, Innovation and Growth)
Mon: 16:45 – 18:00
Session 85: Governance
Tue: 08:00 – 09:15
Session 80: Business Models and Innovation
Tue: 11:00 – 12:15
Session 70: CEO Characteristics: Microfoundations of Behavioral Strategy
Tue: 14:15 – 15:30
Session 71: Upper Echelons and Individual Decision Makers
Session 75: Organizational identity
Tue: 15:45 – 17:00
Session 79: Cognition, Identity and Search
Tue: 17:30 – 18:45
Session 84: Competitors and Other External Forces


Strategic Management Society

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