Saturday, December 14, 2019

Negative relationship between managers' skill diversity & performance: Having common ground in the boardroom (directors sharing skills in order to be able to communicate effectively) seems important

Director skill sets. Renée B. Adams, Ali C. Akyol, Patrick Verwijmeren. Journal of Financial Economics, Volume 130, Issue 3, December 2018, Pages 641-662.

Abstract: Directors are not one-dimensional. We characterize their skill sets by exploiting Regulation S-K's 2009 requirement that U.S. firms must disclose the experience, qualifications, attributes, or skills that led the nominating committee to choose an individual as a director. We then examine how skills cluster on and across boards. Factor analysis indicates that the main dimension along which boards vary is in the diversity of skills of their directors. We find that firm performance increases when director skill sets exhibit more commonality.

4. Skill diversity and firm performance
Our factor analysis indicates that the diversity of skills on a board is the primary dimension among which boards of directors vary. Organizational research emphasizes that diversity of skills might be beneficial in decision-making as it brings greater resources to problem-solving and could lead to a more complete analysis of an issue (Milliken and Martins, 1996; O’Reilly and Williams, 1998). However, different personal and professional backgrounds may lead to different ways in which team members interpret information and to multiple representations of a problem (Beers et al., 2006; Hambrick, 2007). Misunderstandings and disagreement can then threaten effective decision-making processes within multidisciplinary teams. For example, Garlappi, Giammarino, and Lazrak (2017) show that when directors have heterogeneous priors, boards may underinvest in multi-stage projects because they anticipate future disagreement. In their model, security issuance can help alleviate the underinvestment problem. Changing board composition may also work. Murray (1989), Knight et al. (1999), Pelled, Eisenhardt, and Xin (1999), and Simons, Pelled, and Smith (1999) argue that having common ground among group members can overcome some of the problems of heterogeneous teams. Since there may be advantages and disadvantages to having more diversity of skills on a team, it is an empirical question how director skill diversity relates to performance on average.

4.1. The relationship between the factors and firm performance
We examine the relation between firm performance and the first factor from both our ML and IPF factor analysis in Table 5. We regress our proxy for Tobin’s Q on our factors and a set of controls that are common to governance performance regressions (e.g., Yermack, 1996; Adams and Ferreira, 2009; Faleye, Hoitash, and Hoitash, 2018). As governance controls we include variables that plausibly relate to both performance and skills. For example, we expect the number of skills to be positively related to board size and board independence. As the number of committees increases, firms might also add more directors with relevant skills to their board. 6 As the diversity literature argues (e.g., Milliken and Martins, 1996), skill diversity may affect communication, so we include the logarithm of the number of board meetings. As firm-level controls, we include the logarithm of assets as a proxy for firm size, the number of segments as a proxy for diversification, capital expenditures, ROA, volatility, and the natural logarithm of firm age. We provide the exact definitions of the control variables in Appendix A. All models include two-digit SIC code industry effects and year fixed effects and the standard errors are corrected for potential heteroskedasticity and clustering at the firm level. 

[ please insert Table 5 here ] 

Column 1 of Table 5 shows that the ML diversity of skills factor is negatively related to the firm’s Tobin’s Q. This relation is robust to controlling for other firm characteristics, as can be seen in Column 2, and to the use of the IPF factor method, as can be seen in Columns 3 and 4. The coefficients on the firm-level controls are generally consistent with previous literature. The negative coefficient on board meetings is consistent with Vafeas (1999), for example.

4.2. Measuring the diversity of skills
Factor analysis is sometimes unappealing because it is difficult to assess the economic magnitudes of coefficients on factors. It is also difficult to make the arguments necessary for instrument validity in an instrumental variable (IV) analysis when the endogenous variable is a factor. Thus, we examine whether the factor has a more intuitive counterpart in the data. An obvious choice is to simply count the number of skills that are represented on a board. The typical firm has ten different skills on the board in a given year. In unreported results, we show that the correlations between the number of skills and the ML and IPF factors are 0.921 and 0.967, respectively. Columns 5 and 6 of Table 5 confirm our finding from the factor analysis that the number of skills and Tobin’s Q are negatively related. Thus, the number of skills seems to capture the essential meaning of the factor.7 4.3. Potential reverse causality While the results from Table 5 suggest that there is a negative correlation between skill diversity and firm performance, we cannot immediately give this relationship a causal interpretation because of potential endogeneity problems due to reverse causality. It is plausible, for example, that underperforming firms look for more skill diversity on their boards to get different advice. Another potential concern is that underperforming firms engage in window dressing by making their directors appear more talented than they really are. These arguments would predict a negative relationship between performance and skills. On the other hand, it is also possible that poorly performing firms have other concerns and pay less attention to the new regulation as a result. This argument would predict a positive relationship between performance and skills. Without a better understanding of how directors match to firms, it is difficult to sign the bias in the ordinary least squares (OLS) results. We attempt to formally address this concern in our set-up using an instrumental variable analysis. We use two instruments whose summary statistics are provided in Appendix D. Since both instruments are time-invariant, we conduct our IV analysis for the 2010 cross-section only. For our first instrument, we exploit the fact that the amendments to Regulation S-K include a requirement in Item 407(c)(vi) for firms to disclose how they consider diversity in the director nomination process. Item 407(c) does not specify the type of diversity the regulation pertains to. 8 Since it was bundled with Item 401(e) concerning disclosure of director skills, it is plausible that firms interpreted 407(c) as pressure to increase skill diversity on the board. If so, we might expect firms with more time to incorporate Regulation S-K’s requirements to attempt to increase diversity by appointing new directors to the board. Fig. 3 provides some evidence consistent with our expectations: the proportion of firms appointing new directors in a given proxy month is higher the later the month occurs relative to the passage of Regulation S-K. Thus, we define our instrument to be the number of days between the day the 2009 amendments to Regulation S-K were passed and the filing of the firm’s proxy statement in 2010. Based on the evidence in Fig. 3, we expect this instrument to be correlated with the number of skills on the board.

[ please insert Figure 3 here ] 

On the other hand, we believe it is unlikely that the number of days between Regulation S-K and the proxy filing is correlated with firm performance in 2010, as long as the proxy filing date does not change in response to poor performance. We collect proxy filing dates for 2009 and 2010 from the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) and examine whether there were any changes in the dates. Fig. 4 shows the distribution of changes between the two years. As is evident from the figure, most changes occur in the -1, 0, +1, day range, which is reasonable if annual meetings are held close to or on the weekend and firms send their proxy statements out a fixed number of days before the meeting.9

[ please insert Figure 4 here] 

The second instrument is a dummy if a firm is within 70 miles (roughly an hour’s travel distance away) of an airport hub—an airport that handles over 1% of annual passenger boardings according to the Federal Aviation Authority ( The rationale for this instrument is that firms are less constrained in choosing directors when it is easy for them to attend board meetings and this may lead to an increase in skills on the board. Of course, distance to the airport may be directly correlated with firm performance because it may affect firms’ transportation networks. But we believe that to a large extent this effect should be controlled for by other variables in our regression, for example, firm size, diversification (i.e., the number of segments), and industry. Column 7 of Table 5 shows the results of the second stage of the IV regression of the specification in Column 6. We report the coefficient on the instruments from the first-stage regression at the bottom of the table. The first-stage coefficients on our instruments have the expected signs and are statistically significant. However, the Kleibergen-Paap Wald statistic (7.98) is mid-way between the Stock-Yogo cutoffs for 25% (7.25) and 20% (8.75) maximal IV size, which suggests the magnitudes of our second-stage coefficients are still biased.10 To gain confidence that the bias does not affect the sign of the coefficient on the number of skills, we substitute the instruments for the number of skills in the Tobin’s Q regression in Column 6 of Table 5. Under the assumption that the instruments are exogenous, the coefficients on the instruments in this reduced form are consistent estimates of the population coefficient on the number of skills multiplied by the coefficients on the instruments in the first-stage regression. The coefficients on both instruments in the reduced form are negative. Since the coefficients on the instruments in the first stage are both positive, we infer that under our assumptions the ―true‖ coefficient on the number of skills is indeed negative. In the second-stage IV regression, the coefficient on the number of skills is negative. The coefficient is also more negative than in the OLS regressions. This suggests that the bias is positive [see the expression for the OLS bias in, e.g., Adams, Almeida, and Ferreira (2009)], i.e., poorly performing firms appear to focus on skills rather than seek out greater skill diversity for their directors. Because the coefficients on the number of skills are negative in both OLS and IV specifications, we interpret our results as suggestive of a negative causal effect of skill diversity on performance. From Column 7, a one standard deviation increase in the number of skills (2.928) is associated with a 32.26% reduction in Tobin’s Q at the mean. This is clearly too large and confirms our suspicion that the IV results may be consistent but not unbiased. The economic magnitude of skills in Column 6 is -2.44%. Since the IV results are more negative than the OLS results, one way to interpret the economic magnitudes is to take -2.44% as an upper bound for the effect of the number of skills on performance. Since this effect is arguably already economically significant, our results suggest that skill diversity is economically important.

5. Common ground in director skills
We document that diversity is the main dimension along which boards vary with respect to skill. An important question is what drives the negative relationship between skill diversity and performance. A potential explanation for this finding is the importance of having common ground in the boardroom, i.e., the need for directors to share skills in order to be able to communicate effectively. We examine this potential mechanism in two ways.

Detecting smugglers... Identifying strategies and behaviours in individuals in possession of illicit objects: Lie detection accuracy rate was poor (48% in Experiment 1 and 39.2% in Experiment 2)

Detecting smugglers: Identifying strategies and behaviours in individuals in possession of illicit objects. Samantha Mann  Haneen Deeb  Aldert Vrij  Lorraine Hope  Lavinia Pontigia. Applied Cognitive Psychology, December 13 2019.

Summary: Behaviour Detection Officers’ task is to spot potential criminals in public spaces, but scientific research concerning what to look for is scarce. In two experiments, 52 (Experiment 1A) and 60 (Experiment 2A) participants carried out a mission involving a ferry‐crossing. Half were asked to smuggle an object; the other half were non‐smugglers. In Experiment 2A, two confederates appeared to approach as if looking for someone on the ferry. Smugglers, more than non‐smugglers, reported afterwards to have felt nervous, self‐conscious and conspicuous and to attempt behavioural control during the ferry‐crossing. The secretly videotaped ferry‐crossings were shown to 104 (Experiment 1B) and 120 (Experiment 2B) observers, tasked to identify the smugglers. Although they reported paying attention mostly to signs of nervousness, lie detection accuracy rate was poor (48% in Experiment 1 and 39.2% in Experiment 2), because their perceptions of nervousness did not match the experiences of nervousness reported by the (non)smugglers.

Rolf Degen summarizing: Personality has a strong impact on happiness, with low neuroticism and high extraversion particularly advantageous, while modesty avails to nothing

Anglim, Jeromy, Sharon Horwood, Luke Smillie, Rosario J. Marrero, and Joshua K. Wood. 2019. “Predicting Psychological and Subjective Well-being from Personality: A Meta-analysis.” PsyArXiv. December 14. doi:10.1037/bul0000226

Abstract: This study reports the most comprehensive assessment to date of the relations that the domains and facets of Big Five and HEXACO personality have with self-reported subjective well- being (SWB: life satisfaction, positive affect, and negative affect) and psychological well-being (PWB: positive relations, autonomy, environmental mastery, purpose in life, self-acceptance, and personal growth). It presents a meta-analysis (n = 334,567, k = 462) of the correlations of Big Five and HEXACO personality domains with the dimensions of SWB and PWB. It provides the first meta-analysis of personality and well-being to examine (a) HEXACO personality, (b) PWB dimensions, and (c) a broad range of established Big Five measures. It also provides the first robust synthesis of facet-level correlations and incremental prediction by facets over domains in relation to SWB and PWB using four large datasets comprising data from prominent, long-form hierarchical personality frameworks: NEO PI-R (n = 1,673), IPIP-NEO (n = 903), HEXACO PI- R (n = 465), and Big Five Aspect Scales (n = 706). Meta-analytic results highlighted the importance of Big Five neuroticism, extraversion, and conscientiousness. The pattern of correlations between Big Five personality and SWB was similar across personality measures (e.g., BFI, NEO, IPIP, BFAS, Adjectives). In the HEXACO model, extraversion was the strongest well- being correlate. Facet-level analyses provided a richer description of the relationship between personality and well-being, and clarified differences between the two trait frameworks. Prediction by facets was typically around 20% better than domains, and this incremental prediction was larger for some well-being dimensions than others.

See for Data and R scripts for the meta-analysis and facet-level data analyses of the above paper.

Laypeople appear to believe that part of what brings happiness is living a moral life; but adherence to deontological vs. utilitarian ethical principles does not seem to relate to one’s overall happiness

Crowdsourcing hypothesis tests: Making transparent how design choices shape research results. Justin F. Landy et al.

Abstract: To what extent are research results influenced by subjective decisions that scientists make as they design studies? Fifteen research teams independently designed studies to answer five original research questions related to moral judgments, negotiations, and implicit cognition. Participants from two separate large samples (total N > 15,000) were then randomly assigned to complete one version of each study. Effect sizes varied dramatically across different sets of materials designed to test the same hypothesis: materials from different teams rendered statistically significant effects in opposite directions for four out of five hypotheses, with the narrowest range in estimates being d = -0.37 to +0.26. Meta-analysis and a Bayesian perspective on the results revealed overall support for two hypotheses, and a lack of support for three hypotheses. Overall, practically none of the variability in effect sizes was attributable to the skill of the research team in designing materials, while considerable variability was attributable to the hypothesis being tested. In a forecasting survey, predictions of other scientists were significantly correlated with study results, both across and within hypotheses. Crowdsourced testing of research hypotheses helps reveal the true consistency of empirical support for a scientific claim.

Keywords: Crowdsourcing, scientific transparency, stimulus sampling, forecasting, conceptual replications, research robustness

Hypothesis 5: The tendency to make deontological judgments is positively correlated with

In order to bridge the normative-descriptive divide between the fields of
philosophical ethics (how should people morally behave) and moral psychology (how and why
do people morally behave) cognitive science must map out how variation in moral cognitions are
systematically related to variances in outcomes related to human flourishing. The goal of this
original research was to contribute to this endeavor by examining how the tendency to make
utilitarian versus deontological moral judgments (Bentham 1970/1823; Kahane, 2015; Kant,
1993/1785; Mill, 1861) relates to personal happiness and well-being (Kahneman, Diener, &
Schwarz, 1999; Ryff, 1989; Waterman, 1993). The idea that happiness and morality are tightly
intertwined has a long history in philosophy (see, e.g., Annas, 1993; Aristotle, 340 BCE/2002;
Foot, 2001; Kraut, 1979), and recent empirical work suggests that people consider moral
goodness to be an element of what “happiness” consists of (Phillips, Freitas, Mott, Gruber, &
Knobe, 2017; Phillips, Nyholm, & Liao, 2014). However, prior work has not examined the
relationship (if any) between specific moral orientations and happiness.
Hypothesis 5 posits that people who are more inclined to base their moral judgments on
the violation of rules, duties, and obligations (deontological judgments) versus material
outcomes (utilitarian judgments) are also more likely to experience happiness in their lives. This
prediction is based on philosophical and scientific evidence that has demonstrated shared
psychological and neurological mechanisms between these dimensions (e.g., Everett, Pizarro, &
Crockett, 2016; Greene, 2013; Lieberman, 2013; Phillips et al., 2017; Singer, 2005). To test this
hypothesis, Sowden and Hall (2015) asked participants to judge several morally questionable
behaviors that pitted utilitarian and deontological considerations against one another (Greene et
al. 2001) and compared an index of those judgments to how they responded to measures of
subjective well-being (Diener et al., 1985; Watson et al., 1988) and eudaimonic happiness
(Waterman et al., 2010). The crowdsourced project posed the research question to independent
researchers, who separately designed studies relating moral judgments to individual happiness.

Results from Hyp 5
Hypothesis 5: Deontological judgments predict happiness. Although the original pattern of results once again directly replicated using the original materials, the hypothesis that individuals who tend to make deontological (vs. utilitarian) judgments report different levels of personal happiness was not supported overall by the crowdsourced conceptual replications. Although a statistically significant directional effect in support of H5 was reported in the Main Studies, the aggregated estimate was close to zero, and the effect did not reach statistical significance in the Replication Studies. Overall, the Bayesian analysis found strong evidence against this original prediction. There has not previously been a systematic review or metaanalysis of the relationship between moral stance and happiness, though prior research has linked both processes to emotional and intuitive responding (e.g., Everett et al., 2016; Greene, 2013; Lieberman, 2013; Phillips et al., 2017; Singer, 2005). These results fail to find support for an association between deontological moral judgments and hedonic happiness that has been suggested – although not empirically confirmed – by this prior work. Although laypeople appear to believe that part of what brings happiness is living a moral life (Phillips et al., 2017; Phillips et  al., 2014), adherence to deontological vs. utilitarian ethical principles does not seem to relate to one’s overall happiness.

Conservative candidates that were male benefitted more from an attractive partner than their liberal counterparts but female candidates were penalized regardless of political ideology

Does an attractive partner make you a better leader? Only if you are a male! Ipek Kocoglu, Murad A. Mithanib. The Leadership Quarterly, December 9 2019, 101339.

Abstract: We integrate the research on evolutionary leadership with the evolutionary psychology of mate choice to argue that a facially attractive partner signals unobservable leadership qualities of their mate, and thus, partner's attractiveness spills over to their mate's perceived leadership. Study 1 found that while partner's attractiveness enhanced the perceived leadership of male CEOs, female CEOs' leadership was downgraded in the presence of an attractive partner. Study 2 validated that the leadership penalty for female CEOs increased when they were seen with more attractive males than with less attractive males. Study 3 found that conservative candidates that were male benefitted more from an attractive partner than their liberal counterparts but female candidates were penalized regardless of political ideology. Our findings suggest that indirect cues that emanate from the partner are critical for leadership assessment. They invoke attributions that enhance the perceived leadership of males but disapprove of females as leaders.

Keywords: Facial attractivenessSpilloverEvolutionary leadershipEvolutionary psychologyMate-choice copying

There is reason to pause recommending mindfulness meditation as a way to achieve democratically desirable outcomes like tolerance for disliked groups

duplicated, check

‘Aesthetic fidelity’ effect: The more intensive use of highly aesthetic products may lead to the acquisition of product-specific usage skills that form the basis for a cognitive lock-in

The aesthetic fidelity effect. Annika Wiecek, Daniel Wentzel, Jan R. Landwehr. International Journal of Research in Marketing, Volume 36, Issue 4, December 2019, Pages 542-557.

Abstract: Product aesthetics is a powerful means for achieving competitive advantage. Yet most studies to date have focused on the role of aesthetics in shaping pre-purchase preferences and have failed to consider how product aesthetics affects post-purchase processes and consumers' usage behavior. This research focuses on the relationship between aesthetics and usage behavior in the context of durable products. Studies 1A to 1C provide evidence of a positive effect of product aesthetics on usage intensity using market data from the car and the fashion industries. Study 2 corroborates these findings and shows that the more intensive use of highly aesthetic products may lead to the acquisition of product-specific usage skills that form the basis for a cognitive lock-in. Hence, consumers are less likely to switch away from products with appealing designs, an effect that is labeled as the ‘aesthetic fidelity’ effect. Study 3 addresses an alternative explanation for the ‘aesthetic fidelity effect’ based on mood and motivation but finds that the ‘aesthetic fidelity’ effect is indeed determined by usage intensity. Finally, Study 4 identifies a boundary condition of the positive effect of product aesthetics on product usage, showing that it is limited to durable products. In sum, this research demonstrates that the effects of product aesthetics extend beyond the pre-consumption stage and have an enduring impact on people's consumption experiences.

Keywords: AestheticsProduct designProduct usageConsumption intensitySkill acquisitionCognitive lock-in

1. Introduction
In many product categories, the aesthetics of a product's design is a crucial determinant of consumer choice. Consumer responses to products such as Apple's iPhone, Porsche's 911, and Vitra's Lounge Chair may not only be determined by the superior quality of these products but also by their iconic and highly aesthetic designs. Against this background, examining when and why consumers are affected by aesthetic designs has emerged as a fertile area of research. Simply put, consumers show a greater preference for products that are aesthetically appealing (Bloch, 1995; Cox & Cox, 2002; Hoegg, Alba, & Dahl, 2010; Landwehr, Wentzel, & Herrmann, 2012; Reimann, Zaichkowsky, Neuhaus, Bender, & Weber, 2010) and the appeal of a product's design is also predictive of a product's success in the marketplace (Landwehr, Labroo, & Herrmann, 2011; Landwehr, Wentzel, & Herrmann, 2013; Liu, Li, Chen, & Balachander, 2017).

However, while the effects of product aesthetics on pre-purchase preferences and consumer choice are well-documented in the literature, existing research has largely failed to consider how product aesthetics affects actual usage behavior1 (for a recent exception, see Wu, Samper, Morales, & Fitzsimons, 2017). For instance, assuming that a consumer buys an iPhone because of its appealing design, will she also use the phone on a more frequent basis to experience the aesthetic pleasure provided by the design? And how will this increased usage affect her preferences and her willingness to switch to a competitive smartphone?

In this research, we focus on durable products (i.e., products that can be used multiple times and are not destroyed during consumption) and argue that the aesthetic appeal of a product's design may be related to usage behavior and product preferences. Specifically, we postulate that consumers will use products with aesthetically appealing designs more intensively compared to products with less appealing designs. This increased usage intensity, in turn, may lead to the acquisition of product-specific usage skills (Anderson, 1983) that form the basis for a cognitive lock-in where consumers are less likely to switch away from a product they can already operate efficiently (Johnson, Bellman, & Lohse, 2003; Murray & Häubl, 2007). In sum, we argue that product designs may not only serve as a source of aesthetic pleasure but may also bond a consumer to a product by triggering greater usage intensity and efficiency, an effect we label as the ‘aesthetic fidelity’ effect.

In identifying the effect of product aesthetics on usage intensity, skill acquisition, and subsequent choice behavior, this research makes several important contributions to the literature. First, we show that product aesthetics affects consumers beyond the pre-consumption phase and may cause consumers to use products for longer periods of time and to become more efficient at using them. Importantly, these findings are not only supported by three controlled experiments but also by the analysis of three datasets from the car and fashion industries that provide insights into real usage behavior. Hence, this research extends the literature by showing that the link between product aesthetics and usage behavior is not only of theoretical interest but is also relevant for understanding and predicting how products are used in real life.

Second, our findings extend current theorizing on the relationship between aesthetics and usage behavior. As such, a recent study by Wu et al. (2017) found that product aesthetics may lead to reduced consumption enjoyment and may inhibit actual consumption, a finding which seems to contradict our key proposition that product aesthetics may intensify consumption. Of note, however, is the fact that Wu et al. (2017) focused on non-durable products that are typically destroyed during consumption (e.g., napkins, toilet paper). As consumers appreciate the effort that is necessary for creating beautiful products, they may lament seeing them getting destroyed during the consumption process and may thus tend to use them to a lesser extent. In our research, we build on these findings and examine the effects of product aesthetics on the usage of both durable and non-durable products. Specifically, we demonstrate that a product's durability (i.e., the extent to which a product is affected or destroyed during consumption) moderates the effect of aesthetics on usage intensity. That is, our findings show that product aesthetics intensify product usage when the product is durable in nature but inhibit product usage when the product is non-durable. Hence, our findings contribute to the literature by providing a more fine-grained analysis of the link between product aesthetics and usage behavior.

Third, we extend current theorizing on skill acquisition and the lock-in phenomenon. While existing studies have mainly focused on the process and the consequences of skill acquisition (Billeter, Kalra, & Loewenstein, 2010; Lakshmanan & Krishnan, 2011; Lakshmanan, Lindsey, & Krishnan, 2010; Murray & Häubl, 2007), there has been relatively little research on the determinants of this learning process. In this respect, our research shows that the aesthetic appeal of a product may motivate consumers to engage with a product more intensively and to develop product-specific usage skills, thus broadening our understanding of how consumers acquire skills in the marketplace.

The remainder of this article is structured as follows. In the theoretical section, we review literature streams on product aesthetics, hedonic consumption, and skill acquisition and develop our hypotheses. In the empirical section, we report the results of six studies. Studies 1A to 1C rely on the analysis of real market data from the car and fashion industries and find that products with more aesthetic designs are used for longer periods of time. Building on these findings, Studies 2 to 4 are designed as laboratory experiments. Study 2 provides further evidence for an ‘aesthetic fidelity’ effect and also reveals the underlying cognitive process. Study 3 addresses a potential alternative explanation for the aesthetic fidelity effect. Finally, Study 4 identifies an important boundary condition to the positive effect of product aesthetics on product use, namely a product's durability. Last, we provide theoretical and managerial implications in the general discussion.