06 Behavioral Research
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ItemCheer Up: The Effect of Mood and Performance-Dependent Incentives on Creativity( 2020-08-16)We use an experiment to investigate how incentive scheme and mood influence creative performance. The popular business press, as well as anecdotal evidence from artists and corporate practice, suggests that being in a positive mood leads to improved creativity, and companies that operate in knowledge industries invest considerable resources in measures aimed at improving employee mood. We extend the literature by examining the effect of mood on creativity in compensation contexts where participants create rebus puzzles with compensation that is either fixed, performance-dependent based on the quantity of output, or performance-dependent based on the creativity of output. A relatively positive or negative mood is induced through the use of previously validated mood statements. We find a positive mood compared to a negative mood leads to more highly creative output (i.e., puzzles that receive top-quartile creativity ratings) for fixed compensation, but not for quantity-dependent or creativity-dependent compensation. These results are consistent with a crowding out of the effect of positive mood on creativity by performance-dependent compensation. Supplemental analysis indicates that this crowding out occurs after time passes rather than instantaneously, as mood significantly affects the creativity of the first puzzles produced regardless of compensation form. We also find that the combination of a negative mood and quantity incentive leads to the production of the greatest number of puzzles that are of the lowest creative quality.
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ItemDoing Well While Doing Good: Do Firms' Profit Motives for Doing Good Matter to Employees?( 2020-08-14)Making profits while doing good is becoming a popular approach to corporate social responsibility (CSR) in many firms. In this study, we use experiments to investigate whether this win-win approach to CSR has consequences for employee's perceptions of their employer and their opportunistic behavior. In Study 1, participants are presented with scenarios of a hypothetical firm. We find that participants' perceptions of moral integrity and opportunism of the hypothetical firm are significantly less favorable if the firm engages in win-win CSR compared to engaging in more philanthropic CSR, which does not have apparent profit motives. We also find that participants' perceptions of the opportunism of the hypothetical firm that engages in win-win CSR carry over to their perception that employees are more likely to misreport in such a firm. In Study 2, we conduct a field experiment with 1,500 employees to investigate the spillover effects on actual employee opportunism. Despite finding significant changes in employees' perceptions of their employer, we find that neither win-win CSR nor philanthropic CSR affect employee opportunism compared to a baseline. Instead, we find that engaging in win-win CSR significantly increases the employee turnover-rate compared to philanthropic CSR. Supplementary analysis provides an explanation for why we observe no treatment effects of win-win CSR on employee opportunism; employee opportunism is positively linked with employees' perceptions of the moral integrity and opportunism of employer but engaging in win-win CSR affects these perceptions in an opposite manner such that they offset each other, resulting in no overall effect of win-win CSR on employee opportunism. Collectively, our results suggest that adding an apparent profit motive to CSR initiatives undermines employees' positive perceptions of engaging in CSR, reduces the firm's attractiveness as an employer, but does not seem to directly affect actual opportunistic employee behavior.
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ItemThe Auditor-Valuation Specialist Coopetitive Alliance in the Fair Value Audit of Complex Financial Instruments( 2020-08-14)We analyze interviews with valuation specialists (specialists) employed by audit firms (in the Asia-Pacific region, Europe, and the U.S.) to understand how they work with auditors to evaluate the reasonableness of fair value measurements (FVMs) for financial instruments. The rapid growth of FVMs and complex estimates reported on financial statements requires that auditors increasingly rely on specialists to perform these evaluations. Informed by coopetition theory from management and organizational science, we develop a framework to examine the tensions in the auditor-specialist alliance (the coopetitive alliance) and how those tensions can impact FVM audit quality. Our framework considers five factors that contribute to tensions in the coopetitive alliance — organizational structure, economic independence and stressors, project goals, group identity, and knowledge sharing. We find that tensions around the economic independence of the specialist unit, auditor delays in engaging the specialist, and specialists' perceptions that auditors do not respect their expertise and contribution to the FVM audit, lead specialists to distrust auditors and respond in ways that threaten audit quality. Further, we show that firm-level choices in the organizational structure and policy governing the use of specialists can impact the perceived quality of the specialist unit and the quality of audited FVMs. Our research complements recent studies examining the role of specialists in audit engagements with significant complex estimates and provides new insights to academics, regulators, and professionals.
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ItemThe Effects of Media Co-coverage on Investors' Perceived Relatedness between Two Firms: Evidence from Information Transfers( 2020-07-20)This study examines the effects of media co-coverage——a phenomenon where multiple firms are simultaneously mentioned in the same news article—on investors' perceived relatedness between the co-covered firms. Using the setting of information transfers between two co-covered firms during earnings announcements, I find evidence consistent with co-coverage increasing the firms' perceived relatedness. Specifically, the announcement return of the co-covered peer negatively predicts the announcement return of the focal firm following the peer's earnings announcement, suggesting that focal firm investors overreact to the peer's earnings news in information transfers. The negative relationship is stronger when investors are more likely to pay attention to the news article where they were co-covered, and when the peer's earnings are more relevant to the focal firm's upcoming earnings announcement. Further analysis shows that the co-coverage-induced overreaction is stronger when the focal firm has higher uncertainty and when retail investor attention to the focal firm is higher on the peer's announcement day. These findings shed light on an unintended consequence of journalists' co-coverage practice on the efficiency with which equity investors use peer information.
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ItemExploring Improvisation in Audit Work through Auditors' Responses to COVID-19( 2020-07-14)This paper explores auditors' responses to unexpected, systematic changes in circumstances. We use the COVID-19 outbreak, a "critical incident" that disrupted all year-end audits in China, to understand this underexplored research area. Based on 24 semi-structured interviews, we first describe how COVID-19 disrupts both formal and informal aspects of audit (i.e., those documented in audit plans according to auditing standards, and those not documented in audit plans). We find that in response to disruptions, auditors had to improvise to maintain quality and ensure timely audits: auditors modified sequence of audit process, changed format of audit procedures, and produced new behavior. We show that auditors' improvisation is based on their mobilization of organizational memory, and we discuss consequences of auditors' improvisation. This paper contributes to auditing literature by introducing "improvisation" and suggesting antecedents and consequences of improvisation in the auditing context.