Painted with the Same National Brush: International Differences in Categorization and Information Spillovers
Adam Robert Castor
Leveraging social categorization theory and findings from social psychology, this paper predicts that the characteristics of audience members affect the way that they cognitively group objects into similar categories. These groupings affect the degree to which audience members ascribe and apply new information across objects. Using data on sell-side stock market analyst earnings estimates for publicly traded firms, I find that the geographic location of the analyst affects the degree to which analysts will revise their earnings estimates for a given company in the wake of an earnings miss by another firm in the same industry. Foreign analysts (i.e., analysts not located in the same country as the company they cover) revise their earnings estimates downward more so than do local analysts, suggesting that foreign analysts ascribe the earnings miss more broadly and tend to lump companies located in the same country into larger groups than do local analysts.
Compensatory Disconsumption: Self-Protection Across the Status Spectrum
Consumption decisions are inherently rooted in both what to consume and what to forgo. While prior research has focused on how aversive states often draw consumers toward certain products, we instead examine what compels consumers to steer clear of particular goods. Three studies, employing multiple instantiations of self-threat and consumer products, demonstrated that threatened individuals avoid low-status goods in order to prevent further damage to self-worth. Individuals faced with self-threat showed both an aversion to consuming low-status products (Study 1), and a corresponding desire to rid themselves of their low-status possession, even at a potential economic cost (Study 2). Importantly, such effects were attenuated when means to restore the self were provided prior to evaluating a low-status product (Study 3). Together, these results highlight how the motive to preserve the self can also promote disconsumption; thereby painting a more complete portrait of the relationship between consumption and the self.
Being Connected or Being Outstanding? Culture and the Perception of Leadership
Claudius A. Hildebrand
This project investigates cultural differences in the perception of leadership. Showing individuals from China and the United States pictures of social relations I investigate which positions within the network participants identify as leadership positions. I explore different dimensions of leadership, such as group centrality, the ability to disseminate information, influence others, gain new ideas, and to lead the group. Underlying in this work, I test two competing paradigms. Previous research on social networks has repeatedly shown the benefits of brokerage positions for leadership. Other research has repeatedly shown cultural differences in the preferences for being unique or conforming with others. Confronting participants with conflicting network constellations, we test according to which paradigm participants choose leadership positions. I predict that Americans generally favor brokerage positions for leadership; however, when in conflict, will choose a unique actor over brokers as suitable leader. On the contrary, I predict that Chinese participants will pick closure positions as suitable for leadership, regardless of a unique or conforming actor inhabiting this position. These findings highlight the persistence of cultural values in the perception of group structures and its effects on the acceptance of legitimate leaders.
Is It A Car Or A Truck? Incumbent Firm Choice of Product Architecture In A New Market Niche
The literature on technological discontinuities leaves open a number of issues. First, while discontinuities may be both competence-destroying and competence-enhancing, extant research focuses overwhelmingly on competence-destroying discontinuities. Second, extant research on incumbent performance during technological discontinuities neglects the fact that discontinuities may be initiated by events other than scientific advance. Third, extant research generally attributes the performance heterogeneity of incumbent firms during a discontinuity to differences in the possession of assets and capabilities. The performance of incumbent firms during a discontinuity is, however, ultimately determined by the patterns of substitution in product markets. These patterns of substitution are an important, yet understudied, aspect of the study of technological discontinuities. I conduct a historical and longitudinal case study to address these gaps in the literature. To generalize from the case study I use an agent-based computer simulation to develop and test propositions about counterfactual outcomes.
The empirical setting is the response of the U.S. automotive industry to the broad institutional change which followed the major production shifts in the global supply of oil during the 1970s. The shifts dramatically influenced the feasibility and desirability of existing passenger vehicle characteristics. Chrysler Corporation, Ford Motor Company and General Motors – the three dominant incumbent producers – responded by modifying their product offerings, resulting in a technological discontinuity that profoundly altered the technological trajectory of the U.S. automobile industry established in the early 20th century. During the discontinuity, smaller and more fuel-efficient vehicles introduced by geographically diversifying entrants, mainly Japanese manufacturers, captured significant market share from Chrysler, Ford and General Motors. This market share loss was not uniform across all market segments and the domestic manufacturers maintained a dominant share in important market segments such as family vehicles.
My analysis focuses on the determinants of product investment decisions in the family vehicle segment at each of the three firms. Specifically, I focus on three primary mechanisms which the literature suggests jointly determine the investment decisions of market incumbents during a discontinuity: preexisting organizational capabilities, managerial beliefs about how best to extract value from these capabilities within the perceived market, and external and internal organizational incentives that motivate managers to act on these beliefs to a greater or lesser extent.
Are Flat Organizations Really More Innovative?
Daniel (Dongil) Keum
Few constructs in the field of organizational behavior and social sciences have received as much attention and criticism as hierarchy. Hierarchy - the implicit or explicit ranking of group members with respect to a valued social dimension - is a fundamental structure of social organizations. Sometimes used interchangeably with bureaucracy, hierarchy also has been viewed as a critical barrier to creativity and innovation despite its benefits of facilitating coordination and cooperation.
This paper departs from conventional beliefs about hierarchy and innovation and argues that a lack of formal hierarchy in increasingly popular flat organizational designs can be detrimental to innovation by giving way to a particularly destructive form of informal hierarchy based on status. The main contribution of this paper is both theoretic and managerial. Theoretically, it explores the interdependence between two bases of hierarchy - status and power, and outlines potential mechanisms on how suppressing formal-power hierarchy can intensify status competition and self-serving bias. Managerially, it raises concern for the increasing popularity of flatter organizational design by highlighting its potential downsides. By looking at innovation across different phases – idea generation, selection, and implementation – I demonstrate that it is during the idea selection phase that flat organization suffer from the status competition and self-serving bias despite being more productive at idea generation compared to more hierarchical organization.
I have conducted a single lab-setting experiment with 63 undergraduate students to find that there is stronger tendency to promote their own ideas over ideas from others under flat structure, with statistical significant at 1-10% depending on specifications. Two additional experiments will be conducted before April to increase robustness and test for additional hypothesis.
It’s Not Personal, It’s Positional: The Interactive Effects of Power and Status on Relationship Conflict
It is often presumed that relationship conflict stems from incompatible personality types. In contrast to this idea, the present article provides a role-based account. Four studies, conducted both in the field and laboratory, indicate that occupying roles that afford power but lack status leads to relationship conflict by fostering demeaning attitudes and behaviors. In Study 1, supervisors in a federal agency experienced higher levels of relationship conflict when their roles provided power without status. Study 2 replicated this finding in a broader array of organizations and found that the effect was mediated by the tendency to show disrespect toward coworkers. Study 3 focused on dyadic processes in the workplace to establish when and why power without status leads to relationship conflict. In Study 4, participants that were randomly assigned to high-power/low-status roles created relationship conflict by being more demeaning toward their partners compared to other combinations of power and status. The present findings highlight the importance of making a theoretical distinction between power and status and move beyond person-based, compositional explanations for relationship conflict.
Fishing For Complements: Microcredit, Entrepreneurial Opportunities, And Livelihood Diversification In Coastal India
Although policy makers have wholly embraced microenterprise, scholars know very little about what enables survival entrepreneurs to seize new opportunities. This study examines the factors that enable the extremely poor to complement their income by making the transition to diverse microenterprise. We draw on a unique dataset of microcredit loans provided to marine fisherfolk in Kerala, India. We consider loans designed to help women in these vulnerable communities seize entrepreneurial opportunities during the lean season. Using survival analysis we evaluate the factors that reduce the time women take such loans. We find that even the most marginal resources available to these women—their human, social, and financial capital based on their education, income, prior work experience, and prior loan experience—predict the time to first enterprising loan. These findings add to our understanding of the paths the poor take to microentrepreneuring and more sustainable livelihoods.
Bias About Bias: Affective Forecasting Motivated Disease Preventitive Behavior
Failure to engage in preventive behavior could lead to severe consequences of one’s health. Understanding people’s motives for or against making healthy choices could facilitate the encouragement of their engagement in preventive actions. One source of motivation is anticipated emotions. In three studies, this paper investigated the relationship between emotional predictions and preventive behavior. Study 1 showed that participants’ predicted emotions were different from the reported emotions of people with actual medical conditions. An association was also found between predicted emotions and the intention to engage in preventive actions. In studies 2 and 3, forecasting bias in predictions was investigated. Particularly focalism, which is a source of affective forecasting bias, was addressed. Participants focused on either the negative consequences of the disease or on a future unaffected by it. It was found that focusing on negative consequences led to an increased intention to engage in preventive behavior. This study initiates a discussion about the positive influence of affective forecasting on health decision making.
How Does Income Inequality Matter for Life Satisfaction?
We study the relationship between income inequality and individual life satisfaction around the world. Unlike previous studies which focused on the main effect of income inequality, we show that a focus on the simple association between inequality and subjective wellbeing is misleading. In fact, in our best model, using country fixed effects and a full set of control variables, there is no significant direct relationship between income inequality and life satisfaction. That does not mean that income inequality is irrelevant for subjective wellbeing, and we show a number of significant and substantial contingent effects. National income inequality is associated with higher life satisfaction for individuals with higher perceived freedom of choice, as well as those who are older, married, and who participate actively in a religious congregation. Individuals with more children or higher incomes report lower life satisfaction when income inequality is higher. On the country level, in the presence of high income inequality, life satisfaction is higher for more democratic and wealthier countries but lower where the press is more free and where the quality of government is greater. Our conclusion is that to answer “how does income inequality matter for life satisfaction” it is also necessary to ask “where?” and “for whom?”
Seeing the Forest for the Trees: A Construal Level Analysis of Employees' Mobile Technology Use
Knowledge workers have drastically increased their use of mobile devices (e.g. smartphones, tablets, netbooks), enabling them to perform almost any job-related task from anywhere, at any time. Vanishing space and time constraints have ushered in an era of near-constant connection to work, making employees increasingly available for their work and blurring boundaries between work and non-work. While some research highlights the negative consequences of mobile technology use (e.g., stress, work-family conflict), the ways that this blurring of boundaries affects how employees work and think about their work remains unexplored.
Building upon construal level theory, a framework focused on how people mentally represent distant and remote entities, we hypothesize that the use of mobile technology blurs spatial, temporal, and social work boundaries, thus influencing the nature and the structure of work itself as well as enabling employees to think about their work more abstractly. We further suggest that the level at which people mentally represent their work will have direct consequences for the types of decisions they make and the behaviors they enact. Thus, we hypothesize that mobile technology use, through more abstract mental representations, might enhance job crafting and learning exploration behaviors.
To test these hypotheses, we recruited a sample of knowledge workers on Amazon Mechanical Turk, an online system where people choose to participate in studies for payment. Longitudinal data were collected using a preliminary survey wave and two subsequent surveys 16 weeks apart. Results suggest that the level at which employees mentally represented their work mediated the relationship between mobile technology use and reported job crafting, as well as the relationship between mobile technology use and preference for exploration. Implications for the telework and construal level literatures are discussed.
The second time around: products re-release and resource complementarity in the market for video games
The resource-based view argues that competitive advantages are derived from bundling and transforming valuable and idiosyncratic resources in the product market. In this paper we argue that resource value is conferred indirectly through the value of the resource bundle in the marketplace, and directly, if and when the resource is discretely visible to the consumer. This opens the way for firms to increase the value of their resource bundles by deliberately adding resources that are visible to consumers. We investigate the notion of complementarity by developing a conceptual framework around enriching a bundle of resources with a visible resource. We test how firms in the market for video games who receive a reputational endorsement create heterogeneous value by bundling and transforming the resource in the product market. We look at the interaction between the bundle of resources and the added resource, and we look at the impact of the time in between the initial bundle of resources and the added resource. We draw on a cross-sectional panel data set of 4,272 console video games released between 2001 and 2011, of which 524 were re-released after the publisher received a rare and valuable endorsement from the platform owner. We find that added visible resources have supermodular value contributions when bundled with valuable resource bundles. Furthermore, while we find that time in between transforming the initial resource bundle and the added resource erodes the value contribution from the added resource, the erosion effect is offset by the value of the initial resource bundle.
Producer Legitimacy and Audience Closure; Evidence from two studies
Jose N. Uribe
Information is the lifeblood of markets and organizations, and much can be gleaned by following its flows between different classes of social actors. Producers emit information for audiences to interpret and evaluate, but information from competing offerings is often uncertain and costly to decode and compare. Audiences navigate this complexity much like a school of fish, with members adjusting their position relative to each other. Audience evaluations reflect not only the relative appeal of a producer’s offerings, but also the social norms and patterns of interaction of audience members themselves. Taking the perspective of the audience and understanding its social structure can then reveal new information about the degree to which producers achieve and sustain legitimacy.
This research introduces a theory of how the structure of audiences affects the legitimacy of producers exposed to multiple audiences. The first test of the theory constitutes a replication of a study on the effects suffered by producers whose offerings are mismatched to their audience’s categories of specialization (Zuckerman, 1999). We show that high audience closure leads to a legitimacy premium that can compensate for a producer’s losses arising from categorical mismatch. A second test uses a naturally occurring experiment in the context of student groups rating instructors at a professional school. Instructors assigned to more tightly linked student clusters receive higher average scores on their teaching evaluations, net of controls. In network terms, producers and performers who are structural equivalents are rewarded for creating a cohesive experience by effectively “brokering closure” between audiences.
Are Older-preneurs Better-preneurs?
on U.S.census microdata and instrumental variable regressions, this paper
attempts to causally infer the effects of entrepreneurs’ age on business
performance. Findings suggest that entrepreneurs around the age of 45 achieve
the best performance on average. However, the optimal age exhibits a significant
variation over the life cycle of a business. The “age smile” curve shows that
the optimal age for nascent and the mature businesses are higher
than others. Model comparison suggests that the selection issue likely causes overestimation of the age effects. Managerial implications point to market entry and tailoring strategy to businesses’ life cycle.
Fast vs. Slow Response: The Effect of Pre-entry Collaboration on Incumbent Adaptation to Radical Technological Change
Jung Hyun Suh
This paper examines whether incumbents’ entry into the radically new technology is facilitated or deterred by their collaboration before the entry. First, I argue that collaboration experience is a pathway for incumbents’ timely adaptation by providing novel knowledge beyond organizational boundaries and by fostering higher-order routines that allow continuous departure from the status quo. However, high levels of collaboration may put constraint on their flexibility in activities and thus offset these benefits. Second, I contend that this inverted-U relationship is more readily visible in the hierarchical governance mode of collaboration. More hierarchical collaboration is a superior means to transfer tacit knowledge, but locks focal incumbents more strongly because high levels of commitment are required. I test these predictions by using a longitudinal study of 35 US semiconductor incumbents during 1989 and 2009 when the industry has experienced a radical technological change: a shift from the silicon-based CMOS technology to the nanotechnology. Using a Cox hazard model, I find that while benefits from prior collaboration accelerate invention of the radically new technology, incumbents experience diminishing marginal returns from additional collaboration. I also find that this inverted-U relationship is steeper for more hierarchical collaboration activities than less hierarchical ones. Overall, this research provides empirical evidence of the curvilinear effect of pre-entry collaboration on incumbents’ timely adaptation, thereby contributing to the literature on incumbent response to radical technological change and inter-firm collaboration.
Why Do I Trust You?: The Need to Belong as an Antecedent of Trust
Over the years, a great deal of work has been done on the relational dynamics of trust (e.g., Kramer et al., 1996; Kramer, 1999; Ho & Weigelt, 2005; Eckel & Wilson, 2004; Malhotra & Murnighan, 2002; Fetchenhauer & Dunning, 2009; Fetchenhauer & Dunning, 2010; Fetchenhauer & Dunning, 2012), as well as on how trust emerges (ie. Mayer et al., 1995; Schoorman et al., 2007). Yet relatively little work has considered the intersection of these critical issues related to trust. The research presented below addresses this gap, considering the role that relational factors play in initial trust—a critical aspect of the emergence of trust. Our fundamental argument is that people’s need to belong—both their dispositional need to belong as well as situations that make need to belong more prominent—will positively impact their propensity to trust. Moreover, we predict that the effect of need to belong on trust will emerge independent of instrumental considerations related to trust—and thus relational drives may lead people to trust even when instrumentally they should not do so. Using correlational survey data, we find that a variety of relational variables – particularly need to belong – predict propensity to trust. While more work will need to be done to show causality, these initial results support the idea that trust may arise due to relational – rather than purely instrumental – motives.
Goal Matching: Category Membership and Audience Evaluation in Corporate Legal Market
Categorization literature considers that focused organizations have higher fitness with evaluative schemas of audiences relative to category spanners they compete with, and then receive better external evaluations. Yet, most of the studies do not take into account any goals, motivations, and different levels of knowledge of audience members. We try to fill this gap using a unique dataset from the international corporate legal service industry where clients have plural goals not fixed in time. By introducing multi-dimensional goals of market actors, we found that a generalist approach is more suitable for law firms in terms of audience evaluations. Audience members are likely to evaluate multi-practice organizations positively if they fit squarely with their specific complex needs. We also show that market categories may be additive and compatible in business legal services, and do not necessarily create ambiguity and fuzziness. Associations of categories achieved by firms are thus not equivalent to fulfill audience goals. Rather than a simple collection of category affiliations, coherent category arrangements with expectations and understandings of audience members will positively moderate the relationship between niche width and external evaluations. We test our predictions using a unique dataset from the international corporate legal services industry. Over a decade (2001-2010), we collected data from two professional guides on seven practice categories (competition-antitrust, tax, employment, corporate, intellectual property, real estate, and bankruptcy) and two different locations (London, and Paris).
Being Wrong But Feeling Thorough: Gathering Non-Diagnostic Information Licenses Biased Responding
Decision makers often operate in uncertain environments in which they have the ability to gather information and motivation to reach a certain conclusion. This gives rise to one of two strategies: 1) they avoid information altogether or 2) they engage in information search. Intuitively one might expect that the less information gathered, the more biased the decision made. However, we show that gathering information can actually license inaccurate responding. In Study 1, participants were told that they should try to correctly answer a series of three-option multiple choice trivia questions and that they could gather more information about the options. For each question, participants were given a monetary incentive to choose a certain option. As expected, mistakes resulting in financial gain were more frequent than mistakes that reflect a missed opportunity for legitimate finical gain (i.e., we observed an incentive compatible error bias). We also found support for our dual strategy hypothesis. Participants who chose incentivized answer in misaligned trails and were confident in their answer avoided information altogether, revealing no hints. Participants who chose the incentivized answer in misaligned trails and were not confident in their answer tended to gather information. Among the participants who gathered information, we found an information licensing effect. When the incentive was aligned with the correct response, there was no significant relationship between revealing information and making a mistake; however, when the incentive was misaligned with the correct response, participants became significantly more likely to make a mistake as more information was revealed. Interestingly, the same pattern held for non-informative information. The results suggest that gathering information, even non-informative information, can license biased responding.
Trust and Division of Labor: An Experimental Analysis of Specialization
The process by which the division of labor emerges and sustains itself has been given "limited attention" in the literature (Raveendran et al, 2012). In order to observe such a process and test the factors which may influence it, we construct an experimental setting in which agents endogenously select a level of specialization. We then exogenously shock the trust of some group members and then observe changes in that level of specialization. In Smith's classic treatment (1776) specialization increases efficiency, and we observe the extent to which trust affects this efficiency.
We use a baseline experimental setting in which potential productivity is effectively identical between agents, but where some shirking may occur. Agents may choose to "switch" to another task, observing their teammates' progress and offering help at some cost. We then manipulate the level of trust in a given group to determine a. the extent to which workers are more diligent in their tasks when they trust one another (perhaps due to an additional utility from cooperation which makes the experience of the task less onerous) and b. the extent to which workers are more trusting and less likely to incur productivity losses due to switching.
Innovation Openness and Partnership Governance: Comparing Family-Controlled and Nonfamily Firms
In many organizations, decision-making is influenced by a dominant coalition of family owners. In this study, we develop and test the idea that the idiosyncratic mix of goals, some economic and some noneconomic, being pursued by family-controlled firms affects their engagement in, and governance of, open innovation. Specifically, we propose that – in comparison to nonfamily firms – the range of innovation activities being opened for external collaboration and the number of innovation partner types being used are more restricted among family-controlled firms, and that these firms rely to a lesser extent on formal contracting as a governance tool in their innovation partnerships. Analyses using data from the Mannheim Innovation Panel on the open innovation practices of German manufacturing firms offer empirical support for our hypotheses. These findings contribute to the academic literature in two important ways. First, while most prior empirical work on innovation in a family business setting focused on R&D investments, our study clarifies how other important aspects of the innovation process are also influenced by family control. Second, this study explains how ownership structure and goal configurations may put restrictions on a firm’s innovation collaborations, thereby extending knowledge on the governance challenges related to open innovation. From a practical point of view, our study reveals that family-controlled firms likely have open innovation disadvantages that need to be compensated in other innovation domains to safeguard competitiveness, and clarifies how open innovation initiatives targeted at these firms must attend to goal compatibility issues in addition to customary resource complementarities.
Towards a Better Understanding of Strategic Renewal and Inertia: Bridging Managerial Cognition and Organizational Capabilities
Adaptation to change is difficult for firms. They need to react to environmental changes and renew their organizational capabilities in order to sustain competitive advantages. Strategic renewal of a company’s organizational capabilities is necessary to adapt to a changing environment, but firms are often too inert to react and fail to adapt to new challenges, which leads to organizational failure.
This paper builds on the existing literature of inertia and strategic renewal and helps to achieve a better understanding of both phenomena. To do so, we jointly address managerial cognition and organizational capabilities. The two have developed in the past in separate research streams, but both play an important role in the strategic renewal process. By bridging the two views, we display via a conceptual model the role of managerial cognition as a prerequisite to modify the development of organizational capabilities to overcome inertia and achieve strategic renewal. The development of the conceptual model is based on a longitudinal study of technology firms in the North American market. We investigate the relevance of cognition and capabilities in relation to inertia and strategic renewal based on the direction of CEO attention. In this context, we explore the tensions between perceived opportunities, need for change, and institutionalized routines.
By developing and analyzing a model that integrates managerial cognition and organizational capabilities, the article offers three contributions. First, the proposed model shows that, based on the source of inertia, different types of inertia exist. Second, the model helps to understand the interplay between managerial cognition and organizational capabilities in regard to inertia and strategic renewal by showing that each type of inertia has a particular impact on the evolution of the firm. Third, it delineates different development paths to achieve strategic renewal, depending on the firm’s limitations in managerial cognition and/or organizational capabilities.
Too Much of a Good Thing: The Effect of Contingnet Self-Worth on Goal Setting, Risk Taking, and Feedback Seeking
Previous theories in organizational behavior assume that the more individuals involve their ego into their work, the stronger their motivation will be, leading to better outcomes for organizations. However, psychological research on contingency of self-worth has revealed that ego involvement can sometimes have dysfunctional effects for individuals. My dissertation explores the dysfunctional effects of contingency of self-worth on self-regulation behaviors. Self-regulation is composed of three components: setting a goal, choosing a strategy, and monitoring goal progress. Under the pressure to demonstrate self-worth and protect self-image, individuals may set non-specific or easy goals, pursue risks in the gain domain but avoid risks that involve losses, and seek positive feedback and avoid negative feedback, all of which may incur costs to their effectiveness in organizations. A survey with 210 salespersons of real estate found that individuals whose self-worth is contingent on their work are more likely set “do my best” goals or set low goals when their organization-based self-esteem is low. The tendency to take risks only in gain domain was supported by surveys with undergraduates in the academic setting and part-time MBA students in the work setting. An experiment with 91 undergraduates found that under hard test, individuals whose self-worth is contingent on academics are more likely to seek feedback when they expect feedback to be positive. Surveys with working adults found that individuals whose self-worth is contingent on work tend to seek feedback through monitoring but not through direct inquiring.
Therefore, contingency of self-worth becomes a paradox: those who want to succeed most may engage in behaviors that undermine their chances of success.
How Category Expectation on Quality Influence Audience Appeal in the U.S. Automobile Market
This article examines the countervailing effects of sharing a category with high-performers. Extending the idea that reputation is a socially constructed entity, we propose that category can acquire a reputation for quality even when all its members are not up to par. Audiences may generalize from achievements of some category members to the whole category, enabling the category itself to acquire a favorable reputation. As a result, all members of the category will benefit from increased intrinsic appeal regardless of their differences in performance. On the organizational level, however, sharing a category label with high performers and therefore, being compared with them implies stronger competition. Therefore, while the intrinsic appeal at the category level increases due to high performing members, the actual appeal converted from the intrinsic appeal depends on the competition dynamics within the category. We find empirical support for this theory by analyzing the audience appeal in the U.S. automobile market from the period 2000-2009. Focusing on the category structure based on the country of origin, we show that the intrinsic appeal of an automobile increases with the number of awards won by others among the same country of origin. We also show that the actual appeal that automobile gains from this increased intrinsic appeal is determined by its feature closeness to the award winning members. These findings highlight the dual dependence of audience appeal on both organizational properties and category memberships.
The Liability of Foreignness, R&D Investment, and Productivity Growth
This paper studies the effect of informational disadvantage on investment decision and performance of firms doing business abroad. Comparing productivity level of subsidiaries in home and foreign countries, I find that foreign operations have lower productivity compared with home operations; however, the gap between the two narrows over time.
I show that this dynamic pattern is attributed to changes in both the amount and the uncertainty of information that foreign firms possess. Suffering from a lack of information, foreign firms start off at a lower productivity level than domestic counterparts. They gradually narrow the initial performance gap by learning how to operate in the new business environment. However, it is less clear how acquiring more accurate information over time plays a role in a higher productivity growth of foreign firms. To account for this, I provide a model of firm investment and productivity in which the degree of uncertainty affects firms’ incentive to invest and, therefore, their performance. Because a substantial part of R&D investments is sunk, firms tend to make less investment when they face high degree of uncertainty.
Predictions from the model are well supported by results from the empirical analysis using a firm-level production data set from European countries. I find the distinctive investment behavior of foreign firms, especially in early years of operation, as well as a significant effect of R&D investment on performance. In the sample, I include foreign and domestic subsidiaries that are owned by the same multinational companies and are active in the same industries.