Based on research Vikas Mittal, Vanitha Swaminathan, Christopher Groening and Felipe Thomaz

• Managers should forgo choosing between efficiency and customer satisfaction goals in a merger and instead pursue a dual-goal strategy.
• A dual-goal strategy pays off in the long run.
• When executing a dual-goal strategy, take the firm’s unique resources and industry dynamics into account.

Mergers are making a comeback, but fewer than half actually create financial value. Take the 2008 merger between Delta and Northwest Airlines, for example. Initially, it was declared a success because of management’s disciplined approach to cost control. But later on, the newly merged firm suffered earnings shortfalls and a lackluster stock price. So, if the success of a merger is driven purely by cost efficiency, what went wrong with Delta? Well, anyone who flew Delta just after the merger knows the story. Late arrivals and rising customer complaints caused customer satisfaction to plummet.

In hindsight, it seems obvious that things might have turned out differently had Delta’s executives focused simultaneously on cost efficiency and customer satisfaction. But, truth is, having a dual-goal strategy has always been frowned upon by senior managers. After all, it’s what many of them learned in business school: “Successful firms must choose a dominant strategy: cost leadership or customer focus. Trying to do both well is just too difficult because the two strategies are in conflict about how to grow the bottom line.” But a lot has changed since those business school days, and we now know that managers don’t always have to choose between two strategic goals. A dual-goal strategy is feasible for many firms.

But is there anything about a merger environment that makes a dual-goal strategy especially attractive? Yes, according to a study co-authored by Vikas Mittal, J. Hugh Liedtke Professor of Marketing at Rice Business. In fact, findings from the study show that a dual-goal strategy actually maximizes long-term value for a merged firm.

Prior research already confirms that a dual-goal strategy could boost the bottom line — merger or no merger. Why? Because the income statement math works: customer satisfaction increases sales and efficiency reduces costs. Another way to think about the power of a dual-goal strategy is that the extra revenue generated by higher customer satisfaction could be redeployed to shore up efficiency-enhancing initiatives. So, a dual-goal strategy could be synergistic.

What makes the merger context uniquely suited to the pursuit of a dual-goal strategy? Mittal and his co-authors argue that while mergers can be disruptive and financially challenging early on, a dual-goal strategy pays off in the long run because it provides management the opportunity to make beneficial changes: strengthen organizational systems, bolster capabilities and increase market power. For example, mergers provide managers the flexibility to reallocate human resources most productively, across both firms, in line with the new strategic direction. Also, mergers give managers a chance to access new markets and pursue profitable customers with differentiated offerings, both of which could sustain satisfaction and grow profits. Finally, from a cost-efficiency standpoint, mergers help managers take advantage of economies of scale and scope, streamline (often through downsizing) and invest wisely in new resources such as efficiency-driven information technology systems.

Mittal and his co-authors analyzed secondary data spanning nine years (from 1995 to 2003) and 429 firms (54 percent involved a merger). This sample of mostly large companies was tracked by the American Customer Satisfaction Index (ACSI) and represented a mix of firms in services and goods industries (e.g. Ford, Coca-Cola, FedEx, Southwest Airlines, Kroger). Firms varied in terms of ACSI customer satisfaction ratings as well as efficiency ratings, as measured by an index created for this study. The change in the so-called Tobin’s q metric — the market value of a firm’s stock divided by the replacement costs of the firm’s total assets – was used to measure the change in a firm’s long-term performance. Tobin’s q is a forward looking measure that points to investor expectations of a firm’s future success.

Findings from the study were clear. With mergers, especially those that are horizontal, an increase in customer satisfaction coupled with an increase in efficiency results in the highest change in a firm’s long-term performance. There is evidence that efficiency gains could improve long-term performance, even in the face of a dip in customer satisfaction. But take note: The performance gains under those conditions are smaller (and in Delta’s case nonexistent) in comparison to those achieved when efficiency and satisfaction are increased simultaneously. And, importantly, when no merger has taken place a dual-goal strategy does not enhance long-term performance in comparison to other strategies, such a focusing on either increased customer satisfaction or efficiency.

Taken together, these findings suggest that mergers provide a uniquely beneficial environment in which to pursue a dual-goal strategy. But if you are contemplating a merger, take heed: The findings don’t tell you exactly how to improve customer satisfaction or efficiency in your business or industry. Context matters. So, in the end, take into account your firm’s unique resources and industry dynamics to execute a dual-goal strategy, knowing that maximum long-run performance gains are at stake.

Vikas Mittal is the J. Hugh Liedtke Professor of Management in Marketing at Jones Graduate School of Business at Rice University. 

To learn more, please see: Swaminathan, V., Groening, C., Mittal, V., & Thomaz, F. (2014). How achieving the dual goal of customer satisfaction and efficiency in mergers affects a firm’s long-term financial performance. Journal of Service Research, 17(2), 182-194.

Based on research by K. Ramesh, Edward Xuejun Li, MinShen and Joanna Shuang Wu

View the cartoon here: Roller Coaster

• Analysts’ revisions offer authentically new information.
• Analysts’ revisions don’t duplicate corporate news. More than 50 percent of these revisions offer information contrary to recent firm news.
• After-hours revisions are more common and provide even more new information than regular-hours revisions.

Issued on the heels of company news releases, analysts’ stock recommendations are often dismissed as repackaged PR. In-house forecasts, skeptics say, exist only to peddle a brokerage house’s other services. Yet the houses themselves spend real money in court defending their analysts’ copyrights. The reports, the houses insist, add value. It turns out that the houses are right.

A new study co-authored by K. Ramesh, a professor at Rice Business, reveals that analysts do not simply rehash the company line: They not only help investors with stock valuation by issuing confirming revisions, but also reverse prevailing market beliefs by issuing contrary revisions.

In the past, academic research yielded mixed results on the topic. Researchers typically focused on daily stock market reaction to analysts’ recommendations, which often are released around corporate news, and tended to overlook analyst revisions that were released after hours. Both methods blurred the picture. They made it difficult to parse the effects of stock recommendations versus corporate news and drew an incomplete conclusion of information contained in analyst revisions.

To correct these distortions, Ramesh and his co-authors used fine-grained, intra-day data that separate stock market reactions to company news releases from reactions to analyst revisions. They then compared how much new information each source provided. Although the timing of analysts’ revisions often coincided with that of news releases, the movement of stock prices showed that investors did indeed value the analysts’ information.

Intriguingly, the authors also found a striking difference in the content of revisions published during regular trading hours and revisions that came out after hours. Exploiting this previously ignored area, Ramesh and his co-authors showed that the number of revisions released after regular trading hours was much greater than the number during regular trading hours. The spike reflected a greater demand for the information from the institutional investors that dominate after-hours trading. These after-hours revisions, the researchers found, also carried more information than revisions published during regular trading hours.

If analyst revisions were simply repackaged corporate news, you would expect them to be positive when firm news was positive and negative when it went sour. However, Ramesh and his co-authors found, only 28 percent of revisions actually dovetailed with the corporate news they followed. These revisions, moreover, actually offered more information than did the corporate releases. The rest of the time analysts either made recommendations independently or issued revisions contrary to firm news releases.

Contrary to skeptics’ complaints, in other words, the study’s findings strongly suggest that analysts not only don’t rehash the corporate line — they give investors new and useful information. But the skeptics may still be right about something: The new findings don’t indicate that analysts’ revisions are necessarily correct. They simply offer authentically new information. Investing is still risky business, even when the analysts do their part to inform.

K. Ramesh is the Herbert S. Autrey Professor of Accounting at Jones Graduate School of Business at Rice University. 

To learn more, please, see: Li, E. X., Ramesh, K., Shen, M., & Wu, J. S. (2015). Do analyst stock recommendations piggyback on recent corporate news? An analysis of regular-hour and after-hours revisions. Journal of Accounting Research, 53(4), 821-861.

Based on research by Otilia Obodaru (former Rice Business professor)

• Contrary to previous thought, most people construct a sense of self using more than a past/present/future timeline. We also imagine the selves that would be possible if some event or decision had caused a different outcome. 
• These imagined alternative selves affect the workplace because we attach meaning to them that, for good and ill, affects employee performance.
• Researchers should expand their current understanding of the self to include these imagined realities. And managers should consider employees’ alternate selves as a part of successful planning.

Social psychologists and behaviorists have traditionally used a concept of self based on an individual’s “temporal,” or past/present/future, view of her life. It makes sense, after all, to think about ourselves in terms of who we were, who we are now and who we may be in the future.

But according to Otilia Obodaru, a former assistant professor at Rice Business, there is more about the self than the experts are factoring in. Most people, her research shows, live their daily lives alongside alternative selves in a separate reality concurrent with their chronological lives.

Alternative selves in a parallel reality? It may sound like science fiction. But consider the following scenario.

Suppose your mother always wanted a doctor in the family. You headed to college bound and determined to make her dream come true, only to find, after nearly bombing a biochemistry final, that you preferred accounting instead. Now suppose, 10 years into your accounting career, that you routinely muse about what your life might have been like as an MD instead of a CPA.

According to Obodaru, you have an alternate self, one that is part of your current self-concept. And if you believe your life as a doctor would have been better than the life you have now, this alternative self can wreak havoc on your “self-concept” — that is, your essential sense of who you are.

It’s common for people to engage in “counterfactual thinking,” or considering alternatives to past decisions or behavior. “If I’d gotten up when the alarm went off instead of hitting the snooze button, I’d have missed this traffic jam and arrived at work on time,” is one such example.

But constructing an alternative self involves more than counterfactual thinking. One component is reflection on a turning point in one’s life. Turning points are usually emotionally intense events that alter a person’s path — a job change, birth of a child or that D in biochemistry. They are ripe for reflection and provide learning opportunities for people to consider.

People can also use turning points to engage in “undoing” that event and reweaving an alternative narrative. When that reweaving becomes part of a person’s life story that he or she tells and retells, “If I’d passed that biochemistry final, I’d probably be a doctor today,” it becomes an alternative self and part of that person’s self-concept.

A man who wishes he’d become a doctor instead of an accountant may be less satisfied and engaged with work and likely less content with life in general. Years after the fact, that choice — and the alternative self it created — can alter his performance at work and even his quality of life.

We may be witnessing a rise in these alternative selves, Obodaru argues. In part, she writes, this is because so many people have unprecedented freedom to make choices, and instant access to unlimited information regarding those foregone choices. According to one study, the number of people who report harboring long-term regrets has grown from about 42 percent in the 1950s to nearly 100 percent today.

That’s why managers should strive to understand employees’ current and alternative selves. For better or worse, these alternative selves help shape job satisfaction, commitment and motivation. While managers can’t change the past, awareness that their employees travel there, in the form of alternative selves, can make it easier to guide the present.

Otilia Obodaru is a former management professor at the Jones Graduate School of Business at Rice University.

To learn more, please see: Obodaru, O. (2012). The self not taken: How alternative selves develop and how they influence our professional lives. Academy of Management Review, 37(1), 34-57.

Based on research by Yan Anthea Zhang and Hongyan Qu

• A change in CEO gender amplifies disruption inherent in the leadership change process.
• These outcomes don’t reflect on personal performance.
• Having other women in leadership positions – on the board, in top management – reduces the disruption in the status quo.

You've got to put yourself in the newcomer's shoes. You're the first female CEO at your firm. You beat all your fellow competitors from outside, plus everyone inside company ranks. And you got your job on the merits, at a corporation without one other woman in upper management or on the board of directors.

After blasting through such barriers, you'd be forgiven for thinking any future obstacles would be just as manageable. But a study co-authored by Yan Anthea Zhang, a strategy professor at Rice Business, and Hongyan Qu, an assistant professor at the Central University of Finance and Economics, suggests otherwise. The unique research on gender and CEO succession in China showed that when a female CEO succeeded a male CEO, it amplified the disruption inherent to the corporate leadership change process. That disruption correlated to lower performance for the company.

Furthermore, the authors found, in any succession with gender change, male-to-female or female-to-male, chances rose that the new CEO would make an early exit.

Strikingly, these outcomes didn't reflect a difference in male and female CEOs' performance. Men and women do seem to lead differently: Male executives, one study showed, made more acquisitions and issued greater debts; female executives placed wider ranges on earnings estimates and exercised stock options earlier than men.

But there is no clear evidence of a difference in male and female CEOs’ performance. And in Zhang's study, the gender of a new CEO alone, if not considered alongside the predecessor’s gender, had no impact on either company performance or the likelihood the newcomer would leave early.

Instead, lower company performance after a male-to-female succession was linked to disruption of the status quo – that is, the predecessor CEO’s leadership style. Hiring a CEO from within, they found, markedly softened the disruption of a male-to-female succession.

Grooming other female leaders also made a difference. In firms with women already in top management or on the board of directors, the negative impact of a male-to-female CEO change on company performance dropped. And the presence of top-echelon women leaders entirely eliminated the higher chance that the new CEO, if female, would leave early. The more common it becomes to see a woman in power, in other words, the less disruptive a male-to-female CEO succession becomes to the whole company.

But how much does a study of companies in China tell about workplaces in the United States? To perform the research, Zhang collaborated with Hongyan Qu, of China's Central University of Finance and Economics, using data from 3,320 CEO successions listed in China’s Shanghai and Shenzhen Stock Exchanges from 1997 to 2010. Like the U.S., China has a small but rising proportion of women CEOs. In both countries, hiring a female boss still breaks with tradition. By hiring from within and deploying women in top echelons, Zhang and Qu write, companies can hire new CEOs on the merits rather than fear of disruption.

Yan Anthea Zhang is the Fayez Sarofim Vanguard Professor of Management in Strategic Management at the Jones Graduate School of Business at Rice University. 

To learn more, please see: Zhang, Y. A., & Qu, H. (2015). The impact of CEO succession with gender change on firm performance and successor early departure: Evidence from China’s publicly listed companies in 1997-2010. Academy of Management Journal, 59(5), 1845-1868. 

Based on research by Brian Akins, Jeff Ng and Rodrigo Verdi

• Does the information environment shape the cost of capital? According to conventional wisdom, the fewer people with useful information, and the bigger the gap between these informed investors and less informed investors, the more that this information can be used to advantage.
• It’s also been thought that as the number of informed investors rises, and competition among those investors increases, such advantage is reduced, as is the price of capital.
• An analysis of activities of institutional investors supports this thesis, and suggests that the more informed investors there are, the better for everyone.

It’s hardly surprising that good investing information can lead to increased returns. But can competition over that information by knowledgeable investors also be good for people who don’t have the same inside access? Can it mean a fairer market for all and a reduced price of capital? 

Conventional thinking says yes. But conventional wisdom, and providing proof, are two very different things. Economic theories have argued that, for any given level of information asymmetry — that is, the difference in the number of people who know useful facts and details and those who don’t — the degree of exploitation by informed traders is lower when there is more competition. The reasoning is simple: The more the knowledgeable investors compete with each other, and the more knowledgeable investors there are to join in that competition, the more quickly the private information is reflected in equity prices.

If just one person or group of people has the inside scoop, they can take advantage of their knowledge of the difference between the underlying value of a firm and its market price through strategic trades. Because they know something about fundamental value that others don’t, at least yet, they can, as the old adage goes, buy low and sell high, or do whatever makes the most economic sense. But as more people know that real value, it gets harder to sell or buy at anything but a fair price.

A simple enough idea, perhaps, but how do you test it in the real world? Investors with an inside scoop aren’t prone to announcing themselves. Brian Akins, an associate professor of accounting at Rice Business, and co-authors Jeff Ng, an associate accounting professor The Chinese University of Hong Kong, and Rodrigo Verdi, an accounting professor at Sloan School of Management, realized that you could look at the actions of large institutional investors as a proxy for informed investors. The assumption was that investors with more holdings in a given firm are more likely to have access to private information, or at the very least more incentive to seek out private information. By studying the concentration of shares owned by different institutional investors, the researchers reasoned, you can come up with a rough idea of the concentration of private information, and how much competition there will be among those who have that information.

Using this proxy, Akins and his co-authors then looked at what is known as post-earnings-announcement drift (PEAD), or the changes in a company’s stock price following the announcement of earnings. The notion is that earnings announcements are a time when those with inside knowledge can best make use of it. By looking at the fluctuation in prices, and how long it takes before those values settle, and then comparing that against the concentration of institutional investors, one can get an idea of how competition among informed investors impacts stock values, which impact the cost of capital.

The researchers found what they expected: Firms with more institutional investors had less fluctuations in PEAD, and established a stable price, one that likely reflected a firm’s value accurately, faster than those with fewer institutional investors. PEAD was reduced as the competition among informed investors caused their information to be impounded into price more quickly.

So competition is, in fact, good. A not surprising finding, perhaps, but one that could have implications for firms whose assets are held by too few investors. For these firms, encouraging rivalry by widening the pool of informed investors might help reduce their cost of capital.

Brian Akins is an associate professor of accounting at Jones Graduate School of Business at Rice University. 

To learn more, please see: Akins, B. K., Ng, J., & Verdi, R., (2012). Investor competition over information and the pricing of information asymmetry. The Accounting Review, 87(1), 35-58.

Based on research by Jennifer M. George, Suzanne Chan-Serafin and Arthur P. Brief

• Organizational scholars have, with few exceptions, avoided exploring religion in the workplace.
• The rise of openly faith-based organizations is an indicator that religion is playing a role in organizational life.
• The authors propose a rigorous but dispassionate exploration of religion in organizations.

“There are three things I have learned never to discuss with people: religion, politics and the Great Pumpkin!” — Linus

In the animated television special It’s the Great Pumpkin, Charlie Brown (1966), Linus echoed the cultural taboo on discussing religion in polite company. It’s poor etiquette, right? But the taboo on discussing religion seems to have squelched needed organizational research on the impacts of religious beliefs in the workplace. Jennifer George, Mary Gibbs Jones Professor Emeritus of Management at Rice Business, and her colleagues Suzanne Chan-Serafin at the University of New South Wales and Arthur Brief at the University of Utah recently studied this paucity of potentially valuable research and developed a theoretical framework and research agenda encouraging scholars to boldly go where Linus would not.

As George and her co-authors point out, employees do not leave their thoughts about religion at the workplace door. Just as individuals’ attitudes, values, moods, skills and behaviors spill over to influence their thoughts and actions in the workplace, employees’ religious beliefs may also spill over to influence their thoughts and actions in organizational life. To date, however, the sparse research on the topic has focused on the positive organizational outcomes of religion or spirituality. George and her colleagues call for a more a more balanced orientation, one that acknowledges both the potential benefits and challenges of religious beliefs in organizations.

To achieve this balance, George and her colleagues advise exploring the fundamental tensions between related positive and negative outcomes of religion at work. They view these tensions through a psychological lens focused on affect, cognition and behavior, rather than through a theological or philosophical lens.

One such tension is between the psychological traits of virtuousness versus “more-virtuous-than thou.” On the virtuousness side, research suggests that religious workers possess more character strengths such as agreeableness, conscientiousness and honesty. These traits may lead religious individuals to work diligently, which in turn boosts productivity. On the more-virtuous-than-thou side, some religious workers may fall victim to self-serving assessment biases. This well-established psychological phenomenon may result in flawed self-assessments such as “feeling holier than thou.” A biased manager may then have low expectations for subordinates, and withhold emotional and professional support. The subordinates’ experiences are thus limited and their confidence is lowered, resulting in poor performance.

George and her colleagues contend, though, that it is not enough to simply acknowledge the potentially positive and negative consequences of religious beliefs at work. For this research to be of use to managers and organizations, it must also explore the contexts in which one side of the tension is likely to prevail over the other side. For example, George and her co-authors suggest that a combination of intrinsically religious organizational members and self-identity threats in the workplace may cause otherwise virtuous members to succumb to a more-virtuous-than-thou orientation. Self-identity threats such as power imbalances and stereotypes are not uncommon in the workplace. When employees whose faith is fully integrated into their lives experience self-identity threats at work, these threats may trigger defense mechanisms leading the intrinsically religious to view themselves in a more positive but unrealistic light. This can result in them adopting a more-virtuous-than-thou orientation.

George and her colleagues identified a common thread to guide organizational researchers in exploring these and other benefit/challenge tensions set up by religion in the workplace. The team identified two kinds of forces that influence these tensions: individuals’ religiosity and beliefs in God, and the contexts in which religious organizational members are embedded. The particular combination of these two forces can drive either positive or negative outcomes. For managers, the important takeaway is that employees’ religiosity, in and of itself, does not necessarily have either positive or negative consequences. Instead, factors such self-identity threats or religious stimuli may “switch on” employees’ religious role identities.

So, religion clearly matters at the individual level, but what about the impact of religion at the organizational level? For example, how might religion matter when it is an organizational attribute such as it is in a Christian owned and operated business such as Chick-fil-A? On one hand, the authors theorize that organizational religiosity can lead to discrimination and uncomfortable work environments for employees who are religiously dissimilar from the majority. On the other hand, workers in faith-based organizations may engage in more prosocial organizational behaviors than those in secular organizations.

George and her colleagues have opened the door to discussing religion at work. As scholars rise to the challenge of broaching this largely taboo topic, managers and organizational leaders too can benefit by better understanding both the positive and negative outcomes of religion at work.

Jennifer M. George is the Mary Gibbs Jones Professor Emeritus of Management​ in Organizational Behavior.

To learn more, please see: Chan-Serafin, S., Brief, A. P., & George, J. M. (2013). How does religion matter and why? Religion and the organizational sciences. Organization Science, 24(5), 1585–1600.

Based on research by Hajo Adam (former Rice Business professor) and Adam D. Galinsky

• Seeing specific clothes elicits specific emotions.
• Wearing those clothes elicit even more specific emotions.
• Changing the clothes you wear can have a profound effect on your performance.

What do our clothes say about us? We know they hold important sway over how others perceive us. Research shows that people who wear formal clothes are considered more intelligent, or more skilled or more competent. But what influence do clothes have on the wearer?

The theory of embodied cognition maintains that physical experiences not only shape our abstract concepts but actually take on symbolic meaning. Nodding your head while listening to a persuasive message increases your susceptibility to the persuasion. Carrying a heavy clipboard increases a sense of importance. Expanding your body posture affects your feeling of power.

In a study done by Hajo Adam, a former assistant professor of management at Rice Business, and co-author Adam D. Galinsky, they argue that it is indeed worthwhile to pay attention to what workers wear. According to their theory of “enclothed cognition,” clothing shapes the wearer’s psychological processes by activating the associated abstract concepts. Enclothed cognition doesn’t occur until you actually wear the clothing. It involves the interaction of two separate factors: the symbolic meaning of the clothes and the physical experience of wearing the clothes.

Thus, research subjects who wore white lab coats – since it signifies a scientific focus and an emphasis on being careful and attentive — performed better on attention-related tasks than subjects who didn’t wear the coats. On the other hand, subjects who wore the same coat but were told it was a painter’s coat — not a doctor’s coat — did not improve their performance. So the symbolic meaning carries much more weight than we might think.

Understanding both the effects of the physical experience as well as the symbolic meaning of the clothes allows us to better predict outcomes — and possibly also direct outcomes. In one study, a set of  participants wearing nurse’s uniforms — a symbol of helping and caring — were asked to administer electric shocks. They were more reticent to do so than a set of participants wearing large hoods, which the researchers say conferred a sense of anonymity as well as possibly conjuring images of robbers or terrorists.

So we have to consider: Does wearing the robe of a priest or judge make a person more ethical? Does a firefighter feel more courageous in his uniform?

And perhaps more importantly for businesses: Should employers require a dress code? Provide uniforms? Encourage casual Fridays? One way to answer this, Adam’s research suggests, is to consider the self-perceptions needed to spark a particular kind of performance. And then consider if a simple change, perhaps logo shirts for employees to wear on sales calls or matching hard hats for your field work team, might in fact help dress them for success.

Hajo Adam is a former assistant professor of management at Jones Graduate School of Business at Rice University.

To learn more, please see: Adam, H., & Galinsky, A. (2012). Enclothed cognition. Journal of Experimental Social Psychology, 48(4), 918-925.

Based on research by Jennifer M. George (Mary Gibbs Jones Professor Emeritus of Management)

• Previous studies of affect (emotion and mood) in the workplace have assumed that positive affect is inherently good and negative affect inherently bad.
• Previous research indicates that positive and negative affect are likely to interact in complicated ways.
• Rather than considering each separately, organizations should take a dual approach to evaluating the impact of positive and negative affect.

"You've got to accentuate the positive, eliminate the negative...." So the song goes, but what if we've been looking at things the wrong way? After all, both positive and negative emotions are naturally occurring responses to environmental stimuli.

Jennifer M. George, Mary Gibbs Jones Professor Emeritus of Management at Rice Business, evaluated the existing literature on affect in the workplace and hypothesized that it is more effective to study the combined impact of positive and negative affect, rather than examining them independently.

George started by looking at the role of emotions, defined as intense, short-lived feelings automatically triggered by stimuli.

While we tend to assume positive emotions are more desirable — after all, they’re more pleasant to experience — negative emotions serve a purpose. Take fear, for example. Fear is the body's way of signaling the presence of a threat in the environment. This may have begun as an evolutionary defense mechanism, but it's still relevant in the corporate world.

For an individual, understanding an emotion’s source can spur useful change (fear of layoffs can lead to proactive planning). For a group, spotting prevalent emotions can lead to constructive actions (employee anger could indicate unfairness in the organization). In either case, ignoring negative emotion can squander a chance to address a real problem.

George also notes that emotions often cannot be neatly divided into positive and negative. For example, working on a challenging project can induce both enthusiasm (e.g., when significant progress is achieved) and stress (e.g., when unexpected setbacks occur). In fact, the types of work activities that are likely to lead to strong positive emotions are also most likely to lead to negative ones, because the stakes are higher.

At the organizational level, even positive change can leave employees feeling unmoored and vulnerable to unexpected occurrences. At the interpersonal level, a worker may feel happy when a colleague helps him out, and angry when he perceives a coworker undermining him. She can also feel ambivalence — such as when a close friend receives a promotion she thought she deserved herself.

Another argument for a dual approach to affect comes from what researchers call the positivity offset and the negativity bias. The positivity offset is the tendency to have a slight positive emotional state when no stimuli are present. This suggests that people in a neutral setting will be more inclined to approach than avoid, leading to exploration and learning. The negativity bias refers to our tendency to give more attention to negative information and events. These two natural inclinations work together to encourage curiosity and discovery while also protecting us from potentially harmful situations. The effects of positive affect over a time period will vary depending on the extent to which negative affect is experienced over that time period (and vice versa).

Finally, George focuses on the role of moods: less intense and longer lasting affective states that aren't tied to any particular stimulus. A mood may not interrupt thought processes the way that a strong emotion does, but it can color workers’ day-to-day life in a profound way. Positive moods can signal that all is well and encourage thought processes that are less systematic and more expansive. Negative moods warn that our situation is problematic and encourage cautious, analytical thinking. Both are obviously valuable in an organization, as they encourage employees to approach problems from multiple perspectives.

Johnny Mercer may have told us not to mess with Mister In-Between. But as George's research shows, both positive and negative affect have value. By looking at them together, we can reach a better understanding of how mood and emotion influence the workplace.

Jennifer M. George is the Mary Gibbs Jones Emeritus Professor of Management in Organizational Behavior at the Jones Graduate School of Business at Rice University. 

To learn more, please see: George, J. (2011). Dual tuning: A minimum condition for understanding affect in organizations? Organizational Psychology Review, 1(2), 147-164.

Based on research by Alexander W. Butler, Larry Fauver and Sandra Mortal

• Political corruption is a potential risk for investors and financial intermediaries.
• This paper provides evidence of a new and unique role that that financial institutions play in mitigating the costs of corruption.
• The upside is that specialized financial institutions sell insurance contracts to outsource the risks of corruption from bonds.

Theory and evidence suggest that political corruption is costly because it slows financial and economic growth and development. But how exactly?

In a study by Alexander W. Butler, a professor of finance at Rice Business, and his two co-authors Larry Fauver, professor at Haslam College of Business, and Sandra Mortal, professor at Culverhouse College of Business, the municipal bond market provides a laboratory to show precisely how political corruption affects the interactions between governments, financial intermediaries (e.g. banks and insurers) and investors.

States within the U.S. issue municipal bonds to fund local investments such as new schools and transportation projects. Municipal bond markets provide an ideal research setting due to the availability of detailed data, which include the credit risk and pricing of bonds, the underwriting services and fees and the quality of financial intermediaries.

Corruption convictions per capita of local, state and federal officials measure just how corrupt a state is. Notoriously corrupt states such as Louisiana, Mississippi and Illinois have the highest conviction rates, whereas Nebraska, Utah and New Hampshire have the lowest. For example, the citizens of Illinois have elected three governors, one cabinet member, four state senators and three state representatives who have been formally convicted and jailed due to federal corruption offenses, including the conviction of Rod Blagojevich.

The authors use the fact that some states are more politically corrupt than others to study how political corruption drives differences across municipal bond markets. Their results answer four questions that provide insight into how political corruption affects financial markets:

1. Does political corruption affect credit risk?
2. Does political corruption affect the pricing of investments?
3. Does political corruption affect the service fees that investment banks charge?
4. Does political integrity affect issuers’ choice of financial institutions?

The paper shows that bonds issued by highly corrupt states have significantly higher risk, in the form of lower bond ratings, than those issued by less corrupt states. Furthermore, corruption comes at a price. Politically corrupt states must pay significantly higher rates of interest, or yields, to entice investors to buy their bonds. These higher interest rates make it more expensive for states to fund local investment projects that benefit state residents.

Naturally, specialist financial institutions have emerged to establish a price for political risk. These bond-insuring institutions evaluate the risks of political corruption and sell products called credit enhancements, which separate out the corruption component of a bond’s overall risk. Corrupt states are able to undo completely the negative effects of corruption on their bond prices by purchasing credit enhancements. The authors find that corrupt states are willing to pay the price, via credit enhancements, to make their bonds look like those of their less corrupt neighbors.

But corrupt states cannot buy their way out of all negative consequences of corruption. Investment banks provide underwriting services to bond issuers and charge a fee for these services. The authors find that issuers in corrupt states use lower quality investment banks. The authors suggest that higher quality investment banks are unwilling to risk their reputations by underwriting risky bonds in politically corrupt states, regardless of the price that corrupt states would be willing to pay for their services. Corruption hurts these states by potentially reducing access to better connected, high quality investment banks.

Investment banks themselves have a history of corruption. Specifically, investment banks have been infamous for bid rigging, bribery and other illegal activities when competing for lucrative underwriting contracts. The spoils went to investment banks that made the most substantial contributions to politicians. Investment banks and politicians alike were happy with this “pay-to-play” arrangement. When the SEC enacted rules to limit this behavior, an investment bank in Alabama filed an (ultimately unsuccessful) lawsuit against the SEC. The authors find that when investment banks made campaign contributions to legislators in order to win underwriting business, the investment banks charged higher underwriting fees for these sweetheart municipal bond deals, which were allocated on the basis of favoritism.

The results show that state corruption and political connections impede financial and economic development by increasing investment risk and bond interest payments and reducing access to high quality financial institutions. Specialized financial institutions allow issuers to purchase credit enhancements to remove corruption-induced risk from bond yields. Credit enhancements play an important role in alleviating the economic damage that corruption can cause. But citizens pay for the crimes of their leaders. Credit enhancements and inflated “pay-to-play” underwriting fees to investment banks are paid from state coffers and ultimately make investment in public projects more expensive in corrupt states.

Alexander W. Butler is a finance professor at the Jones Graduate School of Business at Rice University.

To learn more, please see: Butler, A. W., Fauver, L., & Mortal, S. (2009). Corruption, political connections and municipal finance. Review of Financial Studies, 22(7), 2673-2705.

Based on research by Vikas Mittal, Karen P. Winterich and Karl Acquino.

• Nonprofit managers often think donor recognition increases charitable giving, but in reality recognition boosts giving only for certain individuals.
• How individuals score on two key dimensions of a moral identity test explains why promising recognition of donations changes giving behavior of some donors but not others.
• It’s not difficult for smart, savvy nonprofit managers to assess the moral identities within a particular donor population. Doing so could result in more effective marketing strategies.

Personal giving dwarfs corporate giving in the U.S., where individuals account for 70 percent of total charitable donations each year. It’s not surprising, therefore, that nonprofits provide ample public and private acknowledgement of the generosity shown by donors. Managers think that promising recognition for donors increases personal giving, but is this belief accurate?

Not always, according to findings presented in an article by Rice Business faculty member Vikas Mittal, J. Hugh Liedtke Professor of Marketing, and co-authors Karen P. Winterich of Smeal College of Business and Karl Acquino of UBC Saunder Business School. Findings from three studies aimed at exploring whether donor recognition is effective and, if so, under what conditions, suggest that recognition works, but only with certain types of donors: those who score highly on one dimension of moral identity while also scoring low on another. So, what constitutes a moral identity?

In a nutshell, each of us has a moral identity comprised of certain moral traits, goals and behaviors that has both a private and a public dimension. Each dimension has a unique influence on our charitable giving. The private dimension, referred to as internalization, accounts for our desire to act in a manner that is consistent with how we view ourselves as a moral being. A person with a high level of moral identity internalization gives to a charity because the action itself strengthens their self-concept as a moral person. At heart, this type of person doesn’t give based on expectations of recognition. The act of giving itself provides self-reinforcement of their strongly internalized moral identity.

The public dimension of moral identity, referred to as symbolization, accounts for our desire to act in a manner that effectively expresses our moral character to others. A person with a high level of moral identity symbolization gives to a charity with the expectation that a favorable reaction from others will reinforce their self-concept as a moral person. Essentially, this type of person gives to a charity because they expect to get recognition for their donation. The expectation of recognition, in turn, provides social reinforcement and self-verification of their moral identity.

Mittal and his co-authors were able to get almost 900 working adults, ages 18 to 85, to participate in their studies. Participants initially responded to a few survey items in order to score themselves on the two dimensions of moral identity. Next, they were placed in an experimental scenario where they were given the opportunity to make a future donation of time or money to a particular nonprofit. Randomly, some were told to expect any future donation to receive recognition, while others were not promised any recognition. Participants in each scenario were asked to give money or time, and donors received recognition that was either public (e.g. listing of donor names on the charity’s website) or private (personal thank you cards from the charity).

Findings across the three studies are clear and consistent. The promise of recognition does not always increase charitable giving. Expected recognition has no significant effect on those with high levels of moral identity internalization, but it significantly increases giving for individuals with both a high level of moral identity symbolization and a low level of moral identity internalization.

For savvy nonprofit managers, it’s not so hard to tap into moral identities across a population of donors. They only have to ask a few questions, and from the answers they will know whether to expect promises of donor recognition to pay off. In fact, they can augment this strategy by eliciting recognition preferences directly from their donor pool by providing an opt-in or opt-out feature related to their desires to receive various forms of acknowledgement.

Finally, they can temporarily activate moral identity using particular types of donation appeals or ads. If fundraising appeals include promises of recognition, then nonprofits should target such appeals — and the investment of time and money — at the donors most likely to respond: those with high levels for moral identity symbolization and low levels of moral identity internalization. Nonprofits could get even more bang for their buck with this group if they were to provide recognition via cost-efficient social media channels such as Facebook, Twitter and LinkedIn.

Some have a clear sense of their moral selves and don’t give in order to receive, but for others the promise of donor recognition provides just the right incentive to give. So, when it comes to ramping up charitable donations, is it better to for nonprofits to give recognition in order to receive future gifts? It depends, and now you know on what.

Vikas Mittal is the J. Hugh Liedtke Professor of Management in Marketing at Jones Graduate School of Business at Rice University. 

To learn more, please see: Winterich, K. P., Mittal, V., & Acquino, K. (2013). When does recognition increase charitable behavior? Toward a moral identity-based model. Journal of Marketing, 77(3), 121-134.