Prior Experience of Managers and Maladaptive Responses to Performance Feedback: Evidence from Mutual Funds

2023 | Organization Science | Citations: 0

Authors: Gaba, Vibha; Lee, Sunkee; Meyer-Doyle, Philipp; Zhao-Ding, Amy

Abstract: In this study, we examine how the prior experiences of decision makers systemati ... Expand

Abstract: In this study, we examine how the prior experiences of decision makers systematically influence their assessment of and responses to negative performance feedback. We posit that, although greater and more specialized experiences enable managers to build relevant knowledge and expertise in specific domains, they also make them overconfident in their abilities and strategies. Such experience-induced overconfidence further leads to distortions in the performance assessment process, hindering a firm’s ability to recognize and respond to poor performance. We empirically test these arguments in the context of U.S. mutual fund managers making investment decisions in response to fund performance below aspirations. As hypothesized, we find that more experienced and more specialized fund managers change their investment decisions less when faced with negative performance feedback than managers who are less experienced and less specialized. In additional analyses, we further show that the lower responsiveness of more experienced (specialized) managers is associated with the fund’s lower future performance, supporting our proposed theoretical mechanism (overconfidence). This study augments existing performance feedback research by showing how decision makers’ prior experience can impede problem-solving behavior in organizations. It also contributes to the literature on human capital and organizational learning by documenting an unintended consequence of accumulated human capital on firm adaptive behavior. Funding: This work was supported by INSEAD research & development funds. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2022.1605. Collapse

Topics: IT career organizational productivity human resource management unintended consequence problem solving

Methods: robustness check descriptive statistic theory development qualitative content analysis SEC EDGAR

Theories: theory of bounded rationality behavioral theory of the firm

Taking Your Team Behind the Curtain: The Effects of Leader Feedback-Sharing and Feedback-Seeking on Team Psychological Safety

2022 | Organization Science | Citations: 0

Authors: Coutifaris, Constantinos G. V.; Grant, Adam M.

Abstract: Although scholars have highlighted the benefits of psychological safety, relativ ... Expand

Abstract: Although scholars have highlighted the benefits of psychological safety, relatively few studies have examined how leaders establish it. Whereas existing research points to the importance of seeking feedback, we draw on theories of self-disclosure, trust, and implicit voice to propose that leaders can also promote psychological safety by sharing feedback—openly discussing criticisms and suggestions they have already received about their own performance. In Study 1, naturally-occurring feedback-seeking and feedback-sharing by CEOs independently predicted board member ratings of top management team psychological safety. In Study 2, a longitudinal field experiment, randomly assigning leaders to share feedback had a positive effect on team psychological safety one year later, whereas assigning leaders to seek feedback did not. In Study 3, to explore the processes through which feedback-sharing had an enduring effect but feedback-seeking did not, we conducted qualitative interviews with participating leaders and employees two years later. We found that leaders initiated vulnerability through seeking feedback, but it dissolved due to defensiveness and inaction. In contrast, sharing feedback normalized and crystallized vulnerability as leaders made a public commitment to keep sharing and employees reciprocated, which opened the door for more actionable feedback, greater accountability, and ongoing practices that allowed psychological safety to endure. Our research suggests that to achieve enduring improvements in psychological safety, it may be particularly effective for leaders to share criticism they have received—and that doing so does not jeopardize their reputations as effective and competent. Collapse

Topics: human resource management intrinsic motivation innovation management communication service infrastructure spreadsheet

Methods: field experiment qualitative interview business process modeling survey longitudinal research

A social investing approach for portfolio recommendation

2021 | Information & Management | Citations: 0

Authors: Li, Yung-Ming; Lin, Lien-Fa; Hsieh, Chin-Yu; Huang, Bo-Syun

Abstract: Presently, people use social media at a greater rate to share their personal inv ... Expand

Abstract: Presently, people use social media at a greater rate to share their personal investment experiences. This plentiful user-generated data source has been promisingly used by investors for portfolio creation. A new type of investing platform that allows investors to copy the portfolios of experienced investors has grown dramatically. In this research, we propose a collective intelligence mechanism that can extract and consolidate the opinions expressed over the social investing platform and generate appropriate portfolios by analyzing other investors’ knowledge, authority, and opinions toward the investment target. The experimental results obtained based on the social investing platform eToro.com reveal that the portfolio recommended by the proposed mechanism outperforms the market index and other benchmark approaches in various financial performance aspects. Collapse

Topics: decision support system systems development decision making Python financial performance

Methods: sentiment analysis experiment term frequency–inverse document frequency natural language processing computational algorithm

How Do Firms Appropriate Value from Employees with Transferable Skills? A Study of the Appropriation Puzzle in Actively Managed Mutual Funds

2018 | Organization Science | Citations: 4

Authors: Sevcenko, Victoria; Ethiraj, Sendil

Abstract: How do firms benefit from employees with transferable skills? The prevailing vie ... Expand

Abstract: How do firms benefit from employees with transferable skills? The prevailing view is that labor market frictions that impede employee mobility or strategies that constrain skill transferability are the primary instruments for firms to appropriate value from human capital. The empirical evidence, however, suggests that employees continue to be mobile, and firms pay premiums to attract and retain employees with transferable skills. To reconcile theory with data, we use data from the mutual fund industry, where it is widely documented that active fund managers appropriate more value than they generate. We develop a theory of positive externalities stemming from transferable human capital that we argue accrue mostly to the firm, and provide evidence of such externalities in the mutual fund context. Empirically, we decompose the skills of mutual fund managers into task- and firm-specific components and argue that managers with task-specific skills generate positive externalities at the firm level that are not reflected in their performance measured at the fund level. We advance and test empirical hypotheses on the existence of these positive unmeasured externalities by examining whether managers with task-specific skills are more likely to be associated with activities such as mentoring, increased risk taking, and generating spillovers at the firm level. Our results show that managers with task-specific skills are indeed associated with greater positive externalities, compared with managers with firm-specific skills. We discuss the implications of our results for the literature on human capital value creation and appropriation. The e-companion is available at https://doi.org/10.1287/orsc.2017.1197. Collapse

Topics: human resource management organizational productivity individual productivity marketing management IT career

Methods: qualitative interview statistical hypothesis test theory development probit regression ordinary least square

Theories: human capital theory

Divergent Reactions to Convergent Strategies: Investor Beliefs and Analyst Reactions During Technological Change

2013 | Organization Science | Citations: 13

Authors: Benner, Mary J.; Ranganathan, Ram

Abstract: An important outcome of technological change is industry “convergence,” as a new ... Expand

Abstract: An important outcome of technological change is industry “convergence,” as a new technology spurs competition between established firms from different industries. We study the reactions of securities analysts, as important sources of institutional pressures for firms, to the similar product/market strategies undertaken by firms from different prior industries responding to industry convergence. Our empirical setting is the convergence between the wireline telecommunications and cable television industries in the period following the advent of voice over Internet protocol technology. Controlling for firm financial performance and capabilities, we find that analysts were consistently more positive toward the cable firms than toward the wireline telecom firms. Our findings further show that this divergence in reactions arises from differences in existing investor expectations and preferences concerning how firms create value; stocks owned by investors with a greater preference for growth receive more positive reactions than those owned by investors with a greater preference for margins. However, this divergence in reactions shrinks over time as convergence unfolds and as investors shift their shareholdings in response to misalignment between their preferences and firms' strategic changes. Reactions from analysts—reflecting inertial expectations of investors—may persist for a time despite changes to firms' strategies, thus creating challenges for some firms in responding to technological change and industry convergence while legitimating and enabling similar responses from their competitors. Collapse

Topics: technological change financial performance database system communication service infrastructure internet technology

Methods: longitudinal research event study regression analysis method hierarchical linear modeling autocorrelation analysis

Theories: organizational theory

The Limits of Media Effects: Field Positions and Cultural Change in a Mutual Fund Market

2011 | Organization Science | Citations: 8

Authors: Jonsson, Stefan; Buhr, Helena

Abstract: Our paper examines how field structures moderate the effect of the business pres ... Expand

Abstract: Our paper examines how field structures moderate the effect of the business press on organizational outcomes. Prior research suggests that the business press shapes organizational outcomes, but the question of how these effects depend on organizations' positions in a field has attracted limited attention. We address this theoretical limitation in an analysis of how mutual funds in Sweden were affected by periods when the business press increased its negative coverage of mutual fund fees. First, we expect that negative coverage influences the way customers evaluate mutual funds. Second, banks have long occupied a dominant position in this market, and we thus expect banks to be less affected by the negative coverage of fees than other mutual fund managers. We find support for our argument in a longitudinal quantitative analysis of financial net flows into mutual funds. The findings indicate the value of contextualizing media effects and considering how field positions moderate the effects of cultural processes. Collapse

Topics: anonymity database system banking sytem evaluation criteria price management

Methods: literature sample theory development statistical hypothesis test qualitative coding longitudinal research

Theories: organizational theory institutional theory

Refraining from Imitation: Professional Resistance and Limited Diffusion in a Financial Market

2009 | Organization Science | Citations: 2

Authors: Jonsson, Stefan

Abstract: Why do some practices not spread? Although this is an important question for bot ... Expand

Abstract: Why do some practices not spread? Although this is an important question for both diffusion theorists and those interested in institutional change, we know surprisingly little about the limitations on diffusion because most diffusion studies sample on successful diffusion. I address the question of why some practices fail to spread by introducing the concept of a "deviance discount." A deviance discount is a systematic downgrading of the observed adoption performance of controversial practices, which limits the contagion of such practices. I test and find qualitative and quantitative support for my thesis in the product introduction behavior of Swedish mutual fund firms. My findings hold implications for diffusion theory and theories of endogenous institutional change. Collapse

Topics: database system diffusion of innovation decision making organizational context network effect

Methods: qualitative interview theory development statistical hypothesis test

Theories: diffusion of innovations theory organizational theory institutional theory

The Influence of Regulations on Innovation in Information Security

2007 | Americas Conference on Information Systems | Citations: 5

Authors: Khansa, Lara; Liginlal, Divakaran

Abstract: We postulate that regulatory compliance pressures that have forced information s ... Expand

Abstract: We postulate that regulatory compliance pressures that have forced information security out of obscurity and into the corporate boardroom provide economic justification for information security firms to innovate. We aim to establish the link between regulations and innovation through the intermediary of demand for information security products and services. First, we show from the results of a pilot study of US firms that regulations do indeed bolster demand for information security products and services. Next, we use time series methods to further confirm these results and to establish a strong correlation between demand and innovation, proxied by R&D expenses. The results show that demand is highly correlated with innovation (correlation of 0.516) and that it significantly increases around the timing of major information security regulations and standards (t-stat of 2.2 at a 95% confidence level). Motivated by these findings, we argue in favor of regulating the IT industry, which includes the information security sector, not through imposing punitive regimes but rather by providing incentives to IT producers, thus stimulating technological, process, and organizational innovations. Collapse

Topics: data security innovation management research and development privacy legal context

Methods: longitudinal research time series analysis autocorrelation analysis descriptive statistic qualitative interview