"Reputation and Herding"
In this paper, I study when managers may knowingly make poor decisions. Specifically, I posit “reputational herding,” whereby decision makers herd to avoid being uniquely wrong even when they know this will make them less likely to be correct. I model this phenomenon formally and show that decision makers will be less likely to herd when they have higher reputations and when experts have less correlated information. The model provides predictions that distinguish between learning and reputational herding. The theory is tested in the context of sell-side stock analysts. A difference-in-differences estimation compares award-winning analysts and runners-up with similar ability to identify the causal impact of a change in reputation on the likelihood of herding. The results suggest that analysts herd less after an increase in reputation, which is consistent with the reputational herding mechanism.
"Performance Awards and Entrepreneurial Entry"
We study the effect of winning professional performance awards on entrepreneurial entry. We propose that performance awards can increase professionals’ likelihood to become entrepreneurs though increasing their confidence and reputation. Examining the causal impact of winning awards is difficult because the underlying high quality of winners can also contribute to the outcome of interests. We are able to tackle this endogeneity issue by controlling for ability in the context of sell-side equity research. We examine the effect of winning a performance award on stock analysts’ likelihood to become entrepreneurs by comparing the winners with a control group with similar ability. Using LinkedIn data, we trace the careers for about 3,000 analysts and find award winners’ likelihood of becoming entrepreneurs is 30% to 40% higher than that of the non-winners’. Additionally, we find that the effect of winning is driven by mid-age professionals and those who work at relatively bigger firms; the evidence suggests that winning awards complements existing resources in entrepreneurial entry decisions. Our study provides evidence that performance awards can increase entrepreneurial entry and suggests that they may be low-costs instruments that complement formal policy to encourage entrepreneurship.