Business Research in Action Fall 2009

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business research in action

FALL 2009 » Mays professor has a hand in Obama's first law » Bank health decline = borrowers health decline » Career ambition vs. concern for others » The modern employee and the electronic leash » The long-term benefits of a little luxury »

Mays professor has a hand in

Research helps provide new hope for victims of pay discrimination

Obama’s first law

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fter months of debate in both the House and Senate, President Obama signed the Lilly Ledbetter Fair Pay Act of 2007 into law in January 2009—his first such act in his new office. Research on this topic from Mays Professor of Management Leonard Bierman was discussed and cited in testimony last year before various committees in the U.S. House of Representatives and U.S. Senate as they considered this pending legislation.

Prior to his presidency, Obama co-sponsored the bill with then-Senator Hillary Clinton. The new law amends the pay discrimination provisions of Title VII of the Civil Rights Act of 1964, changing the time frame in which employees can allege pay discrimination. Previously, the law placed strict time limits on employees’ ability to file workplace pay discrimination claims with the U.S. Equal Employment Opportunity Commission (EEOC).

Now, employees are able to sue the discriminatory company up to 180 days after the last paycheck they receive that is less than other employees at their level.

The law was amended in response to Ledbetter v. Goodyear Tire & Rubber Co., the recent Supreme Court case involving Lilly

Ledbetter’s quest for justice after she discovered that for 20 years she had been paid less than her male colleagues at Goodyear. The court upheld the decision of a lower federal appeals court, stating that Ledbetter’s claim was beyond the statute of limitations for alleging pay discrimination. The federal appeals court, in turn, had earlier reversed a federal trial that had ruled in Ledbetter’s favor.

“While the Supreme Court’s decision in the case may have been technically correct, it ignored the realities of today’s workplace,” said Bierman, who coauthored the article “Love, Sex and Politics? Sure. Salary? No Way: Workplace Social Norms and the Law,” which was cited in debates regarding the Ledbetter decision. The article was published in the Berkeley Journal of Employment and Labor Law in 2004 and focuses on norms and regulation when it comes to pay secrecy and confidentiality in the American workplace.

The researchers found that employees are generally averse to discussing their wages, and that about a third of U.S. employers reinforce this “social norm” by adopting rules prohibiting employees from discussing their salaries with co-workers. The article explores the managerial, psychological and economic reasons for this situation.

For more information contact Leonard Bierman at lbierman@mays.tamu.edu Bierman, Leonard, and R. Gely, “Love, Sex and Politics? Sure.

Salary? No Way: Workplace Social Norms and the Law,” Berkeley Journal of Employment and Labor Law, 25 (2004).

“While the Supreme Court’s decision in the case may have been technically correct, it ignored the realities of today’s workplace.”

Firms that rely on funding primarily from banks may be at risk

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f your business is primarily dependent on financing from bank loans, beware: new research indicates that a bank’s health has a direct impact on borrower-business performance.

Researchers Sudheer Chava and Amiyatosh Purnanandam analyzed the impact to the U.S. banking system of the Russian crisis of 1998. In this event, U.S. banks suffered losses when Russia announced its surprise decision to default on its sovereign obligations. Though this event took place more than a decade ago, it has pertinence for today’s marketplace.

The Russian crisis of 1998 didn’t directly involve the U.S. economy, however, many U.S. banks that had dealings with Russia were affected.

Researchers found that after the crisis, affected banks in the U.S. decreased the quantity of their lending and increased interest rates on loans. As a result,

Bank health

decline = borrower health decline

American businesses that primarily relied on domestic bank loans for debt financing had a much larger stock price drop around the crisis period, compared to firms that had access to other sources of debt.

“Bank health has a direct impact on borrower-business performance.”

Chava, an assistant professor of finance at Mays, says even when firms do not have a direct link with a foreign market, such as an import/export relationship, they can still be affected by a downturn in that market if they depend on a bank that is affected. These results suggest that the

global integration of the financial sector can contribute to a ripple of shocks from one economy to another through the banking channel.

Chava is in the process of extending this research to the U.S. subprime crisis.

He notes that the findings from the Russian crisis study are highly relevant for the current economic event. For example, his research suggests that banks that have been hit by the crisis in the mortgage market may cut down funding to firms and/or charge them a higher interest rate. In this way, a business completely unrelated to the crisis, such as a medical equipment manufacturer, can be affected by the downturn in another area of the economy. This situation may lead to a drop in investment by borrower-businesses if they cannot substitute the more costly and less available bank financing with other sources of funding.

In the current U.S. context, firms can be affected both from the demand side (reduced demand from consumers) and supply side (banks reducing the availability of business loans even for profitable projects). Don’t put all your eggs in one basket is Chava’s advice, as he says businesses can reduce the funding risk from banks by diversifying sources of financing by perhaps tapping the public debt markets if they are large enough, or borrowing from multiple banks instead of one bank.

For more information contact Sudheer Chava at schava@mays.tamu.edu Chava, Sudheer, and Amiyatosh Purnanandam, "The impact of banking crisis on bank-dependent borrowers," Journal of Financial Economics. Forthcoming 2010.

Career ambition vs. concern for others

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n business, looking out for number one is often stressed more than caring for the wellbeing of others; however, according to Michael Shaub, clinical professor of accounting at Mays, this focus on self rather than society can lead down a dark path—sometimes to scandal.

“We think of these two ideas as being in direct conflict, the idea of career ambition or self-interest versus concern for others,” says Shaub, whose recently published research examines the two traits in a business ethics setting. “We’re always making these decisions in life about do I do what’s best for others or do I only look out for me.”

Shaub and colleagues looked at what he called “egregious decisions,” such as falsifying financial records or insider trading, and how one’s level of career ambition as opposed to their concern for

others was related to the tendency to make unethical decisions. They conducted two studies, the first with 87 MBA students (not at Mays) and the second with more than 1,100 certified management accountants.

“Hiring managers need to be aware of an applicant's level of ambition.”

“The question is if I am ambitious, does that make me more willing to do egregious things and is that type of person less likely to care about others?” says Shaub, who defines career ambition as a “willingness to do whatever it takes to get ahead.”

Does looking out for number one equal success?

Their findings were similar between the two studies: the higher the career ambition a person reports, the more willing they are to break the rules and make “egregious decisions.”

Surprisingly though, there was not always a relationship between a person’s ambition and their concern for others.

“There are people that are truly ambitious, but they also truly care about others—so the issue is more complex than simply a good guy, bad guy sort of thing,” says Shaub.

“Career ambition can make you more willing to do things you ought not to do,” says Shaub who warns that hiring managers need to be aware of an applicant’s level of ambition. To avoid hiring people who are at risk for making egregious decisions, they need to determine if that ambition is present in the absence of concern for others.

Shaub says that, “sometimes to do the right thing leads to bad stuff in the short term, and sometimes doing wrong things leads to really good things that people want in the short term.” But in the end, without truth the market would collapse.

“Ethics is the lubricant that keeps the marketplace running,” he says.

For more information contact Michael Shaub at mshaub@mays.tamu.edu Collins, F., S. H. Lowensohn, and M. K. Shaub. 2008. “Career ambition vs. concern for others: The relationship of personal values to egregious accounting and financial decisions.” Research on Professional Responsibility and Ethics in Accounting 12: 71-99.

Work-life balance impacted by technology

modern employee and the electronic leash

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The

“Technology has broken down boundaries. As individuals we have to build new boundaries up, and define what works for us and our families.”

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o you check your work email or take business-related phone calls while at home? Does it bug your spouse? Friends? Children? Significant other?

While we are conditioned to believe that this kind of intrusion of work into family life is always bad, that is not necessarily so, says Mays Associate Professor of Management Wendy Boswell, who specializes in the study of human resource management. Her research into the influence of communication technology on the employee and on the organization has some surprising results.

Boswell calls communication technology “the electronic leash,” because of the way it tethers an employee to the office. “There’s something unique about communication technology as opposed to taking work home…It’s the interruption, the spontaneity that makes it hard to deal with,” she says.

Boswell and her team surveyed 360 employees at a large public university (not Texas A&M) about their use of communication technology for work purposes during non-work time (evenings, weekends, and vacation time). They also surveyed a sub-sample of respondents’ significant others (87 percent of the time this was a spouse) about how they are affected by their partner’s use of communication technology “after hours.”

On the surface, Boswell found what she’d expected: that the greater the use of communication technology for work during off hours, the greater the conflict between work and life was reported, from both the employees and the significant others.

What she didn’t expect to find was that the employee’s motivation behind the increase in after-hours availability came not from their concern for the company, or from mandates of the job, but rather from their own ambition.

While some businesses expect their employees to be available for work no matter what the time of day, Boswell says most strive to help employees find a harmonious equilibrium between the demands of their work and family responsibilities. Those that struggle most with that balance are often those that are highly ambitious and are seeking promotion or those that feel defined by their work. Either way, they have a reward for the extra effort.

That added benefit to the employee often doesn’t translate to their significant other, however, which can lead to further conflict in one’s home life. Boswell says that managers should be aware of that, as keeping those partners happy can be as important as keeping the employee happy. “Significant others certainly have an influence on whether an employee stays with an organization.”

In the end, if you do use communication technology to stay connected at work, you might have more work-life conflict; but if you don’t use it, you also might have more work-life conflict, in that you lose the flexibility to do things such as attend a child’s soccer game during traditional office hours. “Technology has broken down boundaries. As individuals we have to build new boundaries up, and define what works for us and our families,” she says.

For more information contact Wendy Boswell at wboswell@mays.tamu.edu Boswell, Wendy R., and Julie B. Olson-Buchanan, (2007).

“The Use of Communication Technologies After Hours: The Role of Work Attitudes and Work-Life Conflict,” Journal of Management, 33(4). 592-610.

long term benefits

of a

little luxury

Study helps marketers engage underindulgent shoppers

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s that new BMW a needless expense or a smart investment? For a hyperopic shopper (one who is more than usually adverse to luxury spending), it’s an important question: the way a marketer frames a luxury item is the key to making a sale to a hyperopic shopper, says new research from Kelly Haws, assistant professor of marketing at Mays. Hyperopic shoppers are more interested in long-term goals than instant gratification, so to reach this demographic, a retailer must make luxury products more appealing by trumpeting the value of their higher-cost items.

The value touted may be long-term cost savings, such as a high-end appliance that will be more reliable over the years than the cheaper competition, or it may be less tangible, like generosity.

A marketer could make the pitch that buying their higher priced item to share with others makes the shopper seem less like a miser and more like a benefactor, thus appealing to the shopper’s longterm aspiration to be altruistic.

This research is especially pertinent in light of today’s economic turmoil, as luxury marketers have struggled along with other retailers to stay profitable amid lessening demand. Haws says marketers of any product that can be viewed as indulgent or pleasurable should evaluate their pitch to emphasize long-term value, reminding shoppers to not merely spend well, but live well.

“Luxury is in the eye of the purse-holder.”

Hyperopic shoppers are “excessively farsighted” when it comes to their financial goals, says Haws. That means they consistently sacrifice short-term pleasure or profit for perceived long-term benefits. It’s a complicated label, as Haws says a person can be hyperopic about one area of budgeting but not another. Her example: a collector, who’s willing to spend thousands on a sought-after item, but who refuses to take a vacation because he doesn’t think he can afford it.

Another finding from Haws’ research is that luxury is in the eye of the purse-holder. To some consumers, name-brand cereal

is considered a wanton expense, while others view fine jewelry in that category. Understanding hyperopia and perceptions about luxury can help marketers reach tough customers, says Haws.

The economy is shifting buyer perceptions about luxury, as smaller items (such as gourmet coffee) seem more luxurious when cutbacks on spending are being made in other areas. An effective message from marketers Haws says she’s seeing is, “You can’t afford everything, but buying this small item can enhance your life.”

It’s important to recognize hyperopia is different from simply being a tightwad, as hyperopics are aware that a change in their spending habits could be beneficial or would help them to enjoy life more. Haws notes that others’ research on the topic has shown that tightwads outnumber spendthrifts three to two in the U.S. While the exact percentage of hyperopic shoppers is unknown, Haws believes that its safe to infer from the tightwad and spendthrift study that it is a fairly significant segment of the population.

For more information contact Kelly Haws at khaws@mays.tamu.edu Haws, Kelly L., and Cait Poynor, “Seize the Day! Encouraging Indulgence for the Hyperopic Consumer,” Journal of Consumer Research, 35.4 (2008). 680-691.