Research Briefs

Mind the Gap to Motivate Employees
Companies that want to motivate employee performance should focus on decreasing the pay gap between rank-and-file employees and middle managers, according to new research from the Hui Liao, the Smith Dean’s Professor in Leadership and Management. Liao and her co-authors found that the lower gap had greater impact on motivating performance than the gap between middle managers and top executives. The researchers recommend that companies incentivize employees with vertical pay increases and by being transparent about pay ranges at each rung of the corporate ladder. Liao presented her working paper, “Incentives to Move Up the Echelon: Impact of Inter-hierarchical Pay Gaps on Employee Performance,” at the 2014 Academy of Management annual meeting in Philadelphia.

When Word of Mouth Isn’t Enough
In industries where consumers turn to word-of-mouth reviews (think Epinions.com and Yelp), marketers should “not drop the ball on advertising,” says Yogesh V. Joshi, associate professor of marketing. In his working paper, “Word of Mouth Bias and Optimal Communications Strategies,” Joshi and a co-author from Duke University find high-quality firms in these areas should increase their spending on traditional advertising. The reason: Consumers are more likely to share negative opinions than positive ones. But savvy consumers are aware of the biases of word-of-mouth opinions and tend to discount negative reviews to such an extent that the advantage high-quality firms enjoy in that arena is essentially erased. Therefore, the old-fashioned technique of signaling quality through mainstream advertising remains relevant.

Investors Cash in on FOIA Requests
Though typically thought of as a tool for journalists, FOIA requests are a way for institutional investors to gain an edge over the rest of the market, according to a new study by Smith professors Alberto G. Rossi and Russ Wermers and a coauthor from the University of Melbourne. Their working paper, “The Freedom of Information Act and the Race Towards Information Acquisition,” looked at investors’ FOIA requests to the FDA for information about drug companies. It’s the first research to show widespread evidence that FOIA requests are linked with substantial trading gains. When institutional investors bought stock in the same quarter that they made a FOIA request, the stock posted above-and-beyond quarterly gains of 5.26 percent. When investors sold a stock after FOIA requests, the stock dropped an abnormal 3.09 percent.

Multinationals Use M&A to Avoid Taxes
U.S.-based multinational corporations move an average of $12 billion in taxable income back into the country each year, tax free, through complex mergers and acquisitions. That’s according to a working paper, “Dodging Repatriation Tax: Evidence from Domestic and Foreign M & A’s,” by Emanuel Zur, an assistant professor of accounting and information assurance, and two coauthors. In addition to confirming earlier research that companies invest money abroad rather than pay high repatriation taxes here, the new research also shows that companies use extraordinarily complex measures to acquire domestic companies to return profits tax-free to the U.S. Although not illegal, Zur says, “Congress intended that that money should be taxed.” The research adds fuel to debate on corporate tax reform.