Robert H. Smith School of Business

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Essays on investor preferences and corporate strategies
(2024) Nguyen, Huu Loc; Sampson, Rachelle; Business and Management: Logistics, Business & Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
Time horizon, an investment’s expected payback period, is a consequential investor preference and a crucial determinant of corporate strategy as it can constrain firms’ investment options. However, a gap exists between research focusing on investor temporal preferences and on corporate intertemporal strategy. Therefore, my dissertation offers a multi-level analysis to examine the dynamic relationship between investor temporal preferences and firm strategy. In the first essay, I construct a real-options signaling game model in which time horizon serves as a key determinant of firm strategic responses to shifts in investor temporal preferences. I test my predictions using the emergence of low-carbon energy innovation in the U.S. Oil and Gas industry during 1980-2018. I find that firms adjust their strategies in response to changes in investor time horizons. When faced with a lengthened investor time horizon, firms are more inclined to prioritize long-term inventive innovation, whereas a shortened investor time horizon prompts a greater focus on short-term adoptive innovation. Furthermore, I find suggestive evidence that such commitments when firms align their strategies to investor temporal preferences enhance firms' innovation performance. The second essay extends my investigation in the first chapter to explore the impacts of the inherent information asymmetry between firms and investors on investor-induced firm strategies. I find that, in high information asymmetry contexts, firms overshoot their investor-induced responses to effectively signal their alignment to shifts in investor temporal preferences. In the third (co-authored) essay, we explore the interplay between investor temporal preferences and firm strategies via top management teams. We study how the career experience of top management influences firm strategies and investor temporal preferences. We construct a novel metric to capture, standardize, and compare executives’ career paths across different functional roles, firms, and industries. Our findings indicate that executives with heightened diversity of experience across various functional roles tend to support longer-term strategies, such as income smoothing over time, aligning with the interests of long-term investors. In contrast, executives with more transitions between firms and industries often exhibit more short-term actions, namely cuts in R&D investments, rendering their firms more appealing to short-term investors.
THREE ESSAYS IN HUMANITARIAN OPERATIONS: PREPARATION AND RESPONSE TO DISASTERS
(2024) Sabol, Matthew; Dresner, Martin; Evers, Philip; Business and Management: Logistics, Business & Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
Three essays related to humanitarian operations are examined. The first essay addresses the impact of humanitarian operations on recovery from disasters. Event study methodology is used to demonstrate the economic impact of Federal Emergency Management Agency (FEMA) disaster recovery operations on economic recovery. The second essay examines how political considerations can impact government response to natural disasters. Based on theories of public choice and congressional dominance, models are formulated and fixed-effects regressions are used to examine the impact of political alignment and control on government-led humanitarian response. The third essay provides a comparative analysis among four inventory management methods used to prepare for humanitarian operations, under conditions of uncertain demand. Demands for key materials are simulated, based on data from the Defense Logistics Agency (DLA), relevant to humanitarian operations. General propositions are formulated for inventory managers in preparation for humanitarian operations.
WHITHER WONDER WOMEN? ESSAYS ON GENDER DIVERSITY IN IT-ENABLED PROFESSIONAL AND CREATIVE DOMAIN
(2023) Wang, Yifei; Ramaprasad, Jui; Gopal, Anandasivam; Business and Management: Decision & Information Technologies; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
Working towards equality and inclusion around gender and race in society is critically important. Despite the increasing number of conversations around these issues, more work is needed to evaluate the causes of unequal participation of men and women in organizations, markets, and economies. In particular, the lack of equity in terms of representation and participation within the important information technology (IT) sector has often been viewed as an ongoing problem. My dissertation focuses on this specific sector and explores potential remedies to enhance the participation and representation of women in specific segments of IT-enabled work, albeit in three different empirical contexts. In my first essay, I investigate the unequal participation of women in IT labor markets and whether they are less willing to compete for complex and risky IT projects. Through multiple experiments on technically trained students, I find that women in the IT industry are more willing to participate in bidding for riskier projects, and their bids are higher than those of men. My second essay studies the issue of unequal representation by women within the digital music industry, where inequitable representation has been clearly noted. Women artists are often faced with less attention, respect, and market share. The study shows that TikTok dance challenges offer a low-cost, effective way to promote artists and increase visibility. The challenges are particularly beneficial for women music artists. My third essay examines the intersection of gender and race in digital music consumption after Floyd's death. I explore whether music can raise awareness of social justice issues and the role of Black artists as sensemaking agents. I find that hip-hop listeners increased after Floyd's death, particularly in less racially diverse cities. Black artists received more listenership across all genres, but consumption was skewed towards Black men artists, highlighting the underrepresentation of women in Black-dominated music genres. Collectively, the findings from these studies in my dissertation will provide valuable theoretical contributions, practical insights, and actionable solutions to bind the gender gap and make the digital markets more diverse and inclusive.
Essays on Entrepreneurship: The Role of Complexity of Innovation and Efficient Hierarchies
(2023) Ding, Yuheng; Braguinsky, Serguey; Agarwal, Rajshree; Business and Management: Management & Organization; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
Entrepreneurial activities have been on the decline across a broad range of sectors in the U.S. during the past few decades. This decline (sometimes also called “declining business dynamism”) is reflected in the decreasing rate of new firm entry, the share of young firms (usually defined as those five years of age or less) in the total number of firms and/or the share of employment at young firms in total employment, and so on (e.g., Decker et al. 2014; Akcigit and Ates, 2021). All of the above have exhibited a secular decline, not just in the U.S. but in other advanced economies as well. The underlying causes of these trends, however, are not yet clear with a broad array of explanations suggested in the literature (Akcigit and Ates, 2019; 2021; Decker et al., 2016; Hopenhayn et al., 2018; Karahan et al., 2019; Andrews et al., 2016). There also appears to be a lot of heterogeneity in how strongly the decline in entrepreneurial activities (business dynamism) is pronounced in various industries and sectors of the economy. In particular, the evidence in Haltiwanger et al. (2014) suggests that high-tech industries could be affected more than other sectors of the economy. High-tech sectors have been the driving force of growth in recent decades, so uncovering the reasons for declining business dynamism in those sectors is a task of first-order importance. In the first chapter, I employ the restricted-use data on the science and engineering workforce in the U.S. to investigate whether the increasing burden of knowledge is a growing concern for science-based entrepreneurship. Results show that since 1997, the rate of startup formation has precipitously declined for firms operated by U.S. Ph.D. recipients in science and engineering. The decline in startup formation is accompanied by an earnings decline, increasing work complexity in R&D, and more administrative work for science-based founders. With limited access to efficient knowledge hierarchies, founders of science-based startups must shoulder the burden of knowledge by doing more tasks by themselves. Workers at established firms, on the other hand, could better mitigate the burden of knowledge by narrowing the span of control and increasing the depth of hierarchy. Moreover, less experienced founders were hit harder than more experienced founders as the increasing burden of knowledge led to increasing returns to labor experience. While in the first chapter I use individual-level work data, in the second chapter I utilize firm-level data from the U.S. Census Bureau to develop the analysis further. I adopt the abductive approach and leverage matched employee-employer Census data between 2000-2014 to investigate how a growing burden of knowledge (measured as knowledge interdependence) in the most innovative firms affects potential entrepreneurs’ decisions to start their own business ventures. I show that higher knowledge interdependence in incumbent firms is negatively associated with employee entrepreneurship, and the negative effect is pronounced even stronger among the highest-performing employees. Moreover, higher knowledge interdependence has a positive selection effect on the quality of “spinouts”, and this effect is significantly stronger if the startup is formed by individuals ranked highest in the human capital distribution. These results suggest that knowledge interdependence does not merely raise the barrier for entry into entrepreneurship by imposing higher costs of knowledge transfer. It also changes the functioning of the internal labor market inside the firms. In the third chapter, I further investigate the mechanism underlying the relationship between knowledge interdependence and employee entrepreneurship. I propose a formal theoretical framework that reconciles all empirical findings. The theory suggests firms that rely on higher knowledge interdependence should share “rent” with their employees by paying wage premia if the profit from higher knowledge interdependence is high enough. As a result, within-firm earning dispersion would always be larger in firms relying on higher knowledge interdependence. I find supporting evidence in the data for this alternative explanation. Overall, these findings have important implications for declining entrepreneurial activity, rising income inequality, and technological change in the U.S. economy. While the conventional wisdom might view the declining entrepreneurial activity in the U.S. as the demise of economic growth, it is possible that as innovation becomes more complex, large established firms start to substitute the role of start-ups in pushing forward the technological frontier and driving economic growth as the efficient knowledge hierarchy could better deal with complex knowledge needed in the production process (Garicano, 2000; Garicano and Rossi-Hansberg, 2004). If this is the case, the declining business dynamism might just be a reflection of technological change and efficient (re)allocation of resources but not necessarily detrimental to technological advancement and economic growth. Whether this is true remains an avenue for future research.
DATA-DRIVEN ESSAYS: ROLE OF PRICING AND RETURNS
(2022) Hemmati, Sahar; Elmaghraby, Wedad J; Business and Management: Decision & Information Technologies; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
In this dissertation, we identify leavers in retailers’ operations such as their shipping policy design as well as markdown strategy which can significantly impact their product returns and the costs associated with it. We study how a high free shipping thresholds can induce shoppers to place orders with an intention to return a part of the order later. Using an empirical approach, which exploits natural experiments, we confirm that high threshold and/or high shipping fees induce a substantial order padding behavior, which leads to lower sales revenue, after adjusting for returns. However, we find that such behavior can be largely alleviated with frictions to returns. We propose that retailers looking to design their shipping policy should correctly account for return environment features. We also explore the link between a retailer’s markdown pricing strategies and its impact on customers’ purchase and return behavior. We specifically study the distinction between regular price markdowns and bundle price markdowns and the key contributors to such distinctions, and how they contribute to sales and customers’ return behavior. Capturing this notion and the heterogeneous impact of bundle and regular discounts on merchandise with different substitutability or complementarity as well as correlation between items at return stage, we offer recommendations on how a retailer should approach the design of their markdown strategies.
Competition, Firm Financial Pressure, and Location Strategy: 3 Essays on Firm Domestic and International Expansion
(2022) Jaffe, Roxanne L; Chung, Wilbur; Business and Management: Logistics, Business & Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation examines the relationship between firm capabilities, including firm financial condition, and expansion strategy in a competitive environment. In Essay 1, I build a formal model of firm geographical expansion and entry timing based on Cournot competition that is driven by heterogeneity in firm, location, and competition traits. Using Monte-Carlo simulation, I identify firm best responses and Nash Equilibrium which serve as predictions for empirical inquiry in Essay 2 and Essay 3. Variation in firm traits and location traits lead to different expansion outcomes including whether firms expand at all, whether firms enter a market early or later, and which geographical location firms choose. While similar firms choose similar expansion behavior, as firms’ relative capabilities and revenue pressure differ, staggered entry becomes more appealing, resulting in differential firm profits. Additionally, expansion strategy becomes more nuanced when considering the interaction between firm, competitor, and location traits, both domestically and internationally. I focus on two key mechanisms of interest and test these empirically: revenue pressure in Essay 2, and liability of foreignness in Essay 3. I focus on a subset of propositions that map to my empirical setting: expansion into cities by firms in the micro-mobility industry (scooter, bike, and moped share companies). In Essay 2, the empirical results for US expansion activity support model predictions that more capable firms expand before less capable firms, but that revenue pressure pushes firms to expand earlier than they would prefer. Extending the model to capture international expansion in Essay 3, I find that liability foreignness helps explain the entry timing of firms at the country level, as well as a subset of entry decisions at the city level. This final essay highlights the nuances of various measures of liability of foreignness, as well as the importance of separating out different levels of analysis (e.g., at the city and country level) when examining firm entry decisions.
BEYOND RISK: VOLUNTARY DISCLOSURE UNDER AMBIGUITY
(2022) Rava, Ariel; Zur, Emanuel; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
In my dissertation, I examine the impact of ambiguity (Knightian uncertainty), alongside that of risk, on firms’ voluntary disclosure decisions. I confirm the well-known result that an increase in risk—uncertainty over outcomes—is associated with an increase in management guidance (earnings and capital expenditure forecasts). Conversely, I find that an increase in ambiguity—uncertainty over the probabilities of outcomes—is associated with less guidance. Furthermore, I show that ambiguity decreases following voluntary disclosures, consistent with managers being aware of and reacting to heightened ambiguity. Finally, I provide novel empirical evidence showing that guidance under ambiguity has adverse capital market consequences. Even though the ways through which risk impacts managers’ disclosure decisions have been extensively studied in the accounting literature, no extant research has examined whether and how ambiguity impacts these decisions. My findings are consistent with the notion that managers’ take into account the ambiguity in the environment, showing that ambiguity has an important and distinct impact on their voluntary disclosure decisions.
Greenwashing, Firm ESG Strategy, and Employee Impact
(2022) Barrymore, Nathan; Sampson, Rachelle C; Business and Management: Logistics, Business & Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation studies the causes and consequences of firms’ environmental and social (ESG) actions, with a specific focus on employees. Essay 1 examines greenwashing: when firms present an overly positive view of their environmental and social outcomes. I ask how top managers and investors’ ESG preferences influence companies’ self-reported environmental and social policies, and their independently reported environmental and social outcomes. I find that managers’ ESG preferences, as proxied using their language on earnings calls, correlate with both ESG policies and outcomes. However, investors’ ESG preferences correlate with only policies and not outcomes, suggestive of greenwashing. I conclude that agency issues explain these divergent results.Essays 2 and 3 ask how employees respond to firms’ ESG outcomes and to firms’ pay policies. Essay 2 explores the relationship between a firm’s ESG outcomes and labor productivity. In two contexts, we find that ESG outcomes predict higher labor productivity, but only when there is sufficient information about firm behavior. In one study, the positive impact on labor productivity only exists for large firms. In another study, the positive relationship appears only after a government regulation requiring that firms disclose their carbon emissions. Essay 3 provides large scale evidence on the relationship between wages and employee attrition. We find that paying above median wages for a specific role decreases attrition rates, but only among low and middle wage workers in the US. If stakeholder capitalism is to sustain and integrate into the US corporate system, the movement needs to be based on accurate assessments of environmental and social outcomes. These essays provide an advance in that direction, by using independently reported ESG data to examine how ESG issues impact firm strategy.
Essays on Mutual Fund Performance Evaluation and Investors' Capital Allocations
(2022) Cao, Bingkuan; Wermers, Russ; Business and Management: Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
The dissertation contains two chapters that studies the performance of mutual funds and investors' capital allocations. In the first chapter, I study mutual funds' portfolio management and investors' capital allocations in a unified framework under mandatory portfolio disclosure. By modeling fund managers and investors simultaneously, I show that more skill managers produce better performance by trading more actively, which causes investors to care about both fund performance and activeness when evaluating fund managers. This investor's behavior explains the convex flow-performance relation observed in the market. In addition, my model demonstrates that portfolio holdings information is more useful to investors than fund returns because portfolio holdings reveal manager activeness that is not fully captured by fund returns. My model offers three novel empirical predictions for which I find consistent evidence in the data. First, investor flows respond to both fund performance and activeness. Second, investor flows are more sensitive to the performance of illiquid holdings in the portfolio. Finally, in a diff-in-diff analysis, I show that investor flows become more sensitive to fund activeness when portfolios are disclosed more frequently. In the second chapter, I study the performance attribution of bond mutual funds. I build a comprehensive sample of U.S. actively managed bond mutual funds with a large cross section and long time series, and examine the characteristics of funds that are most associated with superior active bond fund performance. I construct several sets of covariates to measure different aspects of managerial ability, including risk management, credit analysis, activeness, beta timing, liquidity provision, and family synergy. Given the large set of covariates, I employ machine learning methods such as Boosted Regression Trees to select the best predictors of bond fund performance. Unlike equity funds, I find that risk management plays an important role in generating superior performance. In addition, funds that are better at credit analysis and charge lower fees outperform their peers.
Triptych in Empirical Finance
(2022) Delalay, Sylvain; Maksimovic, Vojislav; Santosh, Shrihari; Business and Management: Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
This dissertation contains three chapters that explore topics in empirical finance and political economy. In Chapter 1, I study how the fundraising revenues of political campaigns affect the outcome of U.S. elections. First, I assemble a novel and granular dataset that provides a comprehensive picture of cash flows and voting intentions during U.S. congressional races. Then, I extract weekly shocks to the fundraising revenues of campaigns by using machine learning on the dataset. I find that the effect of revenues on the vote share decreases over the course of general elections. In races involving an incumbent, an additional $100,000 in challenger revenues increases her vote share by 1.48pp in the first half of the general election, but has no effect in the second half. Early cash infusions are more valuable than late cash infusions because they provide flexibility to respond to the opponent’s actions and mitigate current and future financing constraints. In Chapter 2, I examine how strategic and financial considerations shape the spending behavior of political campaign committees. To discipline the empirical analysis, I derive a dynamic model of strategic investment under financing constraints. I test the predictions of the model using the revenue shocks constructed in Chapter 1. I find that a committee’s elasticity of advertising expenditures to the revenue shocks of its opponent is 8%, which is a third of a committee’s elasticity to its own shocks. Moreover, a committee that is relatively richer than its opponent reacts more aggressively to its opponent’s shocks, both in levels and as a fraction of cash reserves. This result suggests that the availability of internal financing can amplify the competitive aspect of political spending in electoral races. In Chapter 3, I identify investor overreaction in a setting where information flows are not observable and learning pertains to multiple dimensions of an asset. Specifically, I measure how investors react to the information released during merger attempts and whether they form rational beliefs about the probability of deal completion. Using a model of distorted learning that generates testable implications, I find evidence of relative mispricing in the cross-section of merger targets. Empirically, a low price-implied probability of success underestimates the actual probability of success, and vice versa, suggesting that investors overreact to deal-specific information. The overreaction is unrelated to the unconditional merger premium and not driven by exposure to traditional risk factors.

Robert H. Smith School of Business

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