Consequences of Winning: Evidence from Sell-Side Equity Research
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This dissertation studies the impact of winning awards on individuals’ behaviors, as well as their consequential effects on organizational outcomes. Essay 1 studies when managers may knowingly make poor decisions. Specifically, we posit “reputational herding,” whereby decision makers herd to avoid being uniquely wrong even when they know this will make them less likely to be correct. We model this phenomenon and show that decision makers will be less likely to herd when they have higher reputations and when experts have less correlated information. The theory provides predictions that distinguish between learning and reputational herding. The theory is tested in the context of sell-side stock analysts. Using winning a performance-based awards as a shock, a difference-in-differences estimation compares award-winning analysts and runners-up with similar ability to identify the causal impact of a change in reputation on the likelihood of herding. The results suggest that analysts herd less after an increase in reputation, which is consistent with the reputational herding mechanism. Essay 2 studies the effect of winning professional performance awards on entrepreneurial entry. We propose that performance awards can increase professionals’ likelihood to become entrepreneurs through increasing their confidence and reputation. We examine the effect of winning a performance award on stock analysts’ likelihood to become entrepreneurs by comparing the winners with a control group with similar ability. Using LinkedIn data, we trace the careers for about 3,000 analysts and find award winners’ likelihood of becoming entrepreneurs is 30% to 40% higher than that of the non-winners. Additionally, we find that the effect of winning is driven by mid-career professionals and those who work at relatively bigger firms. The evidence suggests that winning awards complements existing resources in entrepreneurial entry decisions. Our study provides evidence that performance awards may be low-cost instruments that complement formal policy to encourage entrepreneurship. Essay 3 discusses the empirical challenges and opportunities in studying awards for management research. We argue that existing research do not provide sufficient empirical evidence on the topic or theoretical explanations for different empirical results. We discuss several major challenges: internal validity, external validity, and disciplinary differences in studying awards. We propose some measures to deal with these challenges and suggest potential research avenues.