Tag: faculty research



At a time when evictions and mortgage defaults have been likened to an oncoming tsunami across America, a big-data study of loan-to-value ratios in the wake of the 2007-08 recession carries a cautionary forecast for vexing economic weather ahead:

The higher a worker’s outstanding mortgage relative to their home value, the worse their future income growth and job mobility.

Those were the key findings when four researchers, including two from Washington University in St. Louis’ Olin Business School, delved into the wage data and credit profiles encompassing 30 million Americans across 5,000 companies. They found a negative relationship between workers’ income and their home loan-to-value (LTV) ratio, especially when the home was underwater (higher principal owed than value).

For example, the scientists discovered that people with underwater mortgages earned $352 — or 5% — less monthly than workers with less mortgage debt relative to home values.

Compounded by credit and liquidity issues, these workers are virtually stuck, unable to move to a job with a better income or a new area, the researchers wrote in their study forthcoming in The Review of Financial Studies.

And it could well translate to the COVID-19 economic effects today.

Radha Gopalan

“The impact of the current crisis on local economies varies widely across the U.S.,” said Radhakrishnan Gopalan, professor of finance at Olin and study co-author. “Our study highlights the difficulties someone in a worse-affected area may face in trying to pack up and move to a less-affected region. Furthermore, our study also highlights an important cost of homeownership: For instance, buying a home will constrain your labor mobility, and in the long run that may adversely affect your labor income.”

“This is one of the first studies to tie detailed credit histories to information on worker mobility and pay increases,” added co-author Barton Hamilton, the Robert Brookings Smith Distinguished Professor of Economics, Management & Entrepreneurship and director of the Koch Center for Family Business at Washington University. “Prior work has analyzed these factors in isolation and has not made the connection between the two.”

Bart Hamilton
Bart Hamilton

Seeking ways to scrutinize the effect of home equity and labor income, in addition to the mechanisms intertwined, the researchers used Equifax information and Corelogic house-price indices to drill down to study a random sample of 300,000 workers with an active mortgage over a 72-month period earlier in this decade.

They measured home equity as LTV — the unpaid mortgage vs. the market value — on the workers’ primary residence. They additionally accounted for home-value increases/decreases using ZIP-code level price fluctuations and controlled for local economic conditions. Moreover, they contrasted the income path of homeowners versus renters who worked at the same firm, were of a similar age and job tenure, and held a similar level of income and non-mortgage debt.

What the data essentially showed: Homeowners facing high LTVs were less likely to change homes, but more likely to change jobs, if they could. And renters working at the same companies and with similar job tenure faced no such issues. Additionally, homeowners with high LTVs faced slower income growth while renters faced no such penalties.

It wasn’t as cut and dried as a rent-vs.-own debate, though. Income and mobility for homeowners could vary. A worker could face relatively smaller income declines or find greater employment opportunities if they lived in a metropolitan area with more jobs — for instance, an IT worker in San Francisco/Silicon Valley — or a state with softer non-compete laws limiting movement within an industry.

Housing prices and wages

Still, they found that declines in housing prices as a result of that 2007-08 recession suggested a 2.3% reduction in monthly wages economy-wide due to constrained mobility.

“If the adverse effects of the current pandemic on local economic conditions also spill over to house prices, then we will find ourselves with a number of underwater homeowners,” Gopalan said. “In that scenario, the effects we document will be very relevant.”

Gopalan and Hamilton were joined in the research by two former Olin PhDs, Ankit Kalda and David Sovich, who work at Indiana University and the University of Kentucky, respectively.

They wrote that a homeowner with an underwater mortgage were to face a new job offer in a different area, they were confronted with three (unappealing) prospects:

  1. Sell and swallow the shortfall — meaning they still must require some access to liquidity, despite being credit constrained.
  2. Retain the home and rent it out — meaning there will be no or negligible down payment on a new home in the new area.
  3. Walk away and default on the mortgage — meaning deeper credit issues.

In short, their mobility was as hampered as their current job situation, the co-authors said. A worker may not seek out better opportunities in the first place and, consequently, feel adverse effects on income because of an undermined bargaining power at the current workplace.

For the record, the median individual in their study group was 41 years old with an annual $41,015 salary; comparatively, the median person in the U.S. workforce overall in that time window was 41.9 with an annual $41,392 income, the co-authors wrote. The median loan: $192,400.

“Our study highlights an important cost of home ownership,” Gopalan said. “While the ‘American dream’ is usually defined in terms of building wealth through home ownership, the financial crisis has revealed a few glaring holes in this story. Our study formally quantifies one important cost of following the ‘American Dream.’ A relatively safe way to own a house is to make sure one has sufficient down payment or home equity so that even if house prices fall, one is not stuck with an underwater mortgage. To this extent, our study recommends caution in pushing mortgages with less down payment.”

Hamilton added: “Our study highlights that policies affecting financial markets can directly impact the labor market as well. Businesses also need to be aware of the indirect costs that credit markets and home ownership may impose on mobility and the optimal allocation of their workforces.”




Written by Joe Dwyer for the 2019 Olin Business magazine

For Dave Peacock, being values-based and data-driven is key to the success of Schnucks Markets in achieving its higher purpose of “nourishing people’s lives.” Peacock, EMBA ’00, is president and COO of Schnucks, a St. Louis-based regional grocery chain with 15,000 employees. Communicating Schnucks’ purpose is vital to the company’s culture, he said. It’s also important in attracting new employees to the company, which hires as many as 5,000 new workers each year.

“We have regular sessions to talk about  the importance of our Midwest family values and how that fits with our purpose of nourishing people’s lives,” he said. At Schnucks, those values speak to a customer-first mentality, the willingness to try new things, a culture of tolerance and hard work and haste to help those in need.

Anjan Thakor and Stuart Bunderston

Peacock also formed a data-focused unit at the company in January, hiring Tom Henry, a member of the board of WashU Olin’s Center for Analytics and Business Insights, to serve as chief data and analytics officer. Henry now leads a 50-person business unit with the mission of “constructing and maintaining a purpose-built information management environment, governed and utilized by teammates at all levels of the enterprise, where trusted and increasingly intelligent insights are produced.”

Meeting consumer demand

Schnucks’ efforts align with growing consumer sentiment. Nearly 80% of Americans say they’re more loyal to purpose-driven brands, according to a 2018 study by public relations agency Cone/Porter Novelli. The same study said more than three-quarters aren’t satisfied with brands that only make money; they expect companies to positively affect society.

That shift is in step with WashU Olin’s brand positioning—to “champion better decision-making by preparing and coaching a new academy of leaders who will change the world, for good.”

The movement dovetails with the work of Olin professors Stuart Bunderson and Anjan Thakor, who are at the forefront of this advancement in business strategy that could help workers achieve professional success and fulfill values-based ambitions in their professional lives.

Bunderson, director of Olin’s Bauer Leadership Center and the George and Carol Bauer Professor of Organizational Ethics and Governance, has published a book about it, The Zookeeper’s Secret; Thakor, along with Robert E. Quinn from the University of Michigan, published a new book in August called The Economics of Higher Purpose and a cover story (“Turning Purpose into Performance”) in the July–August 2018 issue of Harvard Business Review.

Benefits: Dollar signs and beyond

A common theme of Thakor’s and Bunderson’s scholarship indicates that young professionals, and many others, want to work for companies that articulate a greater purpose—improving the world where they can, whether that’s in their local communities or addressing societal issues worldwide.

In addition, their work shows more than anecdotal evidence that purpose-driven organizations generate more worker and customer loyalty. Increasingly, workers are holding their employers more accountable and demanding to see more examples of executing on purpose, according to Thakor.

Those companies with the most clarity in the pursuit of their purpose frequently perform better financially, according to a 2016 study led by The Wharton School.

Thakor and Bunderson, however, also warn of pitfalls in creating a purpose-driven organization. Leaders of purpose-driven companies can’t take on every charity case and could face backlash from employees when workers’ pet projects aren’t a priority. Further, having a purpose doesn’t guarantee financial success, especially for startups.

“Creating a higher purpose is not a tool or tactic to make more money or achieve better financial performance,” said Thakor, the John E. Simon Professor of Finance and the director of doctoral programs at Olin. “Turning purpose into performance is very hard. Emotionally, it takes a lot of effort.”

He stresses that firms must meet two conditions: First, the identified purpose must be authentic, and second, it must be communicated with clarity. Thakor says being authentic is hardest, in part because it goes beyond putting posters on walls and communicating from HR to employees.

Can purpose have a downside?

“Every company now has a statement of principles that is displayed, and most of the time people in an organization understand it has virtually no meaning for the decisions the company makes,” Thakor said. “So, it doesn’t really affect the employees.”

For a purpose-driven company, that’s not the case. Managers and employees are vested in the core values and make decisions based on what they believe supports those core values. As a result, being purpose-driven will have costs and impose constraints.

“That’s especially significant when a company’s competitors are without purpose and have no restrictions,” Bunderson said. “Those competitors are not restrained in the business deals they will pursue. Purpose has to be backed by actions, mission and commitment. The purpose-driven company will say, ‘We won’t do that.’”

While there are hazards in the purpose-driven organization, Bunderson and Thakor agree that the benefits of being purpose-driven outweigh the risks.

There are a couple of ways purpose can help,” Bunderson said. “It’s not just feel-good, and it can be a competitive advantage.”

For example, millennials seek purpose as much as profit in their work, so communicating about a purpose-driven organization can be an advantage when recruiting 20-somethings or MBA students—or when fielding inquiries from recruiters.

For example, millennials seek purpose as much as profit in their work, so communicating about a purpose-driven organization can be an advantage when recruiting 20-somethings or MBA students—or when fielding inquiries from recruiters.

Sue McCollum, JD ’15, said having a values-based purpose, especially during challenging times, engages employees and keeps them moving in a positive direction. McCollum is chairman and CEO of wine and spirits distributor Major Brands Inc.

One of the ways Major Brands does that is through its Safe Home program, offering thousands of free rides home a year to bar patrons in a partnership with ride-hailing service Lyft. “It’s part of our push for social responsibility and accountability that has become really important to our people here, to our suppliers and to our customers,” McCollum said.

The challenge: Establishing purpose

Workers, customers and investors want to be part of something greater than themselves, research has shown. Having a greater purpose, however, has to be more than a mission statement and jargon about respect, teamwork and shared vision, Thakor said. It’s about creating leaders who are prepared to make, and stick with, difficult values-based, data-driven decisions.

The biggest challenge is for leaders to establish a company’s higher purpose, Thakor said.

“Giving to charity is not higher purpose; every company does that,” he said. “It’s not having a mission statement; most companies have those. It’s about going through a group of exercises to discover an authentic purpose that will guide all future business decisions.”

In his book, Thakor cites Apple and Walt Disney Co. as examples    of companies that successfully established their higher purpose. Disney’s purpose in Disneyland was to create “a place for people to find happiness and knowledge.” For Apple, he offers a Steve Jobs quote: “Great companies must have a noble cause. Then it’s the leader’s job to transform that noble cause into such an inspiring vision that it will attract the most talented people in the world to want to join it.”

Once the purpose has been discovered and established, it should carry over into all aspects of the company, from how meetings are run to the people who are hired.

The concept of business leaders making decisions based on values —as well as data—is growing, but isn’t novel. Olin’s strategic pillar focused on creating leaders who make values-based and data- driven decisions has its roots in the business school’s founding.

“We’re talking about issues at the core of what we stand for,” Bunderson said. “In 1915, when William Gephart was making the case for why the university needed a business school, he cited the need to understand complex information (that’s the data part) as well as the need to consider how our decisions affect the broader society (that’s the values part). Being values-based and data-driven is in our DNA.”

Eight Steps to Organizational Change

Anjan Thakor outlines the steps in his book, The Economics of Higher Purpose: Eight Counterintuitive Steps for Creating a Purpose-Driven Organization, co-authored with Robert Quinn, professor emeritus at the University of Michigan’s Ross School of Business and a cofounder of the school’s Center for Positive Organizations.

  1. Envision a purpose-driven organization
  2. Discover the purpose
  3. Meet the need for authenticity
  4. Turn the higher purpose into a constant arbiter
  5. Stimulate learning
  6. Turn midlevel managers into purpose-driven leaders
  7. Connect the people to the purpose
  8. Unleash the positive energizers

More support for purpose

On August 19, 2019, the powerful Business Roundtable lobby—which includes the CEOs of dozens of major US companies—issued a revised “Statement on the Purpose of a Corporation.” The one-page declaration, with 181 signatures, includes a corporate imperative to support and invest in communities and people: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”




The president of an energy company was not a believer in a business entity being able to have a higher organizational purpose … until he saw it work for others. So he went back to his company and launched the initiative. It all started with a video that described the higher purpose of the company.

The company’s new video showed its people — from truck drivers to corporate officers — and described how their daily work affected the everyday life and well-being of their community, at every level.

The first workers to watch the video stood and applauded. The video captured the company’s new statement of purpose: “We serve with our energy, the lifeblood of communities and the engine of progress.”

Anjan Thakor

Businesses can have a higher purpose. More than that, they should, finds research by WashU Olin’s Anjan Thakor and the University of Michigan’s Robert E. Quinn.

An organization of higher purpose is a social system in which the greater good has been envisioned, articulated and authenticated, they write in their just-released book “The Economics of Higher Purpose: Eight Counterintuitive Steps for Creating a Purpose-Driven Organization.”

Published August 20, the book expands on the authors’ 2018 Harvard Business Review article.  For that piece, they interviewed more than 35 CEOs and other leaders over two years. And they talked with many more for the book.

“The Economics of Higher Purpose,” from Berrett-Koehler Publishers, is organized into two parts. The first examines theories that govern organizational behavior. The second shifts from theory to practice: It offers eight steps drawn from the authors’ research and interviews with leaders of higher-purpose organizations.

Practical implications

“The steps are to help leaders discover their organizations’ purpose and imbue the organization with it”, said Thakor, the John E. Simon Professor of Finance, director of the PhD Program, and director of the WFA Center for Finance and Accounting Research at Olin.

Purpose has practical implications for a company’s financial health and competitiveness, Thakor and Quinn report. People who find meaning in their work give it their energy and dedication. They grow rather than stagnate. They do more, and they do it better.

“We like to emphasize that a higher purpose is something that transcends your usual business goals, but it also intersects with those goals,” Thakor said.

“The higher purpose becomes the arbiter of all business decisions,” he said. “It has to become the lens through which every decision is viewed.”

Like all organizations, an organization of higher purpose is a cauldron of conflict. Yet people find meaning in their work and in their relationships despite the conflicts, Thakor said. They share a vision and are fully engaged.

In an organization of higher purpose, people interact with one another with respect and engage in constructive confrontation. Trust is continually repaired, and conversations are authentic. The people have a win-win mentality, and positive peer pressure emerges to support high levels of collaboration, the authors discovered. Leadership not only flows from the top down, but it also emerges from the bottom up. Employees believe they work in an organization of excellence.

The paradox

As a consequence of adopting a higher purpose, the organization often makes short-term economic sacrifices but benefits from long-term economic gains.

“The paradox of organizational higher purpose is that it actually does improve financial and economic performance but only if you don’t do it primarily for that reason,” Thakor said. If purpose is undertaken solely for economic gain, it loses authenticity and credibility, and fails to produce positive economic outcomes.

Perhaps the most important finding of the authors’ research is the importance of the authenticity. If the purpose is just a PR gimmick, like a slogan printed on posters and plastered on walls, employees will see right through it, Thakor said. “Everybody will look at it and say, ‘OK. Fine.’

“That’s very different from what we’re talking about,” he said. “This is about values you truly believe in and practice.”

Thakor and Quinn have been scholars of higher-purpose firms for a long time, and they set out to write the definitive book on it. They examined the theories that govern organizational behavior, some of which also are formally articulated in economics.

“We believe these conventional assumptions of economics are valid but incomplete,” Thakor said. “We offer a new logic that transcends the conventional assumptions and includes them.”

They show that higher purpose helps to resolve the classic principal-agent problem at the heart of microeconomics. They also explain why numerous books and articles on higher purpose have failed to gain traction in the workplace.

From theory to practice

How to bring this theory to practice? Here are eight counterintuitive guidelines, which are drawn from their research and interviews with leaders of higher-purpose organization:

  • Envision a purpose-driven organization
  • Discover the purpose
  • Meet the need for authenticity
  • Turn the higher purpose into a constant arbiter of all business decisions
  • Stimulate learning
  • Turn mid-level managers into purpose-driven leaders
  • Connect the people to the purpose
  • Unleash the positive energizers

“Although a higher purpose does not guarantee economic benefits, we have seen impressive results in many organizations,” Thakor said. “Our study and other research suggest positive results, both in operating financial performance and performance measurement.”

So purpose is not just a lofty ideal. It has practical implications for a company’s financial health and competitiveness, according to the book. Allowing people to find meaning in their work means they can grow, do more, do better. Tap into that employee empowerment, and you can transform an entire organization.

This article is partially excerpted from the book “The Economics of Higher Purpose.”




If Americans fulfilled their java urges the same way they carefully shopped for groceries, they would visit five to seven various chain coffee shops regularly—for a blend of different categories.

In fact, it turns out that grocery categories such as dessert toppings, motor oil, candles and refrigerated ethnic foods were some of the leading products that lure customers to separate stores.

In the first test of detailed consumer-buying habits by categories at more than one chain store selling groceries, a team of business school researchers led by Washington University in St. Louis found that shoppers weren’t monogamist or bigamist but rather polygamist in their choice of outlets.

The vast majority—a whopping 83 percent—regularly visited between four and nine chain stores within a year’s time to purchase groceries. Of 1,321 households studied among this rich dataset, only 12 stayed loyal to just one store. More than half, at 51.1 percent, went to the average of five to seven different stores. Eighty-eight households, or six of every 100, went to 10 or more.

So much for store loyalty.

Shattering conventional wisdom on grocery loyalty

Using tracked data from a vendor utilizing a swipe card akin to a loyalty card, the researchers parsed more than $1 million worth of shopping transactions over 53 weeks involving 248 types of products sold at 14 retail chain stores in a large metropolitan market. The study, “Polygamous Store Loyalties: An Empirical Investigation,” was published last month in the Journal of Retailing.

“Store loyalty was pretty much a given in grocery retail,” said senior author Seethu Seetharaman, director of the Center of Customer Analytics and Big Data and the W. Patrick McGinnis Professor of Marketing at Olin Business School. “When people do their shopping, it’s the store close to where they live—location, location, location, like the real-estate mantra.

“Then there is a group of choosy consumers who stop at many stores, shopping for bargains or certain brands or products,” he said. “They’ve been called ‘cherry pickers.’” Often, those folks were associated with coupon shoppers.

“That made us do a deeper dive, and we found that people aren’t as store loyal as we thought,” Seetharaman said. “Clearly, people are polygamous. The majority of people are shopping at six grocery stores.”

Consumers tend to shop multiple stores for multiple reasons. In fact, the data showed little loyalty to a single store or handful of stores, but more so to types of products found in a store. Consumers shopped various stories for specific product categories: frozen treats at one grocer, meat and poultry at another, and so on. The researchers called this “intrinsic store-category attractiveness.”

Seetharaman was joined in this study by one of his former graduate students, Qin Zhang, assistant professor of business at Pacific Lutheran University, and one of Zhang’s former graduate students, Manish Gangwar, assistant professor of marketing at the Indian School of Business. They specified and estimated a statistical model of how consumers fractured their shopping basket and shared their wallet across stores.

Shoppers aren't as loyal to their grocery stores as conventional wisdom would have you believe, according to new research by Olin's Seethu Seetharaman.

Shoppers aren’t as loyal to their grocery stores as conventional wisdom would have you believe, according to new research by Olin’s Seethu Seetharaman.

‘Favorite’ stores account for 40 percent of the basket

The dataset comprised chains that were either traditional supermarkets (Albertsons, Bashas’, Food 4 Less, Food City, Fry’s Food Store, IGA, Safeway, Trader Joe’s and Wild Oats Market), supercenters (Kmart and Walmart) and warehouse clubs (Costco, Sam’s Club and Smart & Final). Further evidence of an ever-changing economy in which to purchase grocery, household and health and beauty products: Some of the studied chains have dwindled since the study and no longer service several of their previous states.

“It’s very diffuse,” Seetharaman said of consumers’ purchases from a larger-than-expected list of stores. “Only 40 percent of their basket is coming from their ‘favorite’ store.”

Some other findings from the research:

  • In the market surveyed in particular, Fry’s Food Stores emerged as the market favorite by a sizable margin, with Albertson’s, Safeway and Walmart next behind it.
  • In a large set of categories, a handful of stores competed intensely: Albertson’s, Bashas’, Safeway and Fry’s.
  • Warehouse clubs attract loyalty in categories different from the traditional supermarkets and supercenters.
  • Family size predicted store loyalty—the larger families tended toward Fry’s or a Walmart Supercenter.
  • Income was a somewhat surprising predictor, in that households with higher incomes were more likely to “budget shop” at a Costco, which could be explained by the fact that large houses with large basements are usually needed to store products bought in bulk.

Companies in the grocery, household item and healthy/beauty realm could learn from such a category-intensive study, Seetharaman said. “This gives you a good sense of what you are winning, and how you are winning. But there’s no silver bullet.”

“Will it be a surprise?” Seetharaman asked. “Yes, it will be a surprise,” he said. “The traditional wisdom is: Walmart is an aggressive, everyday-low-price price retailer and Target is the assortment retailer. So let’s say both mass merchandisers … each of them has a certain strategic positioning and therefore thought they attract a certain type of consumer.

“We are upending that wisdom a little bit here: No matter what kind of strategic positioning you have carved out, consumers have a mind of their own. They are choosing to do different things in different categories. And businesses should wise up to this. Even your core customer is buying categories at other shops.”




As the passive investing strategy has taken the market by storm, criticism of index funds and common ownership have increased: Are index funds evil (as asked by The Atlantic)? Are they bad for the economy?

Common ownership came under fire last year with a study finding that “airlines compete less vigorously on price because they are owned by the same handful of investors,” writes David Nicklaus.

However, in an interview with The St. Louis Post-Dispatch, Olin’s Todd Gormley, associate professor of finance, provides a defense for companies with higher index-fund ownership: They actually have better governance.

An active money manager who doesn’t like the way a company is run can simply sell the shares. The passive manager doesn’t have that choice. “In their view, the only way they can protect themselves is to make sure there are good governance structures in place,” Gormley said.

Besides, he said, long-term passive investors often back activist hedge funds that attempt to shake up a company. “We found a positive influence on governance,” Gormley said. “The presence of these index funds makes it easier for other investors, the activists, to get into a company and provide discipline over management.”

Gormley was recently quoted in the Princeton Alumni Weekly on the same subject, where he discusses the evidence of some positive effects of passive ownership.

Read the full article on The St. Louis Post-Dispatch and Princeton Alumni Weekly.