Aaron K. Chatterji

How Firms Respond to Being Rated

While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower-cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select “socially responsible,” and avoid “socially irresponsible,” companies. We examine how several hundred firms respond to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory.

Scaling Social Entrepreneurial Impact

Successful scaling of social impact by a social entrepreneurial organization is driven by its capabilities in seven areas, identified in this article by using the acronym SCALERS: Staffing, Communicating, Alliance-building, Lobbying, Earnings-generation, Replicating, and Stimulating market forces. The relative importance of each of these capabilities in driving scaling will depend on several situational contingencies, such as the labor needs of the organization or the public support attracted by its causes or programs. The article presents the logic, theory, and prior research that support the SCALERS model and cites examples of case experiences that are consistent with the model.

Clusters of Entrepreneurship and Innovation

This paper reviews recent academic work on the spatial concentration of entrepreneurship and innovation in the United States. We discuss rationales for the agglomeration of these activities and the economic consequences of clusters. We identify and discuss policies that are being pursued in the United States to encourage local entrepreneurship and innovation. While arguments exist for and against policy support of entrepreneurial clusters, our understanding of what works and how it works is quite limited. The best path forward involves extensive experimentation and careful evaluation.

How Do Product Users Influence Corporate Invention

The extensive academic literature on innovation has long recognized product users as a potentially important source of ideas. Although prior work has primarily focused on understanding the unique motivations and knowledge that allow users to generate their own innovations, we extend existing theory to investigate the contribution of users to corporate invention. We draw on the knowledge-based view of the firm, evolutionary theory, and the user innovation literature to theorize that corporate inventions that integrate user knowledge will be of greater importance, contribute to a broader set of follow-on technologies, and occur earlier in the product life cycle than other corporate inventions do. We test these propositions with a large data set of medical device inventions. We find support for our predictions and discuss the implications of our results for the theoretical and empirical literature on organizational innovation.

Do CEO Activists Make a Difference? Evidence from a Quasi-Field Experiment

Several CEOs are receiving significant media attention for taking public positions on controversial social and environmental issues largely unrelated to their core business, ranging from LGBT rights to race relations to gender equality to climate change. We provide the first evidence that such “CEO activism” can influence public opinion and consumer attitudes. Our field experiment examines the impact of Apple CEO Tim Cook’s public statements opposing a pending religious freedom law that critics warned would allow discrimination against same-sex couples. Our results confirm the influence of issue framing on public opinion and suggest that CEOs can sway public opinion, potentially to the same extent as prominent politicians. Moreover, Cook’s CEO activism increased consumer intentions to purchase Apple products, especially among proponents of same-sex marriage.

Learning on the Job? Entrepreneurial Spawning in the Asset Management Industry *

Entrepreneurs often have prior experience at incumbent firms. We present a new mechanism by which prior employment can influence transitions into entrepreneurship. We propose that some employees divert effort toward unproductive activities to learn about their own fitness for alternative employment. Based on the results of this costly learning experience, or “experiment,” some employees will spawn into related industry segments as entrepreneurs or employees. Others will remain at the incumbent firm or pursue entrepreneurship in the same industry segment. We develop a theoretical model to explicate these propositions, and test them using four data sets from the mutual fund and hedge fund industries. We find evidence that individuals who engage in excessive risk-taking at mutual funds are more likely to transition into hedge funds. Taken together, our findings suggest that learning on the job through experimentation is an important mechanism for enabling entrepreneurial spawning.

How Do Financial Markets Value Corporate Social Responsibility? Investor Perceptions of Additions and Deletions by the Dow Jones Sustainability Index

Research has long studied how corporate social responsibility (CSR) activities affect financial market evaluations of firm value, but we know little about how investors use new information about changes in CSR to update their assessments of firm value. This paper argues that firm performance moderates the degree to which investors respond to new information about CSR activity. Using a large-scale financial event study of additions and deletions by the Dow Jones Sustainability Index (DJSI), we show that firms with strong financial performance gain fewer benefits for being recognized as CSR leaders, while bearing fewer penalties for losing recognition as CSR leaders. Intriguingly, analyst expectations of future performance have stronger moderating impact than historical accounting performance.

Physician-Industry Interactions: Persuasion and Welfare

We study how firms target and influence expert intermediaries, and the welfare impact of banning those relationships. In the case study we investigate, manufacturers of statins, a class of cholesterol-lowering drugs, provide meals and other payments to physicians. Leveraging variation in exposure to spillovers from academic medical centers’ conflict-of-interest policies for identification, we estimate significant heterogeneity in the effects of payments on prescribing, with firms targeting highly responsive physicians. Payments offset the negative effects of oligopoly pricing and other frictions on utilization, but at great expense to consumers and insurers because payments promote high-price branded drugs. To understand the net effects of payments in the presence of various factors that may drive a wedge between physicians’ decisions and patients’ best interests, we introduce a decision error into our framework and explore the assumptions under which payments benefit consumers. We calibrate this decision error using clinical trial results on statin effectiveness for a similar population. This exercise suggests that, in the case of statins, firm payments to physicians benefit consumers due to significant underprescribing at baseline.

Innovation and American K–12 Education

Economists have long believed education is essential to the acquisition of human capital and contributes to economic growth. However, education researchers, political and business leaders, and other stakeholders have raised concerns about the quality and costs of the K–12 education system in the United States and the implications for the development of the nation’s future workforce. Some of these groups have called for more innovation in K–12 education, leveraging technology in the classroom and experimenting with different organizing models for schools, both as a means to lower costs and increase quality. To shed light on the prospects of this approach, I review the economics literature at the intersection between innovation and K–12 education from two different, but related, perspectives. First, I summarize the evidence about the efficacy of technological and other kinds of innovation in the classroom. Second, I discuss the state of research on how the American K–12 system influences the production of innovators and entrepreneurs. In both instances, I identify implications for policy and opportunities for future research to generate actionable insights, particularly around increasing the low levels of research and development in the education sector.

Progressive Stakeholder Governance for the 21st Century

Stakeholders are central to theories of organization and organizational performance. Given the increasing importance of firm-stakeholder relationships in creating both private and public value, a f...