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Practitioner Insights

Jungmin Kim

Shinichi Kamiya, Nanyang Technological University
Jun-koo Kang, Nanyang Technological University
Jungmin Kim, The Hong Kong Polytechnic University
Andreas Milidonis, University of Cyprus
René M Stulz, Ohio State University

Based on
Risk Management, Firm Reputation, and the Impact of Successful Cyberattacks on Target Firms

Journal of Financial Economics, forthcoming


In a 2017 PricewaterhouseCoopers survey, more than half of the participating CEOs indicated that they expected cybersecurity and data breaches to threaten stakeholder trust in their industries over the following five years. In this study, we develop and test a model to investigate the impact of successful cyberattacks on corporations using a comprehensive sample of disclosed cyberattacks on public corporations involving data breaches from 2005 to 2017.

The case of Target Corp. illustrates the economic and financial consequences of corporate cyberattacks. In late 2017, the Minnesota-based discount retailer experienced a cyberattack that exposed the personal information, such as phone numbers and credit card details, of nearly 70 million customers. The combination of reduced customer demand, the costs associated with responding to the breach, and the need to establish reserves against future legal judgements reduced Target’s earnings before interest and taxes by nearly 30% to $3.94 billion for the year after the attack. The costs directly related to the attack, including lawsuit settlements, totalled $292 million.

We find that on average, a successful cyberattack (i.e., an external attack that breaches a firm’s defences) with loss of personal financial information decreases shareholder wealth by 1.09% in the three-day window around the cyberattack. Our study shows that successful cyberattacks have potentially economically large reputation costs in that the shareholder wealth loss far exceeds the out-of-pocket costs resulting from the attack. In aggregate, we find that for a subset of 75 first-time attacks with negative abnormal returns, the total shareholder wealth loss is $104 billion, but the direct out-of-pocket costs of the attacks that we can identify (e.g., investigation and remediation costs, legal costs and regulatory penalties) are only $1.2 billion. It follows that out-of-pocket costs explain almost none of the shareholder wealth losses caused by cyberattacks. Although it is possible that we underestimate out-of-pocket costs, most of the shareholder wealth loss is attributable to other factors, such as new information about the likelihood and costs of cyberattacks for the targeted firm, and the impact of this new information on the risks borne by stakeholders. We find evidence of such reputation costs as the sales growth and credit ratings of attacked firms decrease. Importantly, we further find that shareholder wealth loss is related to these reputation costs: firms whose sales growth drops more experience a higher shareholder wealth loss in excess of out-of-pocket costs.

We also find that attacked firms invest more in risk management and decrease their risk appetite by reducing risk-taking incentives of management. For example, attacked firms do not reduce the overall level of CEO equity incentives (i.e., the ratio of equity-based compensation to total CEO pay) after a cyberattack. However, they significantly increase restricted stock grants and reduce option awards, suggesting that they replace stock options with restricted stock and hence reduce the risk-taking incentives of CEOs.

Even more interestingly, our study shows that the shareholders of competitors of attacked firms also experience shareholder wealth loss. This is consistent with the view that the new information revealed by an attack increases the expected costs of attacks for competitors as well.

Pengfei Guo
Pengfei Guo, The Hong Kong Polytechnic University

Yulan Wang
Christopher S Tang, the University of California, Los Angeles
Yulan Wan, The Hong Kong Polytechnic University

Ming Zhao, University of Electronic Science and Technology of China, Chengdu, China (Faculty PhD graduate)

Based on
The Impact of Reimbursement Policy on Social Welfare, Revisit Rate, and Waiting Time in a Public Healthcare System: Fee-for-Service versus Bundled Payment
Manufacturing & Service Operations Management, 21(1), 154-170 (2019)


Public healthcare systems today face many challenges, such as escalating operating costs, deteriorating service quality and increasing waiting times. In Hong Kong, the waiting time for cataract surgery in public hospitals is over eight months. Many healthcare professionals believe that an effective reimbursement scheme can induce healthcare providers (HCPs) to reduce waiting times, limit costs and improve service quality. One suggestion is to shift from the commonly adopted Fee-for-Service (FFS) scheme (under which an HCP receives payment each time a patient is admitted or readmitted) to the Bundled Payment (BP) scheme (under which the HCP receives a lump sum payment for the entire episode of care within a specified time window, regardless of the number of times a patient is readmitted). What are the implications of this form of reimbursement? Should public healthcare systems follow this advice?

In this study, we investigate the effects of the FFS and BP schemes on certain system performance measures, such as social welfare, system congestion and service quality (i.e., the revisit rate), in relation to providing outpatient elective care services in a public healthcare system that consists of a funder, an HCP and a population of patients. The funder determines the reimbursement rate under each scheme with the aim to maximize social welfare. The HCP then decides on the service rate to maximize its profit, where a higher service rate yields a higher revisit rate and reduces the service quality. Lastly, each patient decides whether to seek elective care from the HCP.

Our research shows that the BP reimbursement scheme may not always dominate the FFS reimbursement scheme. Specifically, in a large market where balking patients exist, the BP scheme dominates the FFS scheme in terms of social welfare and service quality. However, the FFS scheme outperforms the BP scheme in terms of the waiting time per visit and the total waiting time. In a small market where all patients are served, the BP scheme weakly surpasses the FFS scheme in terms of social welfare, service quality and total waiting time. In particular, when the patient population is medium-sized, the FFS and BP schemes are equally efficient in terms of all performance metrics, including the revisit rate, waiting time per visit, total waiting time and social welfare. Our results provide the following implications for the government. First, the BP scheme demonstrates greater benefits than the FFS scheme in a less congested system. However, in a congested system, the government should be aware of the following trade-off: the BP scheme is more effective in reducing the revisit rate, but the FFS scheme is more effective in reducing the waiting time. Switching from the FFS scheme to the BP scheme can create a polarized effect, that is, it can make a congested system even more congested and a light-traffic system even lighter.

Yuwei Jiang

Lei Su, Hong Kong Baptist University
Echo Wen Wan, The University of Hong Kong

Yuwei Jiang, The Hong Kong Polytechnic University

Based on
Filling an Empty Self: The Impact of Social Exclusion on Consumer Preference for Visual Density

Journal of Consumer Research, 46(4), 808-824 (2019)


Social exclusion arises when people feel rejected, ignored or left out by other individuals or social groups. It is perhaps something that all people encounter in life. Being socially excluded is painful, as it is part of human nature to associate or bond with others. Interestingly, people often use the word “empty” to describe their feelings after being socially excluded. For example, in the famous drama Silver Linings Playbook (2012), having experienced a series of blows, including the loss of her beloved husband, and failed to form new relationships, Tiffany, the main character, declares, “I woke up and I am empty. I have nothing”. Psychological “emptiness” is a metaphor deriving from the term “empty” – being physically vacant or containing nothing. In everyday language, people characterize the feeling of emptiness as a psychological inner void and hollowness, the opposite state being a psychological perception of being filled. In our research, we find that dense patterns in product aesthetic design – aesthetic design with a large number of distinguishable elements clustered in a unit area of a visual graph – can metaphorically provide a psychological perception of being “filled” that helps people cope with the feeling of psychological emptiness from social exclusion. It is thus preferred more among consumers who temporally experience social exclusion.

We address our research question via a series of studies. In one of the studies, we demonstrate that socially excluded consumers compose denser visual patterns than non-excluded consumers by incorporating more visual elements when designing the case for mobile devices. We report similar findings in another study when asking consumers to design a lock screen to use on their mobile devices. Several studies in more controlled lab environments replicate the effect of social exclusion on consumers’ density preference by checking evaluations of densely patterned and sparsely patterned products. Furthermore, we find evidence directly supporting our proposed filling-the-emptiness mechanism by checking the feeling of emptiness among our participants. Finally, in our last study, we explore the substantive implications of our findings for consumer well-being and demonstrate that consuming products with visual density can mitigate socially excluded consumers’ feelings of emptiness.

Given the prevalence of social exclusion experiences among consumers and the importance of products’ visual aesthetics at the point of sale, our findings have broad practical implications. Although the graphic design of patterns on products and packaging is usually based on aesthetic considerations, such as how visually appealing these patterns are, our findings suggest that consumers’ aesthetic preferences may be socially bounded. For example, packaging can be developed with dense patterns or designs for products that target consumers who are more likely to experience loneliness, such as senior citizens and new immigrants. Our findings may also be useful to art therapists, as they suggest that offering dense visual forms of art therapy to patients who have suffered significant social losses (e.g., divorcees, widows and victims of discrimination) may be an effective therapeutic activity.

Bonnie Cheng
Kan Ouyang, Shanghai University of Finance and Economics (Faculty PhD graduate)
Bonnie Hayden Cheng, The Hong Kong Polytechnic University

Wing Lam
Wing Lam, The Hong Kong Polytechnic University
Sharon K. Parker, Curtin University

Based on
Enjoy Your Evening, Be Proactive Tomorrow: How Off-job Experiences Shape Daily Proactivity
Journal of Applied Psychology, forthcoming


At the end of a working day, people often engage in their preferred activities to recover from work-related stress, such as reading, hobbies and new interests, or engage in activities that distract them from work-related thoughts, such as cooking or going to the gym.

This research examines the relationship between employees' off-job experiences during the evening and their proactive behaviour (employee engagement in self-initiated behaviours to create change in the workplace) at work the next day. The authors followed 183 full-time employees from various IT and telecommunication organizations in China across 10 workdays. Employees reported their evening activities, their psychological state in the morning and their proactive behaviours at the end of each workday.

The authors found that employees who engaged in mastery experiences in the evening (including learning or challenging opportunities, such as learning a new language or volunteering) were more likely to engage in proactive behaviours the next day, because of their effects on energy (i.e., positive affect) and the employees' perception of being able to assume proactive roles (i.e., role breadth self-efficacy).

In addition, employees who had the ability (i.e., agency) to organize their activities in the evening were more likely to engage in proactive behaviours the next day, because of their effects on role breadth self-efficacy and their desire for control.

In contrast, employees who spent their evening doing hassle activities, such as housework, were less likely to engage in proactive behaviours the next day because they were less likely to experience positive affect the next morning.

Similarly, employees who engaged in relaxing activities during the evening or who mentally detached from work-related thoughts were not likely to engage in proactive behaviours the next day.

The results suggested that the way that employees spent their evening had different effects on their proactive behaviours at work the next day. Employees who engaged in activities associated with mastery or agentic experiences were more likely to engage in proactive behaviours the next day. In contrast, having relaxing experiences or detaching from work was related to feelings of serenity that did not affect proactivity.

Furthermore, when employees engaged in hassle-type activities in the evening, they needed to deliberately engage in more beneficial experiences to counter-balance the negative effect of the hassle on their energy level to be more proactive at work. Employees should therefore be aware that, first, proactive behaviours fluctuate daily, and second, that what they do during the evening affects their proactivity at work the next day.

Yulan Wang

Zelong Yi, Shenzhen University
Yulan Wang, The Hong Kong Polytechnic University
Yun Liu, Shanghai Lixin University of Accounting and Finance
Ying-Ju Chen, The Hong Kong University of Science and Technology

Based on
The Impact of Consumer Fairness Seeking on Distribution Channel Selection: Direct Selling vs. Agent Selling

Production and Operations Management, 27(6), 1148-1167 (2018)


Today, due to various news reports and media coverage on "inequality in transactions", consumers are increasingly concerned about fairness. They look for not only basic functionalities in the products they buy, but also fairness in transactions. When purchasing a product, consumers may be reluctant to buy when the price is deemed unfair and the business transaction is inequitable. Consequently, when consumers are concerned about fairness, their willingness to pay and the corresponding utility of the product diminish if inequality is perceived in the transaction.

In this study, the authors examine the effect of consumer concerns about price fairness on the firm’s distribution channel selection. Specifically, they consider that the manufacturer can sell the product directly to consumers (direct selling) or decentralize its distribution channel downward and sell via a middleman retailer (agent selling). Both distribution structures have been commonly observed in business practice. The manufacturer then decides which distribution channel to adopt to maximize profits in the presence of fairness-seeking consumers. Note that the distribution channel structure endogenizes procurement costs and thus affects consumers’ perception of fairness and willingness to pay.

This study shows that when consumers become more inequality averse, the manufacturer suffers in both cases because the selling price needs to be lowered so that the transaction can be perceived as fairer. The manufacturer's preference for the distribution channel structure depends on the degree of consumers' fairness seeking. When consumers are not overly concerned about fairness, direct selling is preferred by the manufacturer as it can eliminate the double marginalization effect. For instance, many luxury brands, such as Chanel, Hermes, and Dior, adopt direct selling. Consumers who are interested in these brands usually show great brand loyalty and have little regard for fairness. However, when consumers are extremely concerned about fairness, the manufacturer generally prefers agent selling to direct selling. Indeed, in agent selling, the increase in the wholesale price due to double marginalization induces consumers to perceive the trade as fairer when buying from the retailer. The effect of increased perceived fairness can dominate the effect of lowered ordering quantity. Consequently, consumers are more willing to buy (even at a higher retail price) and the manufacturer is better off. For example, in the hotel industry, especially in the budget hotel segment, consumers easily switch to other hotels of the same type if they perceive a hotel’s price to be unfair. As a result, even though hotels are capable of selling rooms via their own channels, the entire hotel industry relies heavily on efficient and convenient online travel agents and third-party websites to sell rooms.

Agnes Cheng

C. S. Agnes Cheng, The Hong Kong Polytechnic University
Weihang Sun, Shanghai University of Finance and Economics
Kangtao Ye, Renmin University of China
Ning Zhang, Queen's University

Based on
The Effect of Auditing on Promoting Exports: Evidence from Private Firms in the Emerging Markets

Management Science, forthcoming


Customer firms pay attention to their suppliers' financial information. Poor financial conditions significantly reduce a firm's willingness and ability to provide products and services in a timely and continuous manner, which may cause disruptions in its customers' supply chain. Therefore, a firm has a strong incentive to assess the financial conditions and survivability of its potential suppliers, either by reading their financial statements or by gathering information via other channels. Although a major source of information on a firm's financial health, financial statements are subject to manipulation and errors. As a solution to this problem, a financial audit provides an independent and objective evaluation of the financial reports and the financial reporting process, increasing customer confidence in the creditworthiness of a potential supplier.

Today, global sourcing and exports are an important part of the economic activities around the world. When choosing suppliers from a different country, an importer faces similar but exacerbated information problems. First, contract completeness and enforceability are much lower in a cross-border trading scenario than in the domestic context, partially due to differences in the legal systems and institutions of each country. Second, due to the lack of local knowledge, lack of trust, and the inconvenience of inspection, information asymmetry between buyer and supplier increases with geographic distance. These circumstances make financial statements and financial audits all the more essential because, unlike other information channels, the availability of audited financial reports is not sensitive to distance. By limiting the exporter's opportunistic reporting and enhancing the creditworthiness of its financial information, a financial audit should enable the importer to have more confidence in international trade and boost the export sales of the potential exporter.

Based on a sample of private firms in more than 100 developing countries, the authors of this paper document a significant positive association between financial report audit and a firm's export intensity. From a researcher's perspective, this association is both challenging and important for causality. As a result, the authors use several methodologies to shed light on causality.

First, the authors use a fuzzy regression discontinuity design (RDD). Some countries impose mandatory audit requirements on private firms that meet specific criteria, which typically include a threshold based on the number of employees. As such, the exogenous mandatory audit regulation triggers a forced increase in the probability of receiving financial audits for firms meeting the criteria. The authors find that firms slightly above the employee threshold have higher export intensity than those slightly below the employee threshold, which can be ascribed to the forced audit effect.

Second, the authors use a difference-in-differences (DiD) design. They show that when a country changes its threshold for mandatory audits, firms exempted from mandatory audits under the new rule export less after the change in regulation.

The study emphasizes the value that a financial audit can add to cross-border trading activities. It is true that the audit engagement must be purchased, thus imposing a cost to private firms. However, this study shows that the audit engagement also has economic value.

An interesting result of the study is that the magnitude of the export-facilitating effect of audits is related to the quality of the audit profession in the country. Given the benefits of financial audits in export activities, the economic importance of exports, and the relatively underdeveloped domestic audit profession, developing countries should pay more attention to improving the audit profession.

Bonnie Hayden Cheng

Bonnie Hayden Cheng, The Hong Kong Polytechnic University
Julie M. McCarthy, University of Toronto Scarborough

Based on
Understanding the Dark and Bright Sides of Anxiety: A Theory of Workplace Anxiety

Journal of Applied Psychology, 103(5), 537–560 (2018)


All employees experience anxiety at work at one point or another. Some experience it during certain stress-provoking situations, such as during job interviews or meetings with important clients. Others experience it chronically, even during a mundane work day. Surprisingly, there has been very little research on how workplace anxiety affects employee productivity. The little research that exists suggests that anxiety is something that should be avoided, even driven out of the workplace. Although this is informative, it does not adequately capture another perspective of anxiety – as a force that can drive our best work.

In this paper, the authors developed a framework outlining the triggers of workplace anxiety, and how workplace anxiety can both enhance and undermine employee performance. It also specifies the conditions under which workplace anxiety is likely to lead to debilitative and facilitative consequences.

Employee characteristics such as gender, age, health, and job tenure are likely to trigger workplace anxiety, as are characteristics of the environment such as demands from the workplace, the task and the company one works for. Characteristics of the job, such as the type of job, and the amount of control one has over how to do one's work, are also contributing factors.

For employees who experience anxiety during specific situations (situational workplace anxiety), it is likely to prompt debilitating thoughts that distract them from focusing on their work tasks. This in turn affects task performance. For employees who tend to experience high general levels of workplace anxiety (dispositional workplace anxiety), experiencing anxiety at work is likely to drain them of their personal resources over the long run, manifesting in burnout symptoms such as emotional exhaustion, which in turn affects employee performance. On the bright side, employees who experience workplace anxiety can enhance their performance to the extent to which they engage in self-regulatory processing behaviours that refocus their attention on their tasks through self-monitoring of their emotions and behaviours.

Importantly, employees can manage their feelings of workplace anxiety and guide them towards the facilitative path. Employees with high levels of motivation in their work are more likely to invest resources in self-regulatory processing behaviours, such as attending to work goals, which strengthens their capacity for carrying out work tasks. Employees who have the technical know-how or have adequate tools to carry out their job tasks are also more adept at maintaining self-regulatory processing behaviours that guide anxiety towards enhancing performance. Finally, employees who have high levels of emotional intelligence are able to recognize when they are feeling anxious and are able to manage their anxiety so that their emotions do not take control of their ability to carry out work tasks.

This is the first study to theorize the bright side of workplace anxiety and suggest that employees need not fear their anxiety so long as they have knowledge of how to harness it into something that can work for them. An employee taking control of his or her feelings of anxiety at work can make anxiety work for, not against, him/her.

Hengqing Ye

Hengqing Ye, The Hong Kong Polytechnic University
David D. Yao, Columbia University

Based on
Justifying Diffusion Approximations for Multiclass Queueing Networks under A Moment Condition

Annals of Applied Probability, 28(6), 3652-3697 (2018)

Diffusion Limit of Fair Resource Control — Stationarity and Interchange of Limits

Mathematics of Operations Research, 41(4), 1161-1207 (2016)


Brownian motion, born from exploring the microscopic physical phenomenon, is now becoming a powerful analytical tool, as vigorously demonstrated in the authors’ recently published research. Their research provides an effective tool for analysing and controlling complex management and engineering systems, which are often large-scale, dynamic and stochastic in nature.

In the study, such complex service systems are often formulated as so-called stochastic processing networks. For example, the core component of a car-sharing mobile platform, the dispatching control, is modeled as a network consisting of several parallel servers, in which an arriving booking request is dispatched to one of the available drivers. Other examples include the management of hospital resources, Internet bandwidth sharing, and scheduling of semiconductor manufacturing, in which there are many service/production resources that are shared among the job classes requiring the services. In these systems, it is a perpetual challenge to evaluate the performance and even to develop an optimal resource control.

Research in recent years has demonstrated the effectiveness of applying the so-called fluid and diffusion scalings to the network, and examining the corresponding limiting regime. Using this approach, the original system (discrete, random, and hard to analyse directly) is replaced by a deterministic fluid model and a continuous Brownian model that can be evaluated. Then, through mathematical techniques, the results for later models are transformed back into the original system of interest. Traditionally, this approach is applied heuristically, and thus a major concern is, "is it safe to apply the results generated by such an approach?"

In their paper, the authors give a firm answer, "yes." They fill the gap by developing a creative framework for solving a kind of "interchange of limits" problem. A profound implication is that the stationary performance of the fluid and Brownian model (the “clone” system) approximate the original discrete system of interest. Consequently, the fluid and Brownian approach is rigorously justified. The authors comment that, "for many years, researchers and practitioners have developed precious toolkits for understanding and managing complex service systems via the fluid and Brownian approach heuristically, and now they can deploy such tools with the peace of mind."

In the era of big data, businesses are faced with an increasingly competitive environment, with shorter product life cycles, more demanding and fragmented customer sectors, and more diversified and dynamic supply channels. Pervasive use of structured financial instruments on one hand suits various financial purposes, and on the other hand induces more uncertainty and risk at the heart of the economic system. Companies are competing with analytics to tap into these complexities. This research represents a stride in developing tools for managing large-scale dynamic stochastic systems and supporting innovative business models.

Jing Xie

Allaudeen Hameed, National University of Singapore
Jing Xie, The Hong Kong Polytechnic University

Based on
Preference for Dividends and Return Comovement

Journal of Financial Economics, forthcoming


A prevalent feature of investors is that they like to allocate capital at the level of asset categories rather than individual stocks, what we call style investing. There are multiple styles that investors follow. For example, some investors group stocks based on whether they are included in the S&P 500 index and make investment decisions based on the stocks' index memberships. One important implication of style investing for asset pricing is that it generates comovement in stock returns as investor capital flows in and out of specific styles and creates demand pressure for stocks. Consistent with this argument, follow-on empirical studies show, for example, that stocks added to the index covary more than other stocks already in the index, and the increased comovement cannot be explained by changes in the fundamental correlations.

In this study, the authors provide fresh evidence of return comovement driven by investor preference for dividends. They find that investors treat a stock's dividend characteristics as a salient category and they move their funds in and out of the category, causing stocks within the category to move together. Their finding is consistent with anecdotal evidence. From a practitioner perspective, fund managers often explicitly state that their selection of stocks is based on the stocks’ dividend status in their fund prospectus. Examples of such funds include: (a) Fidelity Equity Dividend Income Fund, whose investment strategy is to invest "primarily in income-producing equity securities that pay current dividends and show potential for capital appreciation"; and (b) T. Rowe Price Dividend Growth Fund, which describes itself as a "fund seeking dividend income and long-term capital growth through investments in dividend-paying stocks."

Using dividend initiations by firms trading on the NYSE/AMEX and NASDAQ from 1981 to 2012, the authors find strong evidence linking return comovement to clientele dividends. The sensitivity (or beta) of stock returns to the portfolio of dividend-paying stocks increases from 0.16 to 0.38 (a difference of 0.22) for firms that initiate dividends. Their beta with respect to the portfolio of non-dividend payers decreases from 0.30 to 0.22 (a difference of -0.08).

Beyond comovement in stock returns, the authors analyse turnover comovement for dividend initiators relative to a matched control sample. They find that dividend initiators register an increase in turnover comovement with dividend-paying stocks from 0.47 to 0.56 after initiations. There is also a simultaneous decrease in comovement with non-dividend paying stocks from 0.56 to 0.44. This new evidence of comovement in trading activities strongly supports the investor clientele/trading habitat view. In addition, the authors find that mutual funds historically preferring high (low) dividends tilt their portfolio holdings towards (away from) the dividend initiators. More importantly, mutual funds with a preference for dividend stocks receive greater inflows when the premium for dividends is higher.

Overall, the evidence supports the proposition that the trading of pro-dividend (dividend-averse) clienteles induces an extra factor for dividend payers (non-payers) beyond those associated with changes in common factors.

Andy Yeung

Chris Lo, Institute of Textiles and Clothing, The Hong Kong Polytechnic University (Faculty PhD graduate)
Christopher S. Tang, University of California, Los Angeles
Yi Zhou, Institute of Textiles and Clothing, The Hong Kong Polytechnic University
Andy Yeung, Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University
Di Fan, Macau University of Science and Technology

Based on
Environmental Incidents and the Market Value of Firms: An Empirical Investigation in the Chinese Context

Manufacturing & Service Operations Management, forthcoming


Although we all know that environmental incidents have a negative impact on the reputation of a firm, how Chinese investors react to environmental incidents of a firm is less commonly understood. Based on 618 environmental incidents of Chinese manufacturing firms between 2006 and 2013, Professor Andy Yeung and his team find that the environmental incidents of firms in China lead to a drop in market value of about 0.57%, which is much less significant compared to the results of similar studies in the western context. At the same time, they find that environmental incidents of a Chinese firm can have a negative impact on the stock prices of their major customers overseas. Surprisingly, the negative impact of environmental incidents on stock prices of their major overseas customers is actually much stronger than that of the Chinese firms themselves. This shows that Chinese investors seem to care much less about the environmental incidents of their invested firms. Instead, overseas investors care not only about the environmental performance of their invested firms, but also these firms’ suppliers in other countries. Based on these findings, the team believes that overseas stakeholders’ care about the environmental performance of the firms and their suppliers (i.e., purchasing ethics) can be used as a means to extend institutional pressure for environmental improvements to partners across the supply chain.

The team further examines how the negative impact of environmental incidents variates in different types of Chinese firms. It finds that firms with higher government shares and more recognition on social responsibility are less negatively affected. However, firms with stronger political ties (i.e., top management teams or board members with concurrent government appointments) can be more negatively affected in case of environmental incidents. This shows that political ties, which may be helpful for firms during good times, can also be a liability in the case of negative events like environmental incidents. Firms with personal political ties are more sensitive to negative publicity and perceived more negatively by stakeholders when environmental incidents happen.

* This paper won the 2017 Responsible Research in Management Award co-sponsored by the Community for Responsible Research in Business and Management, and the International Association for Chinese Management Research (IACMR).

Chong Wang

Henry He Huang, Yeshiva University
Joseph Kerstein, Yeshiva University
Chong Wang, The Hong Kong Polytechnic University

Based on
The Impact of Climate Risk on Firm Performance and Financing Choices: An International Comparison

Journal of International Business Studies, 49 (5), 633-656 (2018)


Increasingly worse climate has attracted significant interests from the public, the media and academe. The effect of climate on economic performance has been studied intensively in the prior economic literature. However, these papers generally investigate the impact of climate events on geographic areas as a whole. Recent studies also examine the impact of carbon dioxide emission on firm valuation. In summary, the current literature does not directly examine how physical climate risk influences listed companies. A paper co-authored by Dr Chong Wang shows that climate risk influences firms’ performance and financial policies.

This study measures the country-level climate risk by using Global Climate Index published by Germanwatch. This measure captures the extent to which countries have suffered direct losses and fatalities associated with extreme weather events (e.g., storms, floods, and heat waves). This index is constructed by four indicators: (1) number of deaths, (2) number of deaths per 100,000 inhabitants, (3) sum of losses in US dollar at purchasing power parity (PPP), and (4) losses per unit of Gross Domestic Product (GDP). The index score of a country equals the country’s average ranking of all four indicators, absolute indicators (1) and (3) weighting 1/6 each, and relative indicators (2) and (4) weighting 1/3 each.

Using a sample of 353,906 observations from 55 countries, this study finds that firms with climate risk have lower and more volatile financial performance. To cope with climate risk, firms with higher climate risks are more likely to hold more cash, have lower short-term debt but greater long-term debt, and less likely to distribute cash dividends. The results are consistent with precaution incentive to hold cash, since extra cash holding can help the companies to mitigate the negative effects of climate events.

This paper also finds that the above effects are more pronounced for certain climate-sensitive industries, such as agriculture, energy (including mining and oil extraction), food products, healthcare, communications, business services, and transportation. This paper also suggests that insurance coverage can mitigate the relationship between climate risk and firm performance since firms can get loss covered to some extent by the insurance firms. The paper also finds that the results are robust to an instrumental variable method, propensity score matching, and alternative measures of climate risk. In the robustness check, the results are similar when US observations are dropped, when using country-weighted least squares regression to control for the different weights of countries in the sample, and when the financial crisis period is defined separately for each country.

This paper is one of the first to examine the global effects of climate risk on firm performance and firm policies. The study has important implication to investors. Given the importunate of climate risk, investors should pay attention to the impact of climate risk on firms’ operation. This paper is also a reminder for regulators that disclosure of the impact of climate risk might be necessary for firms’ financial reporting.

Dichu Bao, The Hong Kong Polytechnic University
Simon Yu Kit Fung, Deakin University
Lixin (Nancy) Su, Lingnan University

Based on
Can Shareholders Be at Rest after Adopting Clawback Provisions? Evidence from Stock Price Crash Risk
Contemporary Accounting Research, forthcoming


In the world of business, honesty should be the best policy but it sometimes isn’t. In recent years, so-called “clawback” provisions in executives’ contracts have enabled firms to seek the recovery of compensation awarded if numbers have been misstated in financial statements. Indeed, in the US the Dodd-Frank Act compels publicly listed companies to adopt clawback provisions to curb managerial opportunism. Although research has shown that clawbacks are beneficial, a paper co-authored by Dr Dichu Bao, shows that firms insisting on clawback provisions are more likely to experience significant declines in their stock prices than those which do not.

Comparing 352 companies that adopted clawback provisions from 2003 to 2013 with the same number that did not, the study finds that adopters saw an increase in their stock price crash risk, or the likelihood of extremely negative returns not related to the overall market. There is a fairly simple reason for this discrepancy: clawback measures come at a huge cost and force firms to conduct activities-based earnings management and write less readable financial reports in efforts to hide bad news and maintain their stock prices.

These findings suggest that the potential benefits to clawback provisions are outweighed by the incentives to conceal bad news, and that investors are not necessarily better off. Given that the Security and Exchange Commission is currently finalizing the rules for mandating clawbacks, the study is a timely reminder that regulators and policy makers make more informed decisions on the design and requirements of implementation rules.

Qu Qian
Qu Qian, Singapore University of Social Sciences, and University of Science and Technology of China
Pengfei Guo, The Hong Kong Polytechnic University
Robin Lindsey, The University of British Columbia

Based on
Comparison of Subsidy Schemes for Reducing Waiting Times in Healthcare Systems
Production and Operations Management, 26 (11), 2033–2049 (2017)


Population ageing is a problem worldwide, and nowhere more so than in public healthcare systems. Growing demand from ageing populations and the availability of new medical services have increased pressures on many countries’ systems, resulting in long patient waiting lists.

Long waits for key medical services often attract media headlines, ignite nationwide healthcare reform debates and put intense pressure on governments to fix the situation. As a result, governments are increasingly keen, and sometimes even forced, to subsidize patients to use private healthcare. In this way, the private healthcare system acts as a “safety valve” to absorb demand when the public system is overwhelmed.

A paper co-authored by Professor Pengfei Guo investigates subsidy schemes that are widely used in reducing waiting times for public healthcare services. It then puts forward a scenario in which patients can be subject to two healthcare policies. In the first, public patients are given a partial subsidy to use a private service if they have to wait beyond a specified time for public healthcare. The second policy involves giving public patients a full subsidy to use private healthcare, but they can only take the option if they have to wait for a much longer time than under the first policy.

The findings show that if all patients are equally sensitive to delay, the policy offering the smaller subsidy triggered sooner is more appealing to patients. The study then uses data from the Hong Kong Cataract Surgery Programme to compare the policies when patients differ in their sensitivity to delay, with the first policy still found to be more appealing to patients. However, the full subsidy policy can outperform policies that fall somewhere between the two stated here.

Celia Moore, Bocconi University
Sun Young Lee, University College London
Kawon Kim, The Hong Kong Polytechnic University
Daniel Cable, London Business School

Based on
The Advantage of Being Oneself: The Role of Applicant Self-verification in Organizational Hiring Decisions
Journal of Applied Psychology, 102 (11), 1493-1513 (2017)


The next time you approach a job interview, just relax and be yourself: if you’re good, this may be the best way to land the job. In a recent paper co-authored by Dr Kawon, the researchers found in three different studies that high-quality candidates who strived to present themselves accurately during the interview process were significantly more likely to receive a job offer.

While common wisdom has strongly encouraged job seekers to present only the best aspects of themselves to appear more attractive to interviewers, the authors found that it is more beneficial for individuals to present who they really are, particularly when they are high-quality candidates. The research was based on the concept of self-verification, the desire to present oneself accurately so that others understand one as one understands oneself. Self-verifying behaviour was already known to positively influence outcomes that unfold over time, such as the process of integrating into a new organization. This paper shows, for the first time, that self-verification can also have important effects on short-term interpersonal interactions, such as during the hiring process.

The first study, using a sample of teachers from around the globe applying for placements in the US, found that among candidates evaluated as high quality, those with a strong drive to self-verify were between 51% and 73% more likely to receive a placement offer. The second study replicated this effect in a radically different sample: lawyers applying for positions in a branch of the US military. High-quality candidates in this sample increased their chances of receiving a job offer by five times, from 3% to 17%, if they had a strong drive to self-verify. An important caveat is that the effect depends on meeting the bar of quality: self-verification actually weakened the position of candidates who were rated as low quality.

A third study was designed to test the mechanism behind this effect. A survey of 300 people measured their striving for self-verification, and selected those who scored extremely high and extremely low. These individuals participated in mock job interviews that were recorded and then transcribed and submitted to text analysis. The findings revealed that candidates’ language differed as a function of their self-verification drive. People with a strong self-verification drive communicated in a more fluid way about themselves, and were ultimately perceived as more authentic and less misrepresentative. These perceptions ultimately explain why high-self-verifying candidates flourish in the job market.

“In a job interview”, Celia Moore says, “we often try to present ourselves as perfect. Our study proves this instinct is wrong. Interviewers perceive an overly polished self-representation as inauthentic and potentially misrepresentative. But ultimately, if you are a high-quality candidate you can be yourself on the job market. Being honest and authentic will be more likely to get you the job”.

Ji-Chai Lin, The Hong Kong Polytechnic University
Yanzhi (Andrew) Wang, National Taiwan University

Based on
U.S. firms that invest more in R&D (on the basis of per dollar of firm size) tend to offer investors higher stock returns.
The Accounting Review, 91 (3), 955-971 (2016)


U.S. firms that invest more in R&D (on the basis of per dollar of firm size) tend to offer investors higher stock returns. Is this R&D premium due to the mispricing of R&D-intensive firms or the compensation for higher uncertainty and risk associated with their R&D activity? According to a new study forthcoming in the Accounting Review, it is not due to the mispricing or the risk associated with R&D; instead, it is largely due to (i) high R&D capacity relative to firm valuation makes R&D-intensive firms attractive takeover targets and (ii) the higher takeover probability leads their investors to face higher takeover risk and require higher returns.

For firms more likely to become takeover targets, their values will increase more when economic fundamentals are good and acquirers are flush with cash to pursue takeovers. Conversely, as a takeover wave recedes, the values of the firms with higher takeover probability will decline more. Thus, for firms facing higher takeover probability, their values will fluctuate with the crests and troughs of takeover waves.

“We find robust evidence that a firm’s R&D intensity is a significant determinant of its likelihood of becoming a takeover target: the higher the R&D intensity, the higher the takeover probability. Furthermore, the R&D premium positively relates to the takeover probability even after controlling for many R&D-related factors,” write authors Ji-Chai Lin (Hong Kong Polytechnic University) and Yanzhi (Andrew) Wang (National Taiwan University).

The authors suggest that the R&D premium and the takeover factor strongly co-move and illustrate a major risk of holding high R&D-intensive firms’ stocks when the takeover factor falters, which usually occurs as takeover waves recede.

Donal Crilly, London Business School
Na Ni, The Hong Kong Polytechnic University

Yuwei Jiang, The Hong Kong Polytechnic University
Based on
Do-no-harm versus Do-good Social Responsibility: Attributional Thinking and the Liability of Foreignness
Strategic Management Journal, 37 (7), 1316-1329 (2016)


Do the efforts of multinational corporations (MNCs) to be socially responsible always engender positive evaluations from overseas stakeholders? Probably not. As more and more MNCs hope to gain more legitimacy and increased financial performance by engaging in corporate social responsibility (CSR) activities, there is no guarantee that these efforts always pay off, according to a forthcoming study in the Strategic Management Journal.

“Though some CSR involves proactive strategies to create social value, many forms of CSR seek to limit the social costs of business, ironically highlighting the negative consequences of corporate activity that are rarely entirely eliminated.” Write authors Donal Crilly (London Business School), Na Ni (Hong Kong Polytechnic University), and Yuwei Jiang (Hong Kong Polytechnic University).

In this study, the authors argue that two heuristics guide stakeholders in evaluating firms' social performance: foreignness and the valence of firms' social responsibility. They provide evidence from a field study of secondary stakeholders and an experimental study involving 129 non-governmental organizations. Consistent with attribution theory, the liability of foreignness is minimized when firms engage in “do-good” social responsibility (focused on proactive engagement creating positive externalities) but is substantial when firms engage in “do-no-harm” social responsibility (focused on attenuating negative externalities). They also demonstrate that these evaluations have consequences for whether stakeholders subsequently cooperate, or sow conflict, with firms.

MNCs often invest in social responsibility; however, these investments are generally undervalued by local constituencies. This is problematic because perceptions of social performance matter for how easily firms gain resources from stakeholders. “The effectiveness of strategy depends on the receptivity of actors outside the firm, e.g., analysts, customers, and governments. Communication with intermediaries is of prime importance,” the authors conclude.

Yuwei Jiang, The Hong Kong Polytechnic University

Gerald J. Gorn, The Hong Kong Polytechnic University
Maria Galli, Universitat Pompeu Fabra, Barcelona, Spain
Amitava Chattopadhyay, INSEAD Singapore

Based on
Does Your Company Have the Right Logo? How and Why Circular- and Angular-Logo Shapes Influence Brand Attribute Judgments
Journal of Consumer Research, 42 (5) 709-726 (2016)


What are the key elements of a brand logo? One is for sure its shape. All logos are basically either circular (with curved lines), or angular (with straight lines and sharp corners), or a combination of both. A recent research published on the Journal of Consumer Research suggests that the circularity and angularity of a brand logo influences how consumers judge its brand attributes.

“Physical products like a sports shoe and sofa are found to be seen as more comfortable when the logo is circular and more durable when the logo is angular. And a company in the services industry that has a circular logo is seen as being more consumer-sensitive when it has a circular as opposed to an angular logo,“ write authors Yuwei Jiang (Hong Kong Polytechnic University), Gerald J. Gorn (Hong Kong Polytechnic University), Maria Galli (Universitat Pompeu Fabra), and Amitava Chattopadhyay (INSEAD).

Across five experiments, this research documents that the mere circularity and angularity of a brand logo is powerful enough to affect perceptions of the attributes that people think that a product or a company has. It is theorized and shown that circular vs. angular logo shapes activate respectively the association of softness and hardness. And these associations are very important. Why? Because what happens then is that product imagery gets generated based on these associations, and this results in the product or company being seen as having particular characteristics.

How does a company decide on the shape it will use for its brand logo? While brand logos are usually complex stimuli composed of multiple visual elements (e.g., shape, typeface, color), this research provides practical guidance to managers about how one specific but very important feature influences what people think about a product or company, namely how the shape of the logo influences the features that a product or a company is seen as having. As a real world example, Google’s recent logo change included making the two ‘g’s and the two ‘o’s, almost perfect circles, and removing the serifs (flicks at the ends of letters). Brand executives of Google at their new logo launch announcement in 2015 were quoted as saying “We think we’ve taken the best of Google (simple, uncluttered, colorful, friendly) and recast it not just for the Google of today, but for the Google of the future.” (Bloomberg Week; Sep. 18, 2015).