Oriana Bandiera and Andrea Prat, London School of Economics; Luigi Guiso, European University Institute; and Raffaella Sadun, Harvard University and NBER
What Do CEOs Do?
Bandiera, Guiso, Prat, and Sadun develop a methodology to collect and analyze data on CEOs' time use. The idea sketched out in a simple theoretical set-up is that CEO time is a scarce resource and its allocation can help to identify the firm's priorities as well as the presence of governance issues. The researchers follow 94 CEOs of top-600 Italian firms over a pre-specified week and record the time devoted each day to different work activities. They focus on the distinction between time spent with insiders (employees of the firm) and outsiders (people not employed by the firm). Individual CEOs differ systematically in how much time they spend at work and how much time they devote to insiders versus outsiders. The researchers analyze the correlation between time use, managerial effort, quality of governance and firm performance. They then interpret the empirical findings within two versions of their model, one with effective and one with imperfect corporate governance. The patterns they observe are consistent with the hypothesis that time spent with outsiders is on average less beneficial to the firm and more beneficial to the CEO, and that the CEO spends more time with outsiders when governance is poor.
Yi Qian, Northwestern University and NBER
Counterfeiters: Foes or Friends (NBER Working Paper No. 16785)
Qian combines a natural policy experiment and randomized lab experiments to estimate the differential impacts of counterfeiting on the sales and purchase intent of branded products of various quality levels. She collects new product-line level panel data from Chinese shoe companies from 1993-2004. Exploiting the discontinuity of government enforcement efforts for the footwear sector in 1995 and the differences in authentic companies' relationships with the government, she identifies heterogeneous effects of counterfeit entry on sales of authentic products of three quality tiers. In particular, counterfeits have both advertising effects for the brand and substitution effects for authentic products. The advertising effect dominates substitution effect for high-end authentic product sales, and the substitution effect outweighs advertising effect for low-end product sales. The positive effect of counterfeits is most pronounced for the high-fashion products (such as women's high-leg boots) and for the high-end shoes of the brands that were not yet well-known at the time of the entry by counterfeiters. Qian provides a theoretical framework to generalize such impacts due to counterfeits. Analogous heterogeneous effects of counterfeiting on consumer purchase intent for branded products of three quality tiers are also discovered in lab experiments. Responses in the lab allude to the fact that counterfeits could increase brand awareness as well as steal business.
Nicola Lacetera, University of Toronto, and Justin Sydnor, Case Western Reserve University
Is High-Quality Production Location-Specific? Evidence from the Automobile Industry
A large literature has documented substantial heterogeneity in the performance of similar firms within industries, but what are the sources of that heterogeneity? Lacetera and Sydnor investigate one potential source of differential performance: the role of location-specific factors, including the quality and attitudes of the local workforce, the type of supplier networks, the education system, the institutional infrastructure, and local "culture." They focus on the automobile industry and in particular the role of location-specific factors in determining the quality of automobile production. They exploit the natural experiment provided by the establishment of assembly plants in the United States by Japanese auto manufacturers. A number of the most popular Japanese car models are assembled both in Japanese plants and U.S. plants. The researchers use a unique dataset of over 400,000 used-car transactions at wholesale auctions to test whether the long-run quality of otherwise identical cars depends on the country of assembly. Japanese-assembled cars sell for a modest $50 more on average, and other measures of quality also show small or no differences. The finding that American plants can produce high quality (Japanese) cars suggests that there is not an inherent limitation to the U.S. manufacturing environment and that the sources of heterogeneity in quality automobile production are likely dominated by firm-specific rather than location-specific factors.
Leonardo Iacovone, The World Bank; Wolfgang Keller, Princeton University and NBER; and Ferdinand Rauch, London School of Economics
Innovation Responses to Import Competition
How does trade liberalization, which raises a country's import competition, affect the innovative activity of its firms? Iacovone, Keller, and Rauch exploit the strong growth of Chinese exports resulting from China's entry into the World Trade Organization in 2001 as a competitive shock to Mexican manufacturing firms in particular. Innovation is captured through information about the adoption of detailed firm level production techniques, such as just-in-time inventory methods, quality control measures, and job rotation among the Mexican firms. The results indicate that China's rise in global trade did not affect Mexico's rate of innovation much, which is in contrast to the substantial gains that others have found in the case of bilateral liberalizations. At the same time, there is a striking heterogeneity in the responses across firms for different productivities, with productive firms innovating more and less productive firms innovating less. This leads to positive selection, in that initial differences in firm performance are sharpened by the advent of new competition.
Iwan Barankay, University of Pennsylvania
Rank Incentives: Evidence from Field Experiments
People often compare their performance to that of others. The question is whether these comparisons affect the provision of effort, so that potentially they can be exploited to substitute for monetary incentives. Barankay presents evidence from a field experiment in which employees were given feedback about how they rank in terms of performance compared to others doing the same task. The context is such that rank had no implication for current or future compensation. Compared to a control group with no rank feedback, those employees who received feedback about their rank reduced effort along both the intensive and the extensive margin: they were significantly less likely to return to work and when they did they were less productive when getting feedback about their rank. Barankay finds no heterogeneous effects by gender, or by whether employees had a stated or revealed preference for receiving feedback about their rank. He finds some evidence that giving people unexpectedly positive feedback did not significantly reduce performance.