Production and Operations Management, 2024, 33(8), 1679-1699

This study explores the transmission of risk factors within supply chain networks, an area that has not been widely researched. It uses stock price crashes as an indicator to reveal how risk can spread from major customers to their suppliers.

The study investigates the contagion effect of risk by analysing stock price crashes and their impact on suppliers. It also examines the role of supplier information opacity in this process.

Key findings:

• The risk of stock price crashes can transfer from major customers to their suppliers with a delay of up to two weeks.
• Suppliers with less transparent information are more susceptible to this delayed risk contagion.
• This contagion effect is stronger for more important customers.
• Customer operational incidents have a stronger contagion effect on suppliers than customer financial incidents.
• In response to stock price crashes of major customers, suppliers adopt strategic measures such as diversifying their customer base, enhancing operational efficiency, and improving product quality. However, only enhancing operational efficiency effectively mitigates the adverse impact of customer stock price crashes on suppliers.

Overall, the findings provide new insights into how risk factors are distributed across supply chain networks. They highlight the critical role of operational improvements in strengthening the resilience of firms to supply chain risks.

Journal of Operations Management, 2024, 70(4), 568–599

This study explores the under-researched but critical role of information security in the selection of vendors for electronic medical record systems (EMRS) by hospitals. This focus is especially important given the increasing digitisation and networking of medical data and personal health information, which heightens the risk of data breaches.

The study analyses data from US hospitals spanning 12 years, using a combination of coarsened exact matching (CEM) and a difference-in-differences (DiD) approach to understand the impact of data breaches on vender selection.

Key findings:

• Hospitals tend to replace their EMRS vendors after experiencing data breaches.
• Following a data breach, hospitals tend to prioritise information security by switching to top-rated (star) vendors and adopting a single-sourcing strategy.
• The impacts of data breaches are mitigated as the relationship between breached hospitals and vendors matures or when the hospitals belong to large healthcare systems.
• The effects of data breaches are short-term and depend on the scale of the breach.

The findings highlight the importance of information security in vendor selection processes for hospitals. This research provides valuable insights for both academics and industry professionals about the necessity of strong information security measures in managing health data.

Management Science, Accepted

This study investigates how often there are large disagreements in human judgment, particularly in expert assessments of numerical values. The common belief in the literature is that judgment errors follow a normal distribution.

The study examines this question using 73 data sets from four different sources, which include over 169,000 estimates and forecasts.

Key findings:

• The study finds clear evidence of ‘fat tails’, meaning there are more extreme disagreements than a normal distribution would predict.
• Despite the diversity in the data, the frequency of large disagreements is surprisingly consistent across different levels of uncertainty, expertise, and sophistication of those making the judgments.
• By fitting a generalised normal distribution to the data, the study finds most shape parameters fall between 0.9 and 1.6 (where 1 is a double-exponential distribution, and 2 is a normal distribution).

These findings have important implications, particularly for combining expert estimates and forecasts, and for constructing confidence intervals. The study introduces optimal Bayesian aggregation methods that account for fat tails, and proposes a simple average-median average heuristic (AMA) that performs well across the observed data distributions.

The Accounting Review, 2024, 99 (5): 65–95

This paper examines the influence of labor market power in the audit profession. Using a dataset of online job postings, we confirm that audit offices in more concentrated labor markets have greater labor market power and exercise it in the form of higher skill requirements and greater required effort from their auditors, at similar or slightly lower wages. We then show that client firms of audit offices in more concentrated labor markets are less likely to restate their earnings and have lower absolute discretionary accruals. These findings are only present when employees have lower mobility across professions and geographies, consistent with audit offices’ power in the local labor market explaining the results. Collectively, our findings highlight the importance of labor market power in understanding audit quality.

Management Science, 2024, Online publication

Using detailed household data, we find that households working in locally agglomerated economies have high mortgage loans and are more likely to have mortgage loans. Channel testing shows that local agglomeration increases housing and mortgage demand as well as mortgage supply. The increase in mortgage loans is driven by purchases of larger houses and smaller down payments. Mechanism analyses document that local agglomeration affects mortgage loans by increasing career upward potential and providing downside protection. Specifically, we find that the impact of local agglomeration is stronger for skilled employees with enhanced prospects. In addition, local agglomeration weakens the negative relation between unemployment and mortgage loans, which supports the downside-protection role of local agglomeration. These results hold under instrumental variables analysis, difference-in-difference analysis, and a set of robustness checks. Overall, our findings highlight the importance of local labor market composition in household mortgage debt.

Contemporary Accounting Research, 2024, 41(3), 1577–1607

We investigate the impact of firm-level political risk on loan contracting. We find that firm-level political risk is positively associated with bank loan cost and that this effect is stronger for firms experiencing increased operational uncertainty and higher default risks. Firm-level political risk also leads to more unfavorable non-pricing loan terms. To alleviate endogeneity concerns, we use an instrumental variable approach and placebo tests. We further find that political connections and relationship-based borrowing can attenuate the adverse effect of firm-level political risk on loan contracting.

Management Science, 2024, Online publication

With the London Interbank Offered Rate (LIBOR) being replaced by risk-free rate (RFR)-based alternative reference rates, the fundamental differences between the two benchmarking frameworks impose significant risks on banks. Exploiting the Financial Conduct Authority (FCA)’s announcement of the phase-out of LIBOR, we conduct a difference-in-differences analysis based on banks’ reliance on LIBOR and show that LIBOR discontinuation entails higher interest rate spread of bank loans. The result implies that banks tend to compensate for the LIBOR-to-RFR risks by passing on the transition costs to borrowers. This effect is attenuated if multiple benchmarks are already in use, for relationship lending, and among banks operating in a competitive environment. We further find that LIBOR discontinuation leads to more collateral and covenant requirements in loan terms. After the FCA announcement, banks are inclined to switch away from LIBOR dependence by referencing alternative rates.

MIS Quarterly, 2024, Forthcoming

Laws requiring firms to disclose privacy breaches to their customers have been adopted extensively worldwide. However, the manner in which these laws affect the security protection behavior of disclosing firms is poorly understood. To shed light on this issue, we leverage institutional theory and examine how the data breach notification laws (DBNLs) across the states of the U.S., under which firms must notify customers of personal information breaches, influence firm-level incidence of security breakage and how such influences manifest heterogeneously across firms. Exploiting the staggered enactments of DBNLs in a difference-in-differences analysis, we find that firms experience a significant reduction in data breach incidents after DBNLs. This effect is more pronounced when firms rely more on sensitive customer data, operate in stricter privacy protection environments, and hold more intangible and digital assets. We document evidence that, compared to non-subject firms, DBNL-subject firms are more likely to appoint IT-specialized executives and remediate IT-related internal control weaknesses, which suggests potential channels that may facilitate DBNLs’ curbing of data breaches. We also find that the reduction in breach incidence after DBNL-mandated disclosure relates to both endogenous breaches and exogenous cyberattacks.

Contemporary Accounting Research, 2024, 41(3), 1477–1512

This study examines the relationship between government subsidies and income smoothing using a sample of US-listed firms. We find that subsidized firms smooth their earnings more aggressively than their unsubsidized peers. This finding is consistent with the reasoning that subsidized firms bear higher political costs and have more incentives to smooth earnings to avoid public attention. In addition, smoothing by subsidized firms is more pronounced when the subsidies are granted through non-tax-related channels than through tax-based channels, and the positive association between government subsidies and income smoothing is stronger for firms under higher public scrutiny and with less transparent information environments. Further analysis shows that smoothing by subsidized firms serves mainly to obfuscate earnings and that subsidized firms that smooth earnings tend to continue receiving subsidies in the future. Overall, our results help explain the role of government subsidies in shaping firms' accounting and disclosure choices.

Journal of Applied Psychology, 2024, 109(7), 1004–1021

This research aims to understand why both low and high subordinate performance can induce abusive supervision. Drawing on the framework of affective events theory and research on anger and envy, we posit that low performance incurs abuse due to supervisor anger, whereas high performance elicits abuse due to supervisor envy. More specifically, subordinate performance has a decreasing curvilinear relationship with supervisor anger (i.e., a negative effect that gradually dissipates) and an increasing curvilinear relationship with supervisor envy (i.e., a positive effect that gradually emerges). Through supervisor anger and envy, subordinate performance therefore presents different curvilinear indirect relationships with abusive supervision. The results from two vignette-based experiments and a multiwave, multisource field study support these hypotheses. We further find that supervisor comparison orientation augments the curvilinear emergence of supervisor envy and ensuing abuse in response to higher subordinate performance. However, regardless of their level of performance orientation, supervisors are prone to higher anger and subsequent abusive supervision in response to lower subordinate performance.

Journal of Personality and Social Psychology, 2024, Advanced online publication

Status researchers have recognized virtue, competence, and dominance as distinct, viable routes to attaining status. While acknowledging that these routes could be compatible and may not operate independently, prior research relying on a variable-centered perspective has largely neglected their potentially complex interactions. This article integrates a person-centered perspective with the variable-centered perspective to explore how different routes conjointly shape workplace status. Study 1A (N = 537) employs latent profile analysis, an inductive person-centered method, to re-analyze existing survey data, identifying seven distinct profiles of virtue, competence, and dominance that people use to attain status. Study 1B (N = 988) confirms the existence of these profiles in an independent sample of full-time U.S. workers, albeit with nuanced differences in levels. Across our initial studies, these profiles differ in status attainment, with a profile characterized by high virtue and competence but low dominance associated with the highest status—a key discovery challenging to uncover using the variable-centered approach alone. Study 2 (N = 792), a preregistered experiment manipulating the three routes in hypothetical scenarios, gathers causal evidence confirming these profiles’ varying effectiveness. Study 3 (N = 785), another preregistered experiment using refined manipulations, corroborates the findings of Study 2 and provides evidence for the relevance of these causal insights to real-life workplace contexts. This research has several crucial implications: reaching the top requires a combination of multiple routes; conflating virtue and competence under the umbrella of “prestige” obscures their unique contributions; and dominance’s positive effect on status is not universally applicable.