Superior Relative Performance Research Articles

Rationalizing Outcomes: Interdependent Learning in Competitive Markets

In this article, we use simulation models to explore interdependent learning in competitive markets. Such interactions require attention to both the mental representations held by the management of the focal firm as well as the beliefs of that management about the representations held by rival management. When jointly determined outcomes are the primary input to the learning process, understanding rival beliefs—what we call strategic empathy—becomes a crucial factor driving performance. To illustrate these processes, we focus on mental representations that a manager has regarding market demand. In our simulation models, learning occurs through market observations, which recalibrate a manager’s representation about demand. But the flexibility allowed by this recalibration is also a way through which managers rationalize incorrect representations. We find these processes sometimes lead to distortions of initially correct representations and may result in superior relative performance by the firm whose manager holds less correct representations. Finally, we explore how superior knowledge of a rival’s demand representations can improve own performance through market actions that intentionally shape how a rival learns. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2018.0083 .

Impact of competition on fund disclosures and consumer search costs

PurposeThe purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs.Design/methodology/approachThe empirical analysis merges the Center for Research in Security Prices (CRSP) survivorship bias-free mutual fund database, the Thompson Financial CDA/ Spectrum holdings database and the CRSP stock price data. The sample covers the time period between 1993 and 2010 and OLS and logistic regressions are used to investigate the impact of competition on fund disclosures.FindingsThis paper finds that mutual fund disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use portfolio disclosures as a marketing tool to attract investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With competition, the likelihood of receiving new investments decreases for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets, and hence, the effect is stronger for them.Originality/valueThis paper has important policy implications for disclosures in a market where relative performance matters. The traditional view is that competition induces voluntary disclosure because entities would like to differentiate themselves from competitors, and hence, competition should increase market transparency. However, this paper sheds light on the negative consequence of competition in a tournament-like mutual fund market.

Sweating the “small stuff”: High-reliability organizing as a foundation for sustained superior performance

Achieving and sustaining superior relative performance is central to strategic organization research. Recently, strategic organization researchers have turned their attention to the broader set of people doing strategy work, how they do it, and what contributes to superior performance. We deepen this focus by arguing that operational activity on the front line is strategic. To illustrate how everyday operations become strategic, we draw on insights from high-reliability organizing to illustrate how leaders, through practices and behaviors, support a more strategic front line and a specific set of discursive practices known as mindful organizing. The everyday mindful work of front line operations is a crucial source of emerging opportunities and threats that underlie superior relative performance. We discuss the methodological implications of applying high-reliability organizing approaches to study strategic organization and how strategic organization research can broaden and enrich research on high reliability.

Impact of Competition on Fund Disclosures and Consumer Search Costs

This paper investigates the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs. In a sample of open-end US domestic equity funds, it finds that voluntary disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use voluntary portfolio disclosures as a marketing tool to attract new investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With higher competition, the likelihood of receiving new investments goes down for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets and hence, the effect is stronger for them. Thus, competition appears to have an adverse impact on market transparency and hence, on consumer search costs in a tournament-like mutual fund market.

The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights

Equity ownership in the United States no longer reflects the dispersed share ownership of the canonical Berle-Means firm. Instead, we observe the reconcentration of ownership in the hands of institutional investment intermediaries, which gives rise to what we call “the agency costs of agency capitalism.” This ownership change has occurred because of (i) political decisions to privatize the provision of retirement savings and to require funding of such provision and (ii) capital market developments that favor investment intermediaries offering low cost diversified investment vehicles. A new set of agency costs arise because in addition to divergence between the interests of record owners and the firm’s managers, there is divergence between the interests of record owners – the institutional investors – and the beneficial owners of those institutional stakes. The business model of key investment intermediaries like mutual funds, which focus on increasing assets under management through superior relative performance, undermines their incentive and competence to engage in active monitoring of portfolio company performance. Such investors will be “rationally reticent” – willing to respond to governance proposals but not to propose them. We posit that shareholder activists should be seen as playing a specialized capital market role of setting up intervention proposals for resolution by institutional investors. The effect is to potentiate institutional investor voice, to increase the value of the vote, and thereby to reduce the agency costs we have identified. We therefore argue against recent proposed regulatory changes that would undercut shareholder activists’ economic incentives by making it harder to assemble a meaningful toe-hold position in a potential target.

Competition and Transparency in Financial Markets

Is competition sufficient to induce transparency in financialmarkets or is regulation necessary to achieve this? We examine this question taking into consideration that competition in financial markets frequently resembles a tournament, where superior relative performance and greater visibility are rewarded with convex payoffs. We show under fairly general conditions (i.e., model variations) that higher competition for this renumeration often makes discretionary disclosure less likely. In the limit when the market is perfectly competitive, transparency is minimized. This analysis implies that competition might be unreliable as a driver of transparency and self-regulation in financial markets, especially in settings where tournament-style renumeration takes place.

Competition and Incentive to Reveal Information in Financial Markets

In this paper I study the impact of competition in financial markets on incentive to reveal information. In a sample of mutual funds, I find that discretionary portfolio disclosure and advertising related expenses decrease with competition. This is interesting, as one would ordinarily expect funds to disclose more often and incur more advertising expenses in response to pressure from competing funds. However, this supports the theory that mutual funds use discretionary portfolio disclosure and advertising as marketing tools to attract new investments in a financial market, where superior relative performance and greater visibility are rewarded with convex payoffs. With higher competition, the likelihood of landing new investments goes down for each fund and at the same time the cost of disclosure goes up. Funds respond by cutting down on costly discretionary disclosure of portfolio holding information and advertising related activities. Thus competition seems to have adverse impact on market transparency and search cost.

Explicit Relative Performance Evaluation in Performance-Vested Equity Grants

Using data from FTSE 350 firms, we examine the factors influencing the explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide evidence on the use of RPE either to improve incentives by removing common risk or by linking greater vesting percentages to higher relative performance rankings. We also investigate whether RPE is used to opportunistically increase vesting and/or placate external parties calling for its use. We find that specific RPE conditions vary depending upon whether the plan is used to remove common risk or to promote superior relative performance. However, we find no evidence that greater external monitoring by institutional investors or others is associated with specific RPE performance conditions. The relative performance conditions are binding in most RPE plans, with nearly two-thirds of the grants vesting only partially or not vesting at all. However, we find no evidence that vesting percentages are higher in RPE plans than in non-RPE plans, and no evidence that RPE is used opportunistically to increase vesting and compensation.

Feeling good after praise for a successful performance: The importance of social comparison information

This study examined the role of social comparisons in producing the satisfaction that often follows from praise. Participants received no praise, comparison-free praise (without explicit social comparison information), and social comparison praise (with explicit social comparison information) after successfully completing a challenging intellectual task. In addition, they either received or did not receive performance norms indicating superior relative performance. Praise only led to greater feelings of satisfaction compared to the no praise, norm absent condition when it was also joined with social comparison information, either provided directly through social comparison praise or through performance norms. The presence of performance norms also enhanced satisfaction. Overall, participants' perceptions of superior relative performance mediated the effects of social comparison praise and of norm information on feelings of satisfaction.

Electromechanical properties of thin strip piezoelectric vibrators at high frequency

A method was developed and used to determine the electromechanical properties of high frequency (>20 MHz) piezoelectric strip vibrators. A nonlinear regression technique was employed to fit the impedance magnitude and phase as predicted by Mason’s model to measured values. Results from experimental measurements on 30 MHz array elements supported by an attenuative backing indicated degraded performance when compared to values predicted from the electromechanical properties measured at low frequency. This degradation may be attributed to damage incurred during fabrication and grain size effects, with a fine grain sized material providing superior relative performance. This technique may be used in the evaluation and comparison of different fabrication processes and materials for high frequency medical imaging arrays.

COMPARISON OF THE EFFECT OF nap AND pol CYTOPLASMS ON THE PERFORMANCE OF INTERCULTIVAR SUMMER OILSEED RAPE HYBRIDS

The objective of this study was to compare the performance of male fertility restored intercultivar F1 hybrids in the nap and pol cytoplasms to determine the relative effect on performance of these two male sterility inducing cytoplasms. F1 hybrids (all were 2n = 39 because a common 2n = 40 restorer line was used to produce the F1 hybrids) in both cytoplasms exhibited superior relative performance compared to the conventional cultivar Regent for seed yield, total dry matter and total protein yield. F1 hybrids in the pol cytoplasm performed significantly poorer than F1 hybrids in the nap cytoplasm for seed yield, total dry matter, harvest index, percent oil, total oil yield, and total protein yield. These results suggest a biological cost associated with the presence of the pol cytoplasm. The cost of the pol cytoplasm, relative to the nap cytoplasm, was affected by parental cultivar, but was consistent over a variety of environments.Key words: Cytoplasm cost, Brassica napus L., cytoplasmic male sterility, heterosis, hybrid