Key Areas of Research
Site Visits and Corporate Investment Efficiency
April 2024
Site visits allow visitors to physically inspect productive resources and interact with on-site employees and executives face to face. We posit that, by allowing visitors to acquire investment-related information and monitor the management team, site visits offer disciplinary benefits for corporate investments. Using mandatory disclosures of site visits in China, we find that corporate investments become more responsive to growth opportunities as the intensity of site visits increases, consistent with the notion that site visits yield disciplinary benefits. We also find that the positive association between site visits and investment efficiency is more pronounced when visitors can glean more investment-related information and when they have stronger incentives and greater power to monitor managers. This positive association is also stronger among firms with more severe agency problems and higher asset tangibility. The overall evidence supports the notion that site visits serve as a unique venue for institutional investors and financial analysts to acquire valuable information and serve a monitoring function, which generates disciplinary benefits for corporate investments.
Author: Sean Cao, Associate Professor (with tenure), Robert H. Smith School of Business, University of Maryland, United States of America
"Lying and Cheating the Company: The Positive and Negative Effects of Corporate Activism on Unethical Consumer Behavior,” published in Journal of Business Ethics
Companies engage in corporate activism, defined as taking a stance on a controversial socio-political issue, such as gun control and banning transgender athletes. We show that taking such a stance can make consumers cheat the company more or less, depending on their political ideology. When the company's stance is incongruent with the consumer's values (compared to no stance information), consumers are more likely to lie to or cheat the company. When the company's stance is congruent, however, cheating decreases. This is relevant to companies, given the increase in consumers' unethical behavior (e.g., writing fake reviews; lying to gain discounts; insurance fraud; shoplifting; and wardrobing).
In Hye Kang, California Polytech-Pomona (Smith School PhD); Amna Kirmani, Smith School
“From Man vs. Machine to Man + Machine: The Art and AI of Stock Analyses,” forthcoming in Journal of Financial Economics*
An AI analyst trained to digest corporate disclosures, industry trends, and macroeconomic indicators surpasses most analysts in stock return predictions. Nevertheless, humans win ‘‘Man vs. Machine’’ when institutional knowledge is crucial, e.g., involving intangible assets and financial distress. AI wins when information is transparent but voluminous. Humans provide significant incremental value in ‘‘Man + Machine’’, which also substantially reduces extreme errors. Analysts catch up with machines after ‘‘alternative data’’ become available if their employers build AI capabilities. Documented synergies between humans and machines inform how humans can leverage their advantage for better adaptation to the growing AI prowess.
*American Association of Individual Investors (AAII) Best paper award winner, 2022 Midwest Finance Association Best Paper Award Winner, 2022 Global AI Finance Conference Best Paper Award Winner, 2022 CFRC Conference, PBC School of Finance, Tsinghua University Best Paper Award Winner, 2022 Annual Conference in Digital Economics, ACDE Best Paper Award Winner in Asset Pricing, 2022 SFS Cavalcade Asia-Pacific Conference
Sean Cao (Robert H. Smith School of Business, University of Maryland)
“Does passion matter for team Innovation? The conditional indirect effects of team harmonious versus obsessive passion via team reflexivity,” published in Personnel Psychology.
Our latest research, now published in the Summer Issue of Personnel Psychology, examines the intriguing dynamics of team passion and innovation. In a nutshell, our study delves into how the type of passion team members have for innovation—whether it's harmonious or obsessive—affects the team’s ability to reflect, adapt, and ultimately, innovate. Through two field studies involving over 280 teams, we discovered that harmonious passion leads to a more collaborative and innovative team environment, while obsessive passion, if not balanced properly, can pose challenges.
Here are some key takeaways for anyone leading or working in teams:
1. Reflect to Innovate: Innovation in teams requires team members to regularly pause to review and adjust their strategies together. This collective process, known as team reflexivity, helps teams reflect on their goals and methods and make necessary changes, leading to greater innovation.
2. Harness Harmonious Passion (HP): This type of passion comes from freely embracing innovation as a part of one's identity and balancing it with other life activities. It allows team members to be fully absorbed in their work while maintaining the flexibility to decide when to engage in it. This balanced passion fosters a positive, flexible, and innovative team environment.
3. Manage Obsessive Passion (OP): This passion is driven by an uncontrollable urge to engage in an activity, often due to internal pressures or self-esteem issues. While OP can lead to extreme dedication, it can also make team members rigid and less open to new ideas. A mix of high and low obsessive passion among team members can help maintain a healthy, reflective, and adaptable team environment.
4. Leadership Matters: As a team leader, encourage your team to take a step back now and then to reassess and adapt. Additionally, actions like encouraging everyone to contribute ideas and actively listening to team members can significantly boost team reflexivity.
Xin Wei (Renmin University of China), Hui Liao (University of Maryland), Zhi-Xue Zhang (Peking University), Yuntao Dong (Peking University), Ning Li (University of Texas at Dallas).
“Auditor Skill Demands and Audit Quality: Evidence from Job Postings,” forthcoming in Management Science
In the paper, we exploit a novel dataset of online job postings to examine the skills that accounting firms are demanding from their auditors, and whether these skills relate to audit quality. We document substantial variation in the demand for auditors’ cognitive and social skills both across and within accounting firms, suggesting that audit offices are not homogeneous in their demand for such skills. We find that the demand for auditors’ cognitive and social skills increased over our sample period of 2010-2019 and is positively associated with audit quality. This association is stronger for audit engagements that are more complex or require greater coordination, suggesting that cognitive and social skills are particularly important in engagements where effective communication and knowledge transfer, as well as sound professional judgment and skepticism, are needed. The association is also stronger for audit offices with greater investments in new technology, consistent with the complementary relation between cognitive and social skills and the use of technology.
*This research was featured in Smith Brain Trust: Will Robots Replace Accounting Jobs?
Chad Ham (Smith PhD grad now at Kelley School of Business, Indiana University); Rebecca N. Hann (Robert H. Smith School of Business, University of Maryland); MaryJane Rabier (Smith PhD grad now at Olin Business School, Washington University in St. Louis); Wenfeng Wang (Smith PhD grad now at Southern University of Science and Technology)
“Garnering support for social justice: When and why is "yes" likelier for "allies" versus "disadvantaged group advocates"?” published in Organizational Behavior and Human Decision Processes.
Organizations' members (e.g., employees and managers) as well as stakeholders (e.g., prospective and existing customers) typically care about issues of social justice, such as the fairness with which employees (representing different genders, races, and work-locations such as working onsite versus remotely) are treated. To ensure and/or maintain social justice for diverse employee-groups in organizations typically requires advocating for this-- and doing this persuasively. Should a man (or a woman) advocate for greater social justice for women? Should a White person (or Black person) advocate for greater social justice for people of color? Should onsite employees (or those working remotely) advocate for greater inclusivity for employees working from home? Existing literature lacks a clear answer to these questions. Via three studies (two experiment-based and one critical incident-based) we test when and why a social justice appeal garners more support when delivered by a disadvantaged group advocate (DGA) versus by an ally-- that is, by someone who does versus does not belong to the marginalized group named in the appeal, respectively. As hypothesized, significantly more support was shown for a social justice appeal by a DGA (rather than ally) when receivers identified strongly with the disadvantaged group; and this pattern reversed when this identification was weak. Also as predicted, this interaction-effect was mediated by receivers' perceptions of their similarity with the advocate, the appeal's credibility, and by their feelings of empathy. Our findings point to the need: (1) to broaden theorizing beyond demographic influences on the persuasiveness of a DGA versus an ally; and, relatedly, (2) to consider appeal-receivers' identification when choosing an advocate.
Deshani B. Ganegoda (associate professor at the Melbourne Business School at the University of Melbourne); Jigyashu Shukla (assistant professor at the Willie A. Deese College of Business and Economics at North Carolina A&T State University); and Debra L. Shapiro (Dean's Chair in Organizational Behavior and Clarice Smith Professor at the Robert H. Smith School of Business at University of Maryland)
“Gender Diversity’s Different Impact on Junior versus Senior Biomedical Scientists’ NIH Research Awards,” published in Nature Biotechnology
We analyzed funding patterns of 2.3 million NIH grants distributed among biomedical scientists in the U.S. universities from 1985 to 2017 to present new evidence that as the biomedical research communities become more gender-diversified, women scientists as a whole gain more grant resources. However, these additional resources are distributed unevenly. We find that more resources flow to senior than to junior women scientists. By unearthing within-group inequality in science funding and careers, we highlight a new mechanism explaining the disadvantages faced by younger generations of women scientists. Importantly, this mechanism may have been obscured against the backdrop of advances in overall funding for women biomedical scientists.
Waverly Ding (Robert H. Smith School of Business, University of Maryland); Christopher C. Liu (Lundquist College of Business, University of Oregon), Beril Yalcinkaya (PhD candidate, Robert H. Smith School of Business, University of Maryland), Andy S. Back (The University of Hong Kong)
“Racial Disparities in the U.S. Mortgage Market,” forthcoming in AEA Papers and Proceedings
We study racial disparities in the U.S. mortgage market. Using new data from Hurtado and Sakong (2024), we present three findings. First, we document access disparities between minority and otherwise- identical White borrowers even within the same bank and loan officer. In contrast, cost disparities are nearly zero. Second, the use of automated underwriting algorithms is associated with smaller access disparities but slightly larger cost disparities. Third, individual factors do not seem to matter much. Our findings represent another step toward understanding the factors driving discriminatory forces in the mortgage market. Recent research suggests structural or organizational factors may also play a role and have been overlooked by previous studies (Hurtado and Sakong, 2024).
Authors: Agustin Hurtado, University of Maryland, Robert H. Smith School of Business; and Jung
Sakong, Federal Reserve Bank of Chicago
“Group Size and Its Impact on Diversity-Related Perceptions and Hiring Decisions in Homogeneous Groups,” published in Organization Science
Can the size of a homogeneous group matter for how it’s perceived and whether it’s diversified? Across experiments and analyses of S&P 1500 corporate boards over time, our research suggests that decision-makers neglect homogeneity in smaller groups while investing extra effort towards diversifying larger homogeneous groups, likely due to increased concerns about lack of diversity, fairness, and potential social sanctions. Our theory can help explain distortions we document in the distribution of the size of homogeneous groups in some of the world’s most powerful organizational groups: S&P 1500 corporate boards. Specifically, for each fewer member on a homogeneous board, boards were 1-2 percentage points less likely to diversify by adding at least one underrepresented member in the year ahead. As corporate board size decreased, we found that all-male and all-White boards became increasingly overrepresented relative to expectations, suggesting greater strategic avoidance of homogeneity in larger groups, but not smaller groups.
Authors: Aneesh Rai (assistant professor, Smith School), Edward H. Chang (assistant professor, Harvard University), Erika L. Kirgios (assistant professor, University of Chicago), Katherine L. Milkman (professor, University of Pennsylvania)