Publications
Publications
Managers often depend on informal networks of peers, especially when navigating significant uncertainty. Engaging in discussions with peers can provide fresh news and insights, sharpening a manager's decision-making skills. These interactions are educational, and extensive research has demonstrated that a manager's network is a key source of competitive advantage. Undoubtedly.
But is this still true in the new era of datafication? As knowledge and information become "hard"—codified and standardized—their meaning becomes more uniform across managers. Increasingly, managers are relying on "hard" data for strategic decision-making. Consider baseball as an example. The datafication of skills is now a given, with owners, managers, and players all making decisions based on this hard data, transforming the way the game is played.
We argue that informal networks may lose their value in an information environment heavily reliant on hard data. In fact, we suggest that being closely tied to informal networks could be detrimental. When all peers access the same information, discussions among trusted peers are less likely to yield new insights, instead reinforcing existing knowledge. Such an echo chamber can be dangerous when circumstances change and render prior knowledge obsolete.
Fig. 1. Network of Fund Managers at the Onset of Crisis
This was evident during the financial crisis of 2008, following the collapse of Lehman Brothers. Analyzing hedge fund performance before and after the crisis, we found that funds managed by connected managers performed significantly worse (by about 11 percentage points) than those run by managers disconnected from mainstream finance communities. Connected managers never recovered, with many going bust.
However, this was only true for relative value funds that rely on quantified models built on hard information. For long-short funds, which adhere to traditional investing methods by evaluating the fundamentals of underlying assets, connected managers performed as poorly as disconnected managers at the crisis's onset. Yet, connected managers recovered quickly, while disconnected managers did not.
Why might this be the case? We propose that connected managers relying on hard information created an echo chamber. Although we lack detailed data on their investment portfolios, performance correlations among managers heavily relying on hard data were significantly high when they were connected. When disconnected, the performance correlation was nearly zero.
On the surface, this should offer valuable insights to firms committed to making strategic decisions based on hard data. As firms embrace data-driven management, their hiring strategies must adapt. Paying a premium to hire a well-connected manager might not be advisable.
However, our research also serves as a warning about the potential dangers of data-driven management. With the current crop of well-connected managers, firms should be cautious of inadvertently creating echo chambers when relying on hard information.
Perhaps there is a catch for those who are disconnected, too. If you're an outsider without strong industry ties, the rise of datafication could be your moment to outcompete the well-connected incumbents.
Lee, Y.G. & Choi, J.N. (forthcoming) “ Informal Networks and Information Environments.”, Strategic Management Journal
To read a preprint version, please click here.
Finding a good professional for services like accounting, consulting, and financial advisory is challenging. There are several reasons for this. First, clients typically lack the expertise to monitor these professionals' complex tasks. This also means clients struggle to evaluate who is competent. Additionally, professionals' incentives often do not align with those of their clients. Although professionals are supposed to act as good fiduciaries, they may take risky decisions that benefit themselves while passing the risks onto clients. So, whom should you trust and hire?
Research suggests that the status of a professional is a useful tool for deciding whom clients should choose. High-status professionals—those respected and admired among peers—are considered not only competent but also trustworthy because they strive to uphold professional integrity. After all, they have a reputation to maintain. But what about those who are not high-status?
In the market for professionals, this means they are sought after and, therefore, have many clients to choose from. Among many clients, high-status professionals can pick clients with little trouble. All good. But, the situation is different for middle-status professionals. They are not completely unknown. They do have some levels of reputation, attracting clients who need professionals. However, good clients are picked by high-status professionals first. Middle-status professionals are left with risky and problematic clients; they need the endorsement from a professional, specifically because their actions may not be good. For example, consider a business that is running a shady business but needs an accountant to check off "done external audits." How about a firm that pursues a risky M&A deal that may just benefit the executives, but not shareholders? Although professionals' fiduciary duty is to discourage these clients and prevent them from taking such problematic actions, they are incentivized to take the job. In worst case, they may even encourage clients to take risky actions.
This is the moral hazard professionals face, and middle-status professionals face it more than others. We test this idea in the market for buy-side acquisition advisory. This context is interesting because the role of a financial advisor is to ensure clients avoid destroying their value. Yet, financial advisors are compensated only when a deal closes, incentivizing risky deals. Thus, there exists an incentive misalignment.
The reputation mechanism is supposed to constrain advisors from endorsing problematic deals. After all, financial advisors who consistently help clients destroy value may not develop a good reputation and will be punished in the market. This is a naive view, however. Some clients want to pursue risky acquisitions, and the uncertainty following an acquisition, such as post-merger integration failure, suggests that clients' failure can be attributed to several factors. Advisors can hide behind these factors.
What we find is that the acquisition premium is highest for middle-status advisors. This implies that acquisition deals with middle-status advisors are at risk of being overpriced. This holds true even after accounting for characteristics of "middle-market deals." In a separate analysis, we also find that being associated with higher acquisition premiums hurts high-status advisors from getting hired in the future. For middle-status advisors? Not really. The reputation mechanism collapses with middle-status professionals, allowing them greater room for moral hazard.
Why is this important? The existing middle-status theory suggests that middle-status actors conform to prevailing norms. In the professional context, this may indicate they are expected to uphold their professional integrity. But in the market for professional endorsement, middle-status professionals are the ones who face the greatest room for moral hazard. This is one reason why there is so much noise in the middle of the status hierarchy. It also shows there is still much to learn about how the status hierarchy works in the market, beyond simply being a signal of competence.
Lee, Y.G. & Jung, H.J. (2024) “Middle-Status Opportunism: Financial Advisors and Their Risky Acquisition Endorsements.”, Cooper, C.L. and Finkelstein, S. (Ed.) Advances in Mergers and Acquisitions (Advances in Mergers and Acquisitions, Vol. 23), Emerald Publishing Ltd, Leeds. pp. 89-100
To read a print version, please click here.
Is greater autonomy in the new world of work—where careers are developing outside of organizations—an equalizer for women? Or does it come with a price? For female professionals seeking to escape the masculine corporate ladder and better balance their professional and personal lives, this is an interesting and important question. Indeed, women often choose to freelance to have a greater say in when, what, and with whom they work.
In this paper, we find that women freelancers face "The Glass Wall," where women who expand their work roles encounter an evaluative disadvantage compared to men who expand. We call this a wall not only because it is a hurdle that women need to break through to achieve greater independence in their work and adapt to the perils of unstable jobs and income, but also because it may discourage women from further advancing their freelancing careers. It is also "glass" because the evaluative disadvantage is more implicit in people's evaluations.
The evidence comes from three studies using mixed methods—an archival study examining whether female K-Pop songwriters who expanded their work roles have a higher likelihood of survival than their male peers, an experiment testing our theoretical model where female songwriters who expanded their roles are perceived as less agentic than their male peers, and another experiment testing the same model with a better design in a different context of film producers. Although the evidence is from creative careers, we believe the glass wall is likely present in other careers as well; the evaluative disadvantage on the level of perceived agency presumed in role expansion is likely to occur in other career contexts where people gain greater autonomy in shaping their careers.
It remains to be seen how pervasive the glass wall is in the new world of work. But we believe we are taking an early step in understanding how the changing landscape of careers can leave a mark on women.
Lee, Y.G., Koval, C.Z., & Lee, S.S. (2023) “The Glass Wall and the Gendered Evaluation of Role Expansion in Freelancing Career.”, Academy of Management Journal, 66(4): 1042-1070
To read a print version, please click here.
To read a related article from Harvard Business Review, please click here.
Diversity of the board is important for modern large corporations. It helps them not only get exposed to a diversity of mindsets, which can lead them to find healthy governance, but also gain legitimacy amid the growing societal call to improve gender and racial underrepresentation on the board.
Yet, things quickly change when firms underperform—against their past performance and/or their competitors. The board must help find the source of the problem and advise the executives on alternative options. These actions need to happen quickly since the underperforming firm and its board face immense pressure to react.
All this means that the board will change once its firm underperforms. But the question remains as to how.
In this research, we find that the board of an underperforming firm becomes more diverse in terms of its directors’ expertise backgrounds, but becomes more homogenous in terms of their gender and race—unfortunately, this means that the board becomes more dominated by White men.
These changes are linked to the firm’s motivation to remedy its underperformance quickly. Diversifying directors’ expertise backgrounds—by inviting directors with different expertise, letting go of those with redundant expertise, or seeking new expertise from the existing directors—is consequential in looking for a new strategic direction. But to do so quickly, directors must share trust and solidarity. Unfortunately, this is more challenging for directors whose gender and race are different because these social groups are attached to different norms, expectations, and even historical conflicts. Considering that around 80% of directors are White men, the board of an underperforming firm is likely to keep directors who are White men, while easily letting go of women and racial minority directors. This is a pretty grim playing field for underrepresented groups of people.
Perhaps a silver lining of our finding is that such challenges against women or racial minority directors can be removed when the board has a committee chair from an underrepresented group of people. The power of the chairs can help shield against the social-psychological impetus to homogenize the board under the underperformance threat. Knowing that directors from underrepresented groups are only given limited opportunities to occupy committee chairs, the next focus in the movement to improve underrepresentation should be to help these directors gain more influence on the board. Doing so will not only increase their influence but also safeguard them from being let go when the ship goes south.
Jung, H.J., Lee, Y.G., & Park, S.H. (2023) “Just Diverse Among Themselves: How Does Negative Performance Feedback Change Board Diversity in Expertise and Ascriptive Backgrounds.”, Organization Science, 34(2): 657-679
To download, please click here.
Starting a new career can feel daunting. As you are inexperienced, it is difficult to convince others of your talent, subsequently making it difficult to find opportunities.
This is especially true for those pursuing freelancing careers, like creative workers. Those who start a creative career may have an aspiration for success and fame, but the reality is that they are not even sure whether they can make ends meet. Opportunities to shine come sporadically. The hip-hop legend Eminem raps, “You only get one shot, do not miss your chance to blow. This opportunity comes once in a lifetime.”
How do they navigate such predicaments? A network of collaborators plays an important role. But there is a conundrum. Research has shown that to survive, one may benefit from building a network of close and cohesive collaborators who share trust and solidarity—that is, those who would have their back when things hit the fan. However, such a network tends to lack the diversity of knowledge and skillsets that are integral to creative production. These are better found in a network that connects otherwise disconnected collaborators. These opposing forces eventually create a survival trap, where one may build a network adept at helping them survive in the precarious career, but this very network will be unlikely to help them achieve coveted success.
But some escape this trap, while others don’t. What explains this difference? In this research that tracks the career of K-pop songwriters from their debut, we find that successful songwriters indeed escape from this trap quickly. But the force behind such an escape takes the form of a wake-up call. Those who find their close collaborators succeed before they do and those who have gambled their career on developing a singular style but failed in the market persistently are the ones who seek out new collaborators from afar and escape from their cohesive network. In more street terms, FOMO (the fear of missing out) and the grim reality that one’s work is not going to succeed push people out of their comfort zone where trivial survival is more or less secure.
Before we conclude that people need some push to recreate their network, there is yet another twist. While these factors motivated songwriters who fell into the survival trap, such an escape only led to their misery in finding company—in their search for new collaborators from afar, they are more likely to join forces with others as unsuccessful as they are. The successful ones did not want to bet on these desperate people; in fact, the successful ones avoided the ones trying to escape the survival trap. So, the challenges remain, perhaps furthering the chasm between the ones who aspire to become successful and those who are already successful.
Lee, Y.G., & Gargiulo, M. (2022) “Escaping the Survival Trap: Network Transition among Early-Career K-Pop Freelance Songwriters.”, Administrative Science Quarterly, 67(2):339-377
To download, please click here.
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Product designs are valuable assets. They are unequivocally an important source of a firm’s competitive advantage—like Apple winning the minds of smartphone consumers and more. In fact, estimates show the value of a design patent, on average, has surpassed that of a utility patent since the early 2000s.
What makes a product design more valuable? The customary understanding is that there are two factors that make a product design appealing and valuable. A good and valuable design should help customers understand the product and use it with ease. It also needs to appear new and cool so that customers can express their uniqueness. These factors imply that firms should develop a design that is similar to other designs so that customers can easily understand how to use the product, but at the same time, the design should be different from others so that it can appeal to the product’s uniqueness. This led researchers to think an optimally distinctive design that is similar, yet sufficiently different from existing designs, will be most valuable.
In this paper, we engage with this question but propose that the reference points by which consumers judge a design's functionality and uniqueness are different. Consumers use past designs that have been in the market for some time to evaluate whether a design is easy to use. However, they use designs that are concurrently in the market to evaluate whether a design is unique enough. This led us to think of a more fine-grained way of how firms should make their designs optimally distinctive. A design that is similar to past designs yet different from contemporary designs—what we call “anchored differentiation”—would evoke greater appeal from consumers.
Using rich data from 30 years of design patents granted by the USPTO, we find that design patents with anchored differentiation had higher market returns on the day of the grant announcement. We corroborate our findings through a pre-registered experiment; consumers inferred greater informational value from the comparison vis-à-vis past designs yet inferred greater expressive value from the comparison vis-à-vis contemporary designs.
Chan, T.H., Lee, Y.G., & Jung, H.J. (In-press) “Anchored Differentiation: The Role of Temporal Distance in the Comparison and Evaluation of New Product Designs”, Organization Science
To download, please click here.
To listen to a podcast (Resoundingly Human by Ashley Kilgore INFORMS) featuring this article, please click here.
In one's professional career, people need to craft an identity to ensure they are known for something. This is true for conductors of large orchestras. Their choice of repertoire for a season defines how audiences perceive and evaluate them. Therefore, conductors deliberate on what music their orchestra will perform for a season. They also pay close attention to what other conductors perform, so that they might not appear too conventional or too absurd.
In this paper, we examine how conductors' status among their peers affects their choice of repertoire. We focus on conductors' social status—how much a conductor is respected and admired among fellow conductors—because we know that conductors at different statuses would face diverging levels of pressure to show that they conform to the conventional type. In particular, those who are neither high- nor low-status, that is, those in the middle, feel more conformity pressure, as they are often questioned whether they should be considered high-status or not. In contrast, those considered either high- or low-status feel less pressure to conform, either because their status is pretty much secure so they don't care, or because their status is so low that it doesn't matter even if they care. This is a phenomenon known as middle-status conformity.
However, we find that this only applies to conductors from well-respected countries. In classical music, being from Germany or Austria, two countries from which most prominent classical music writers came, helps to be respected. If conductors are not from these high-status countries, we find that middle-status conductors deviate more than high- or low-status actors. Not being secure in the legitimacy that their nationality confers, non-German/non-Austrian high-status conductors need to show that they are a part of the high-status group. Low-status conductors from other countries also need to conform, because otherwise, they will be considered total outsiders whose survival in the conductor career could be challenged. We find supporting evidence.
The need to craft an identity might be universal, but how people should craft one differs. What one must recognize is that both status markers, one based on prior achievement and the other ascribed to a person at birth, seem to play an equally significant part, unfortunately.
Prato, M., Kypraios, E., Ertug, G., & Lee, Y.G. (2019) “Middle-status conformity Revisited: The Interplay between Achieved and Ascribed Status”, Academy of Management Journal, 62(4):1003-1027
To download, please click here.
In the contemporary art field, artists engage with multiple audiences, notably museums and galleries. Museums are mostly publicly funded, while galleries are owned by a small number of individuals seeking for profits. Accordingly, museums value the artistic quality of a work, while galleries value its commercial viability. They also face varying levels of accountability in selecting whose work to exhibit; museums face greater accountability pressure than galleries do, because of their public nature.
These differences in museums and galleries affect how different reputations help artists’ career. In this paper examining the career of emerging artists in the contemporary art field, we find that artists who won prestigious awards for their artistic quality have a greater chance of exhibition at museums than at galleries. We also find that the reputation for artistic quality has greater effect when artists have exhibited in high-status museums, such as The Museum of Modern Art. However, the reputation for artistic quality is devalued if artists had many exhibitions with galleries.
These are not true for artists known for the commercial viability of their works. While these artists have a greater chance of getting gallery exhibitions, such a chance is not affected by their past record with high status galleries or with museums.
Ertug, G., Yogev, T., Lee, Y.G., & Hedstrom, P. (2016) “The Art of Representation: How Audience-Specific Reputations Affect Success in the Contemporary Art Field”, Academy of Management Journal, 59(1):113-134
To download the paper, please click here.
A promotion to a managerial position is a significant advancement in a professional’s career. But it also brings a significant challenge as they are given more responsibilities that go beyond those of a functional specialist. In order to successfully adapt to their new and enlarged roles, professionals need to renew their networks by keeping, losing, and adding network contacts.
In this paper, we ask how do professionals change their networks after their promotion. Based on two waves of a social network survey, we find that professionals consider both the pulling force of cohesion (i.e., sticking with old and close contacts) and the pushing force of efficiency (i.e., economizing and replacing unnecessary contacts) while networking. More specifically, newly promoted professionals keep powerful, competent, and trusted contacts with whom they share multiple types of social relationships. At the same time, they lose redundant contacts, especially when they have alternative contacts who are competent. Finally, we find that professionals who used to have a network that connects otherwise unconnected people add new contacts with greater competence.
Jonczyk, C., Lee, Y.G., Galunic, C., & Bensaou, B. (2016) “Relational Changes During Role Transitions: The Interplay of Efficiency and Cohesion”, Academy of Management Journal, 59(3):956-982
To download, please click here.