Dylan Minor

CSR as Reputation Insurance: Primum Non Nocere

An overlooked but important benefit of CSR is to insure a firm against a decline in reputation in the face of adverse events. Through a case study and a multi-year analysis of stock price responses for S&P 500 companies following product recalls, we find that firms that have high CSR ratings fare better than those that do not. Furthermore, a firm that is exceptional in both doing good and avoiding harm suffers virtually no reputational damage following negative media publicity. Using the results of this study, we offer a guide to managers for determining the appropriate amount and mix of CSR activities.

Competing Matchmakers: An Experimental Analysis

Platform competition is ubiquitous, yet platform market structure is little understood. Theory models typically suffer from equilibrium multiplicity---platforms might coexist or the market might tip to either platform. We use laboratory experiments to study the outcomes of platform competition. When platforms are primarily vertically differentiated, we find that even when platform coexistence is theoretically possible, markets inevitably tip to the more efficient platform. When platforms are primarily horizontally differentiated, so there is no single efficient platform, we find strong evidence of equilibrium coexistence. This paper was accepted by Peter Wakker, decision analysis.

Beware of Index Fund Fundamentalists

This article recasts earlier research on index fund performance. A different time period shows the opposite results for index fund superiority over actively managed funds. Over the past 20 years, the end result is that neither passive nor active management as a whole wins, as common sense would suggest. Even if active management as a whole were to lose in the future, it is shown how one may use active management to create superior portfolios.

CEO power, corporate social responsibility, and firm value: a test of agency theory

This study explores whether firms with powerful CEOs tend to invest (more) in corporate social responsibility (CSR) activities as the over-investment hypothesis based on classical agency theory predicts. In addition, this paper tests an alternative hypothesis that if CSR investment is indeed an agency cost like the over-investment hypothesis suggests, then those activities may destroy firm value. Using CEO pay slice (Bebchuck, Cremers, and Peyer, 2011), CEO tenure, and CEO duality to measure CEO power, we show that CEO power is negatively correlated with firm’s choice to engage in CSR and with the level of CSR activities in the firm. Furthermore, our results suggest that CSR activities are in fact value-enhancing in that as firms engage in more CSR activities their value increases.

Executive Compensation and Environmental Harm

We explore the relationship between managerial incentives and environmental harm. We find that high-powered executive compensation packages can increase the odds of environmental law-breaking by 40-60% and the magnitude of environmental harm by over 100%. We document similar results for the setting of executive compensation and financial accounting misconduct. Finally, we outline some managerial and policy implications to blunt these adverse incentive effects.

CSR-Contingent Executive Compensation Contracts

Firms have increasingly started tying their executives’ compensation to CSR-related objectives. In this paper, we attempt to understand why firms offer CSR-contingent compensation and the conditions under which such compensation improves corporate social performance. Using hand-collected data from proxy statements, we find that this emerging compensation practice varies significantly across industries and across different CSR categories. Further, well-governed firms are more likely to offer CSR-contingent compensation, and such compensation does lead to higher corporate social standing. Such firms are more likely to offer formula-based, Objective CSR-contingent compensation. However, our results suggest that non-formulaic, Subjective CSR-contingent compensation also helps improve companies’ social performance when firm outcomes are more volatile and unpredictable, and therefore executives’ effort and performance are harder to evaluate, and when firms have better corporate governance.

The Organization of Nonmarket Strategy

Abstract The purpose of this paper is to explore how firms organize to engage in nonmarket strategy. To achieve this end, we explore the organization of nonmarket strategy via a formal model of the firm. The model is motivated by a qualitative study of the organization of nonmarket strategy of 25 large, US firms. Firms either integrate nonmarket strategy activities throughout the firm or create stand-alone business units that specialize in nonmarket strategy activities. We find that the advantage of integration over specialization is U-shaped in the importance of nonmarket strategy to the firm’s market strategy. We identify several other factors that predict the advantage (and disadvantage) of integration over specialization. The value of this paper is that it is (to the best of our knowledge) the first to identify the factors that should cause a firm to either integrate or specialize the organization of its nonmarket strategy. It also develops an original typology of the organization of nonmarket strategy.

Misconduct in Financial Services: Differences across Organizations

We examine misconduct in financial services. We propose a theory in which experts extract surplus based on the value of their firms brand and their own skills. Using sales complaint data for insurance agents, we find that agents working exclusively for large branded firms are more likely to be the subject of justified sales complaints, relative to smaller independent experts, despite doing substantially less business. In addition, more experienced experts attract more complaints per year.

Do People Who Care About Others Cooperate More? Experimental Evidence from Relative Incentive Pay

We experimentally study ways in which the social preferences of individuals and groups affect performance when faced with relative incentives. We also identify the mediating role that communication and leadership play in generating these effects. We find other-regarding workers tend to depress efforts by 15% on average. However, selfish workers are nearly three times more likely to lead workers to coordinate on minimal efforts when communication is possible. Hence, the other-regarding composition of a team of workers has complex consequences for organizational performance.