Rishika Rishika
Rishika Rishika

Ramkumar Janakiraman
Ramkumar Janakiraman

More fans on a company’s Facebook page can help generate more income, indicates a research study conducted by four professors, including two from Mays Business School at Texas A&M University.

The study shows social media participation helps strengthen the bond between the customer and the firm, generating 5.6 percent more revenue and about 5 percent more in-person visits than among non-participating customers.

The researchers were Rishika Rishika and Ramkumar Janakiraman, both marketing professors at Mays; Ashish Kumar from Aalto University; and Ram Bezawada from the University at Buffalo, N.Y.

This study has been published in a special issue of the journal Information Systems Research titled “Social Media and Business Transformation.”

Companies have long questioned the return on investment of resources needed to operate social media sites. Previously, there was no individual-level data connecting customers’ participation in a firm-hosted social media site and their actual purchase behaviors. This study gives business managers a better understanding of the return on their investment in social media. In particular, the study uses novel behavioral data and helps understand the link between social media participation and the number of customer purchases.

Building online communities, personalizing messages and encouraging contributions from online members enhances the customer experience. It also increases the frequency of customer shopping visits and promotes sales overall, the research indicated. The keys to success include maintaining a user-friendly site, sending regular updates about events, personalizing key messages to customers, and encouraging customer-firm interaction through these messages.

“Anyone can open a Facebook page and post, but good firms do something with that interaction – they capitalize on that engagement,” explains Janakiraman. Jason’s Deli, for instance, follows up on customer complaints posted on its social media sites, and large firms boast about the number of fans they have. “We argue social media is good for the business because it helps the customers. They have easy access to information, it pops up on their screens. And reviews come in from other fans in the community.”

By fostering an online relationship between the customer and the firm, customers can be segmented based on purchase history and their prior interactions with the firm. Market segmentation is essential, since not all customers respond to social media equally.

About Mays Business School

Texas A&M University’s Mays Business School educates more than 5,000 undergraduate, master’s and doctoral students in accounting, finance, management, management information systems, marketing and supply chain management. Mays consistently ranks among the top public business schools in the country for its undergraduate and MBA programs, and for faculty research. The mission of Mays Business School is creating knowledge and developing ethical leaders for a global society.

Categories: Research Notes, Texas A&M

Prior research finds that there is substantial variation in firms’ ability to avoid income taxes. One possible determinant of this tax avoidance variation is the influence of industry expertise of a firm’s external auditor.

In other words, the tax-specific expertise of the external auditing company a firm hires potentially makes a big difference in companies’ level of tax avoidance, and ultimately, net income.


Thomas Omer


Mays Business School faculty members and researchers Sean McGuire (an assistant professor in accounting), Thomas Omer (Ernst & Young Professor of Accounting) and Dechun Wang (assistant professor in accounting) set out to investigate the relationship between firms’ level of tax avoidance and the proficiencies of the external auditing companies those firms were hiring.

“We started this project because we were interested in the influence of the external audit firm on their clients’ tax avoidance activities,” says McGuire. “Many corporations hire their external audit firm to provide tax services in addition to their audit services. Accordingly, our goal was to investigate whether the tax expertise of audit firms that provide tax services to their client influences their clients’ level of tax avoidance.”

McGuire defines tax avoidance as “any strategy that reduces a firm’s tax liability, used by companies to generate cash savings and increase after tax earnings by reducing their tax expense.”

“Consistent with other academic research,” he explains, “we view tax avoidance as a continuum that ranges from clearly legal strategies, like investments in municipal bonds, to those of questionable legality, like tax shelters.”

The research relied on previous audit studies that define expertise in terms of industry and audit office fees. Two types of industry expertise were identified to measure the level of expertise in firms: overall expertise and tax expertise.

Both overall and tax expertise are designed to capture an audit firm’s tax expertise within a particular industry and city office. However, overall expertise includes audit expertise, rather than solely the firm’s level of tax proficiency.

To gather the information, McGuire says the researchers estimated companies’ tax-specific industry expertise based on an audit firm’s market share in a given industry and city. “We calculated market share using publicly available data from Audit Analytics,” McGuire shares.

The results of the research found that firms who hire industry experts exhibit higher levels of tax avoidance relative to firms that do not hire industry experts.

McGuire expounds upon the research results, saying, “I think the most interesting finding is that the clients of audit firms that have overall expertise, i.e. combined audit and tax expertise, exhibit high levels of tax avoidance. This finding suggests that the combined tax and financial reporting expertise of audit firms allows them to develop tax strategies that benefit their clients from both a tax and financial statement perspective.”

The research results provide a number of significant contributions to tax avoidance literature. Not only do the findings contribute to the stream of research investigating the variation in firms’ tax avoidance activities, but they also provide evidence on the association between the industry expertise of the firm’s external auditor and the firm’s tax activities.

According to McGuire, prior research documents substantial variation in firms’ level of tax avoidance. “Given that there are obvious benefits to avoiding income taxes (higher net income), it is important to understand why some firms are more successful than others in avoiding income taxes,” he says. “It is also interesting to examine whether the industry expertise developed by audit firms (in terms of tax-specific expertise and auditing expertise) influences the tax avoidance of their clients.”

Categories: Research Notes

Companies who produce items such as biochemicals, ready concrete, milk, eggs and even DVDs always arrive at an important question: What is the quickest, most effective way to distribute these short shelf life products?

Neil Geismar, an associate professor in the department of Information and Operations Management at Texas A&M University, along with fellow researchers Milind Dawande and Chelliah Sriskandarajah from the University of Texas at Dallas, explored the solutions to these companies’ issues with distribution of perishable products.

Neil Geismar

The zero-inventory production and distribution problem (ZIPDP) is a common problem encountered in situations in which a product cannot be inventoried because of its short shelf life. Short shelf life is determined by either physical characteristics (such as perishable food items or chemicals) or by the limited duration of market interest (such as magazines, DVDs and electronic games).

Geismar’s research was initiated at the request of the Vice President of Operations at Blockbuster, Inc.’s, distribution center in McKinney, Texas. “He asked us for help to make his system run more efficiently,” Geismar explains. The facility supports 5,600 retail stores via 40 regional hubs, or “pool points.”

“Quick delivery of DVDs to the retail outlets is important because DVDs have an extremely short product life cycle, which can be attributed to the ephemeral nature of most entertainment products, to the release of new titles on DVD every week, and to the release date requirements imposed by the movie studios,” Geismar says.

ZIPDP’s challenge is to coordinate the production and transportation operations so that the total cost of operations is minimized while the product lifetime and the delivery capacity constraints are satisfied. Geismar puts it this way: “The product’s limited lifetime implies that no inventory can be held between production and delivery; hence, the two functions are tightly coupled.”

ZIPDP answers some of the following questions:
  • When and how much should be produced at the plant?
  • Should the production rate be increased?
  • How many delivery trucks should be hired?
  • When should the trucks leave the plant?

The researchers examined a popular method of distribution, the pool-point delivery model, which is also known as the “hub-and-spoke” delivery model. In pool-point distribution, the product or service is delivered to dispersed clusters of demand points by first delivering large quantities to pool points (hubs), which are centrally located in their respective clusters. The large quantities of products are then dispersed into small carriers for point-to-point connections (spokes).

This system is used by a wide variety of industries: airlines (large jets fly between hubs, small ones from hubs to other cities), freight distribution, light petroleum products, candy distribution, automobile distribution, and newspaper delivery. Each of these industries requires two steps of distribution—first to the “hubs,” then to the “spokes.”

Combining pool-point distribution and zero-inventory products is no simple feat. Geismar’s research discusses a few real-world examples of this type of distribution, including the production and distribution of ready concrete for the construction of venues for the 2004 Athens Summer Olympics. This example served as a case study for the researchers to investigate when considering the production and distribution of Blockbuster DVDs.

Geismar says the research primarily focused on two objectives relevant in the practice: Minimizing the sum of production and delivery time, and minimizing the total cost for producing and delivering products. The research also examined minimizing mean flow time, minimizing maximum lateness, and minimizing the number of late deliveries in the pool point distribution system.

The research details how these systems operate and provide “efficient algorithms to find optimal schedules for various objectives,” the research states.

The researchers’ paper was the first rigorous study of pool-point distribution in a zero-inventory system. Geismar notes that managers’ supply chain decisions are based on production times, delivery times, the cost to hire each truck, and the cost to increase the production rate, so the results of the study proved effective and beneficial to companies facing distribution issues similar to Blockbuster.

Geismar’s research sums it up this way: “By analyzing overall system cost, we provided managerial insights into how different costs for trucks and for production rates affect the optimum decisions on how many trucks to hire and on which production rate to use for various objectives.”

Categories: Research Notes

Think about basic economics — when you specialize in one skill and your neighbor specializes in another, you’re both better off when you collaborate and trade amongst each other, rather than relying on your own advantages.

Firms are increasingly recognizing this principle holds true when it comes to research and development (R&D) information sharing among firms.

Businesses form research and development alliances when developing new products. An R&D alliance is a formal relationship between two or more firms to pursue mutually beneficial goals. The firms remain independent entities, but enter into an agreement to combine their knowledge bases in order to expand and refine innovations. “It’s simple,” says Lorraine Eden, a management professor at Mays Business School. “Two brains are better than one.”

R. Duane Ireland

Michael Hitt

Lorraine Eden

Many industries are involved in R&D alliances, including pharmaceutical, automotive, electronics and chemical companies. When the costs and risks of developing new products are both high, these firms are more likely to enter into an R&D alliance, says Michael Hitt, a University Distinguished Professor in management and Joe B. Foster ’56 Chair in Business Leadership.

Dan Li ’05, now teaching at Indiana University, worked at Texas A&M with Eden, Hitt and R. Duane Ireland, Distinguished Professor in management, Conn Chair in New Ventures Leadership and AMJ Editor, on a recent study to examine which type of governance structure is most effective for these alliances. They focused their research on multilateral alliances (three or more firms) and compared them with bilateral alliances (a joint venture between two firms).

“Very few have studied multilateral alliances,” Hitt said in describing the research’s uniqueness. Eden adds: “People have been researching bilateral firms for the past 20-30 years, but there’s been not much written on multilateral ones.”

Hitt describes information sharing between firms as “a real balancing act.” Individual firms must manage the information they share and the information they protect. “In a joint venture,” says Hitt. “If everyone invests money, there’s an incentive to share information and be fair.” They wanted to learn if this remained true when the number of partners increases.

According to Eden, much of the intended knowledge sharing within the alliances involves “tacit information” — information that must be thoroughly explained and demonstrated by one firm to another. She argues that selecting the type of governance (equity-based or contractual) structure can be critical to the success of the R&D alliance since equity ownership, where one firm owns a piece of the other firms, can help facilitate planned knowledge sharing among them.

At the same time, however, sharing knowledge often leads to “unintended information leakages,” which causes problems among the R&D alliance partners. “There’s a real hesitancy,” Hitt says. “When you’re in an alliance, you have to trust your partners, who are potential competitors, to be fair.”

Their study examined 2,500 alliances — 1,700 bilateral and 750 multilateral. The researchers also compared governance structures in two types of trilateral R&D alliances: chain and net. The study found that 18 percent of trilateral alliances use a chain-based approach, which involves a passing of information from one firm to another, and 82 percent of alliances use net-based approaches, or group sharing.

As the complexity of the alliance increases, the probability of cheating also increases. For example, the alliance between pharmaceutical companies becomes more complex if the companies are from different countries, mainly because intellectual property rights vary internationally. Additionally, the more firms involved in an alliance, the more likely there will be a “free-rider,” or a firm that wants information from other companies without sharing any of its own. This is more likely the case in net than in chain trilateral alliances, notes, Eden, because it is “easier for the cheater to hide.”

The research found that equity governance structures, rather than contractual structures, combat the uncertainty of information-sharing firms face as complexity escalates in multilateral alliances. Equity ownership can help compensate for complexity and free-rider problems, while also helping to facilitate intended knowledge transfers. The greater the emphasis on equity share, the smoother the facilitation and transfer of information, the research notes.

The authors found that, for both knowledge sharing and knowledge protection reasons, firms were more likely to use an equity governance structure in multilateral than in bilateral R&D alliances. Similarly, net trilateral alliances were more likely than chain ones to use equity governance structures.

Eden suggested that the study offers a confirmation for firms interested in governance mechanisms. “Companies will be able to look at the findings and determine what type of governance is best for their alliance.”

Categories: Research Notes

Medical errors account for 98,000 deaths each year in the U.S., according to a 1999 report published by The Institute of Medicine (IOM). In a more recent report, the IOM claims medical errors harm 1.5 million people and cost $3.5 billion every year. Interestingly, the report claims that medical errors are not due to incompetent people, but to bad systems that include the processes and methods used to carry out various functions.

Ramkumar Janakiraman

These staggering numbers and facts have caught the attention of many researchers, including Ram Janakiraman, assistant professor of marketing at Mays Business School, Shelley and Joe Tortorice ’70 Faculty Research Fellow and Mays Teaching Fellow.

Janakiraman says he has always been interested in several aspects of healthcare. “As a marketing researcher, the context of doctor and patient relationships greatly interests me,” he says.

This interest led him and a group of other researchers from around the nation to explore and analyze the impact of system automation on medical errors.

Janakiraman explains that medical errors are most commonly traced back to the manual transmission of information across different functional units of the hospital, manual calculations of doses and unmonitored clinical interventions. The big question surrounding the research, he says, was, “Can automation really reduce the rate of errors in various hospital wards?”

Janakiraman’s co-researchers on the article in Information Systems Research were Ravi Aron, an assistant professor at the Johns Hopkins Carey Business School; Shantanu Dutta, vice dean for graduate programs and professor of marketing at USC Marshall School of Business; and Praveen Pathak, American economics institutions professor at University of Florida’s Warrington College of Business Administration.

The researchers hypothesized that the “Automation of information capture and transmission between agents and across the different functional units of the hospital can reduce the rate of medical errors, because they enable the automation of the checks and procedures, thereby removing the “human touch.'”

Janakiraman drew insight from the Joint Commission on Accreditation of Healthcare Organization (JCAHO), as well as the Joint Commission International (JCI). The Joint Commission recommends that hospitals adopt three procedural norms:

  1. Observe and record actions of agents (Sensing Function)
  2. Recommend context-specific procedural controls (Control Function)
  3. Undertake periodic managerial review of the extent to which agents are in compliance with norms (Monitoring Function)

The researchers recognized these three functions as having potential for automation. One example that could be automated is logging the time an item is removed from storage. Rather than recording it in a logbook, a technician could swipe a digital card to record the time.

Janakiraman says this research is important for a number of reasons: No study has empirically analyzed the relationship between automation and medical errors using actual hospital data and no study has looked at the differential impact of automating these three functions on the incidence of two types of medical errors (procedural and interpretative errors) in hospitals. Also, no other study has examined the effect of quality training programs and their complementary effect on automation of error prevention functions using actual data.

“Collecting this data was a humongous feat,” Janakiraman says. The researchers used panel data of incremental automation over time of the error prevention functions and actual rates of medical errors at several wards of two large, top-notch hospitals.

With this data, Janakiraman describes the two categories of medical errors the researchers found: procedural errors (deviations from norms irrespective of what the context and circumstances are) and interpretative errors (deviations from norms that are classified as errors based on the underlying circumstances and the context).

Results from the study confirmed Janakiraman’s hypothesis: automation of the three core error prevention functions (sensing, control and monitoring) helps reduce both kinds of medical errors (procedural and interpretative).

In addition, the researchers found evidence of a significant complimentarity between automation of certain functions and the training of clinical and nonclinical workers in quality management.

“The research demonstrates that there are hidden benefits to the automation of manual functions that are often not captured in a cost benefit analysis,” he says.

Janakiraman plans to continue with his research on healthcare — this time focusing on hospitals’ decision to adopt various technologies, rather than just the impact of technology.

Categories: Research Notes

In an era of soaring medical costs, providing health care to employees at or near their workplace is gaining new momentum, according to an article in the Winter 2012 issue of MIT Sloan Management Review.

A 2011 study by the professional-services company Towers Watson and the nonprofit National Business Group on Health found that 23 percent of the mid-sized and large U.S. employers they surveyed had on-site health clinics and that another 12 percent planned to establish an on-site clinic in 2012.

Leonard Berry

Companies ranging in size from Fortune’s “Best Company to Work For” winner, SAS Institute, to privately held Rosen Hotels & Resorts report that onsite employee healthcare saves millions in health care spending while improving employee health and satisfaction.

Motivated by rising costs and commitment to their staff’s health and productivity, many companies are taking matters into their own hands, according to the article. In this so-called “do-it-yourself” health care, some firms operate clinics with their own employees, including doctors and nurses, while others contract with outside organizations for clinical management and staff.

The entire article, “Do-It-Yourself” Employee Health Care,” is available on the MIT Sloan Management Review website. The article was authored by:

Ann M. Mirabito, Ph.D., assistant professor of marketing at the Hankamer School of Business at Baylor University in Waco, Texas. Her research focuses on health care, where she has explored ways stakeholders can act to improve outcomes and value. Her work has appeared in Harvard Business Review and medical journals including Annals of Internal Medicine and Mayo Clinic Proceedings. She has extensive executive responsibility in large (Frito-Lay, Time Warner) and small organizations, consumer and business-to- business and nonprofit and government (Federal Reserve Board).

Leonard L. Berry, Ph.D., Distinguished Professor of Marketing, and M.B. Zale Chair in Retailing and Marketing Leadership in the Mays Business School at Texas A&M University. He is also professor of humanities in medicine in the College of Medicine at The Texas A&M University System Health Science Center. He has served as a visiting scientist at Mayo Clinic studying health care service and is a former national president of the American Marketing Association. Berry co-authored the book, “Management Lessons from Mayo Clinic.”

Gale Adcock, M.S.N., R.N., director of corporate health services at SAS Institute Inc., in Cary, N.C. She also serves as a consulting associate faculty member for Duke University and is an adjunct associate professor at the University of North Carolina — Chapel Hill. She received her Diploma in Nursing from Virginia Baptist Hospital, her BSN from East Carolina University, and her MSN & Family Nurse Practitioner Certificate from the University of North Carolina — Chapel Hill.

About Baylor University

Baylor University is a private Christian university and a nationally ranked research institution, classified as such with “high research activity” by the Carnegie Foundation for the Advancement of Teaching. The university provides a vibrant campus community for approximately 15,000 students by blending interdisciplinary research with an international reputation for educational excellence and a faculty commitment to teaching and scholarship. Chartered in 1845 by the Republic of Texas through the efforts of Baptist pioneers, Baylor is the oldest continually operating university in Texas. Located in Waco, Baylor welcomes students from all 50 states and more than 80 countries to study a broad range of degrees among its 11 nationally recognized academic divisions.

About Texas A&M University

Opened in 1876 as Texas’ first public institution of higher learning, Texas A&M University is a research-intensive flagship university with approximately 50,000 students — including 9,000+ graduate students — studying in over 250 degree programs in 10 colleges. Students can join any of 800 student organizations and countless activities ranging from athletics and recreation to professional and community service events.

About SAS

SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Through innovative solutions, SAS helps customers at more than 55,000 sites improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers around the world THE POWER TO KNOW®.

Categories: Faculty, Research Notes

As a stockholder, would you prefer a CEO who is strictly rational about her firm’s future prospects, or a CEO who is somewhat overoptimistic? Researchers at Texas A&M University show theoretically that for risk-averse CEOs, being somewhat overoptimistic is a good thing for shareholders.

Most CEOs are undiversified, meaning that a large fraction of their personal wealth is in invested their company. Stockholders, on the other hand, are typically well diversified, with investments across numerous companies. These differences mean that a risk-averse CEO who is strictly rational will turn down some risky investment projects that the stockholders would like the firm to make. If this happens, the result is lower firm value.

“Given a choice between a very rational CEO and a moderately overoptimistic one,” says Mays finance professor Shane Johnson, “the somewhat overoptimistic one is the better choice.”

“We show theoretically that overoptimism can help offset the effect of the CEO’s risk aversion,” Texas A&M finance professor Shane Johnson says. “The result is that a CEO who is moderately overoptimistic will invest the way shareholders would want her to invest—this maximizes firm value.” In contrast, a purely rational CEO turns down too many investment projects relative to the optimal level, whereas a CEO who is too overoptimistic accepts too many investment projects. Both underinvestment and overinvestment produce firm values below what it could be.

“If the theory is correct, CEOs who are somewhat overoptimistic should face a lower probability of termination than rational CEOs or too-overoptimistic CEOs face. A board doesn’t necessarily know a CEO’s level of optimism when it hires her. It learns by watching his decisions over time,” Johnson says. If CEOs who are somewhat overoptimistic maximize firm value, they should be more likely to keep their jobs than would CEOs with too-low or too-high optimism. Using a large sample of CEO terminations, the team finds strong empirical support for the theoretical predictions. The results are consistent with the view that CEOs who are somewhat overoptimistic maximize firm value.

Before this research was conducted, the common belief was that any level of over-optimism was bad, says Johnson. “Our paper is one of a series that argues that some level of over-optimism is good for CEOs,” he says. “Given a choice between a very rational CEO and a moderately overoptimistic one, the somewhat overoptimistic one is the better choice.”

The research was conducted by Texas A&M finance professor Shane Johnson; doctoral students T. Colin Campbell, Jessica Rutherford and Brooke Stanley; and former Texas A&M professor Michael Gallmeyer, who is at the University of Virginia.

For more information, contact Johnson at shaneajohnson@tamu.edu.

“CEO Optimism and Forced Turnover” by T. Colin Campbell, Michael Gallmeyer, Shane A. Johnson, Jessica Rutherford and Brooke W. Stanley was published in Journal of Financial Economics.

Categories: Research Notes

Intuitively, it is clear that changes in a service environment can reduce the quality of a service at least temporarily. But what is not clear is how deeply, and for how long, major changes affect operating performance – that is, until Texas A&M University business professors Gregory Heim and Michael Ketzenberg decided to answer those questions. They chose a dramatic example of redesign and decided to focus on experience-based service companies, in general, and an area that had not been previously studied in depth: golf courses.

“The argument for improving a course is to make it better, but we wanted to find out if people really thought that was true,” said Mays professor Gregory Heim. “Some people embrace change, while others don’t.”

Many service managers redesign their services periodically to keep their offerings fresh, competitive and desirable to customers. Prior research has shown that it could increase repeat business. What Heim and Ketzenberg wondered was how service firm managers and employees relearn to improve their performance after these major redesigns.

That was the extent of Heim’s golf knowledge at the start of this project. He sought out a colleague to fill the gaps. He did not have to search far to find someone to fit the bill. In fact, Ketzenberg was just down the hall. Ketzenberbg has two passions: research and golf, and he considers the opportunity to combine both a godsend. Heim says he focused on the data analysis, while Ketzenberg provided golfing expertise. “It was an ideal pairing for this project,” Heim says.

Heim says a major research challenge is obtaining real-world operating data from companies upon which to base the research. Most companies are reluctant to share their data. For this study, the authors were looking for data from multiple companies over multiple years. Golf courses posed less of a problem, since the data were publicly reported.

Gregory Heim

The data came in the form of “panel data” from The Dallas Morning News. The News tracks the top Texas golf courses annually through ratings and evaluations of top courses by golf professionals, as well as information on when the courses were designed and redesigned. Heim and Ketzenberg chose to study the data from 1989 to 2009. Their study provides managerial insight by demonstrating the extent of learning, illustrating how redesigns can negatively affect service outcomes, showing how relearning occurs and discussing tactics for success when redesigning services.

Major redesigns, intended to improve products and services, tend to throw the quality of service off track, the researchers found. The question was how long the service suffers, which they studied through learning effect patterns during routine operation periods as well as “window of opportunity” effects the local service crews felt after outside firms had completed the major redesigns.

“We wanted to see what we could learn about what happens when you destroy the course to redesign it; how age affects the long-term experience; and whether the quality of service gets better with time,” says Heim. “When you redesign it, there’s a period of time when the customers miss the familiar old course and they have to re-learn to navigate the course — the hazards, slope of the course, shape of the greens, and so forth. The argument for improving a course is to make it better, but we wanted to find out if people really thought that was true. Some people embrace change, while others don’t.”

Michael Ketzenberg

The topic is a nontraditional one for the field of information and operations management, but both of them say it was fun to do. The lessons learned were to carefully consider changes, communicate about them with stakeholders and make the investment in training staff for the transition. “Discontinuous events that lead to dissatisfaction on the customer’s part are not going to pan out to be good investments,” Heim says.

Both Texas A&M researchers plan to continue golf-related research: Heim intends to update the golf data for new studies while Ketzenberg is working with Rogelio Oliva and a colleague from Europe, Mozart Menezes, on a paper titled “Optimal Scheduling of Golf Beverage Carts.” Ketzenberg explains, “We are trying to answer the often-heard golfer’s lament of why there is never a beverage cart around when you want one. Fun stuff.”

For more information, contact Heim at gheim@mays.tamu.edu or Ketzenberg at mketzenberg@mays.tamu.edu.

The paper “Learning and Relearning Effects with Innovative Service Designs: An Analysis of Top Golf Courses” by Heim and Ketzenberg was released in July 2011 in Journal of Operations Management.

Categories: Research Notes

It’s complicated, an employee’s decision to leave a job — even more complicated than previously believed, Texas A&M University researchers conclude after conducting research on when job searches result in turnover.

As expected, turnover was higher when employees had lower levels of embeddedness and job satisfaction and higher levels of available alternatives. What wasn’t expected, or previously explained, was that there is more complexity to the process than believed, and specifically, that these factors play a key role in whether search behavior actually results in the decision to quit.

Wendy Boswell

Embeddedness means how attached someone is to his current environment, says Mays Business School faculty member Wendy Boswell, who collaborated on the research with fellow faculty member Ryan Zimmerman and doctoral candidate Brian Swider. The trio examined factors that may help explain under what conditions employee job search effort may most strongly (or weakly) predict subsequent turnover.

“How tied you are to not only the place but also the community — if you own a home, your spouse has a job there, you belong to a church or are involved in schools, determines how much incentive it takes to get you to leave,” Boswell explains.

“Fit” is also important — whether the values of a community (as well as the organization) align with the individual’s — and characteristics such as metropolitan versus small-town, or urban versus industrial. “The practical implication for an employer is to know who is really vulnerable to leaving, then going and intercepting those high performers — retention isn’t “one size fits all,'” explains Boswell.

Ryan Zimmerman

The culture of the organization and community also carry great weight in the decision, Swider says. “Say I’m working in New York City and a job opens in a small southern suburb. Whether I pursue that opportunity depends on my personal preferences,” Swider says. “It could be the opportunity I’ve been waiting for or it could sound like a nightmare.”

Employers do a poor job of predicting impending turnover, Swider says. These findings suggest that there may be a number of factors interacting to influence employees’ turnover decisions, indicating greater complexity to the process than described in previous prominent sequential turnover models.

Boswell explains the assumed process: An employee experiencing job dissatisfaction searches for alternatives, evaluates them against his current position, then either quits or stays put. But, often times, employees search and don’t leave. Online applications make it easier to search and even apply for positions, but the likelihood of an employee actually accepting another position depends on his level of enmeshment or “stuckness” as well as how important it is for the person to leave and whether he or she even has the opportunity.

Brian Swider

“The more of these attachments you have, the more likely you are to want to stay somewhere,” Boswell explains. “It used to be the defined benefit plan, but now it is all these other factors that you might have to sacrifice if you were to leave.”

The key for an employer to stay ahead of the turnover, Boswell says, is to know his or her employees. “Are they satisfied, embedded, on the fence?” she says. “Are they flight risks? If so, and if they are top employees, you might be wise to invest in trying to retain them.”

For more information, contact Swider at bswider@mays.tamu.edu or Boswell at wboswell@mays.tamu.edu.

“Examining the job search – turnover link: The role of embeddedness, job satisfaction, and available alternatives,” by Brian W. Swider, Wendy R. Boswell, and Ryan D. Zimmerman, was published in the March 2011 issue of the Journal of Applied Psychology.

Categories: Research Notes

Imagine borrowing from someone else’s stockpile of corporate stocks, then selling shares, later buying them back and returning them, keeping any profit. That’s what short sellers do on a regular basis, and they tend to out-perform the analysts.

The practice is called short selling, and research by two Texas A&M University business professors and a former PhD student shows that ordinary investors can profit by trading with the short sellers.

Lynn Rees

Their research investigated whether short sellers and analysts differ in how they use information that predicts future returns. It appears short interest significantly anticipates the expected direction, while analysts tend to positively recommend stocks with high growth, high accruals, and low book-to-market ratios, despite these variables having a negative association with future returns.

“Investors frequently observe and use recommendations from analysts on whether to buy or sell a stock,” says accounting Professor Lynn Rees. “But, our research suggests that analysts do not always use accounting information, such as accounting accruals and cash flows, in forming their recommendations; whereas, short sellers appear to do much better in using these signals.”

Co-authors are Edward P. Swanson, holder of the Durst Chair in Accounting; and Mays doctoral graduate Michael Drake of BYU. The researchers have presented the paper to professionals, as well as academic audiences, and a NYC capital management company that uses short interest as an input in an investment model.

Edward Swanson

A low percentage of investors do short selling, but a very high percentage of investors would be interested in what they are doing, Rees says, because the short sellers tend to do better than the market. “Our evidence suggests that using the level of short interest combined with analysts’ forecasts allows investors to make more profitable investment decisions,” he says.

For more information about this research, contact Rees at lrees@mays.tamu.edu, or Swanson at eswanson@mays.tamu.edu.

“Trading against the prophets: Using short interest to profit from analyst recommendations,” by Michael Drake, Lynn Rees and Edward P. Swanson, was published in The Accounting Review.

Categories: Research Notes