Cheap-Talk
Leo Tang, assistant professor of accounting at Lehigh, and his coauthor, examine whether the cheap-talk framework explains the communication between credit rating agencies and investors. When credit ratings are cheap-talk (i.e., unverifiable opinions that are costless to communicate), more favorable credit ratings are less informative to investors. Using the standard deviation of yields to measure informativeness, they found that standard deviations are higher for more favorable rating categories relative to less favorable rating categories. Further, when they examined Moody’s 2010 municipal bond recalibration, they found that more favorable Moody’s credit ratings are increasingly less informative to investors after Moody’s recalibration than before it. These findings have implications for the regulation of credit rating agencies and highlight the importance of regulation aimed at aligning the interests of rating agencies and investors.
Swimming with Sharks
Retail giants like Amazon and Walmart have expanded their revenue streams by allowing third-party sellers to use their platforms to sell goods in their “marketplace,” charging a fee for every transaction. Haoyan Sun, assistant professor, DATA department, with her marketing department coauthors, Professor Eric Fang and Associate Professor Beibei Dong, wanted to find out how the competition and cooperation worked out for third-party sellers after they entered the marketplace. They found that the platform owner’s in-platform advertising had a negative “crowding-out” effect on third-parties; while the platform owner’s price adjustment had a spillover effect as it created more demand from the customer side. Also, third-party sellers adjust prices in response to the platform owner’s strategic actions, and the likelihood of using price competition increases with third-party size.
Regrets, I Have a Few
Can we use our potential to feel regret as a behavioral incentive, like getting vaccinated? For example, you enter the sweepstakes in your city which picks winners by zip code. If you’re in the selected zip code and vaccinated, you win a prize. Some people will get vaccinated to avoid the possible regret feeling, if their zip code were to be selected and they weren’t vaccinated. Felipe A. Araujo, assistant professor in economics and his colleagues are studying regret effects in both one-shot and repeated settings. Researchers found that regret is a good motivational tool for a one-shot decision, but not as reliable for repeated decisions.
Patent Idea
Researchers are using the text in the patents of start-ups to measure whether the innovations pertain to a technological area that is rapidly evolving or stable. Don Bowen, assistant professor of finance and his coauthors say that their text-based measure provides a novel characterization of technological innovation. They found startups innovating in rapidly evolving areas are more likely to exit via an IPO rather than sell out. In contrast, innovation in stable areas tends to complement existing technologies, and startups favoring them tend to exit by selling out. Because the data can be computed when a patent’s text is made public, they are valuable in settings requiring predictive models or time-sensitive info. They can be used to obtain policy-relevant info about the health of innovation, sector-by-sector, or study the performance of venture capital funds, portfolio selection, mergers and industrial organization.
Two Teaming
The number of teams you’re on at work and your role in those teams may be affecting your overall performance and even your desire to find a new job. Blended MTM (multiple team membership) arrangements are where an employee is assigned a permanent team (e.g., sales, finance) and several short-term project teams (return-to-office or software implementation team). Ozias Moore, assistant professor in the management department at Lehigh, and his coauthors found that the more temporary teams an employee is assigned to, the more likely they are to experience MTM identity strain and leave the company. The effect is lessened if they have strong identification with their permanent team. The researchers suggest that managers monitor the number of temporary teams to which they assign their employees in conjunction with bolstering their employees’ primary team identification. They also say to consider lessening the number of blended MTMs.
Buy Now/Learn More
If you’re getting news online, you’ve either subscribed to certain feeds or you’re letting AI recommend stories based on your online choices. Beibei Dong, associate professor of marketing and Professor Eric Fang, have previously found that if you’ve subscribed, you’re likely to be more engaged than if AI is picking your content. Their latest research found that advertisers can take advantage of this with the design of ad content (informational or emotional content) and the associated decision links (“Buy Now” vs. “Learn More”). If advertisers design ads for the recommended newsfeeds (where you’re less engaged) to blend in with informational content, and use a Buy Now link, you’re more likely to click, but less likely to buy. For the subscription channel, the ads requiring high-effort processing work best. These ads should emphasize emotional appeal and use the Learn More link to close the sale.