Tag: Faculty



Dick Mahoney, Jake Feldman, Dennis Zhang and Dean Mark Taylor at the announcement of the two professors

Dear Olin community,

It is my pleasure to announce that the recipient of the 2019 Olin Award is Taking Assortment Optimization from Theory to Practice: Evidence from Large Field Experiments on Alibaba by Jake Feldman, assistant professor of operations and manufacturing management, and Dennis Zhang, assistant professor of operations and manufacturing management.

In its 12th year, the Olin Award was established to recognize scholarly research that has timely, practical applications. This year’s winning entry uses data from the Chinese online retail giant Alibaba to test the benefits—and recommend a solution—for presenting buyers the optimum variety of products available for purchase with individual online retail stores. Of the 16 papers submitted this year, six went on to the second round, rated by our corporate judges as research with potential impact to business.

Some of those papers will be presented in the coming months in the Olin Business Research Series. The winning paper will be presented at a luncheon on May 22, 2019, from noon till 1:30 p.m. We will send out a formal invite in the near future.

Special thanks to Olin Distinguished Executive in Residence Richard Mahoney and all of the judges for their ongoing support. We look forward to all of next year’s faculty submissions. Please join me in congratulating Jake Feldman and Dennis Zhang.

Pictured above: Richard Mahoney, Jake Feldman, Dennis Zhang and Dean Mark Taylor.




This story includes material contained in a news release issued by the American Accounting Association. Researcher Philip Berger received financial support for this research from Chicago’s Booth School of Business.

A common assumption is that stock analysts gather earnings and other pertinent information to communicate to current and potential stockholders, and then incorporate that information by revising their current-quarter earnings forecasts.

So much for that perception. A new study involving two WashU Olin faculty members finds that analysts disseminate earnings news by revising share-price targets or stating they expect firms to beat earnings estimates, often tempering such information—even suppressing positive news—to facilitate beatable projections.

The study discovered that, when it comes to the current-quarter earnings reports that are analysts’ most closely followed work product, analysts become selective about which forecasts they update and what information they convey. The researchers found that later forecasts issued by the same analyst—such as share-price target revisions, forecast revisions to the other quarters’ forecasts or textual statements about earnings after the last quarterly forecast—surprisingly predict errors in the analyst’s own current-quarter forecast. These associations are much stronger for good news, consistent with analysts catering to managers’ desires to meet or beat earnings forecasts.

Kaplan

Their paper—coauthored by Zachary Kaplan and Chad Ham, both assistant professors of accounting at Olin, along with Philip Berger of the University of Chicago—is scheduled for the March issue of The Accounting Review.

Using data from 8,860 analysts covering 7,933 unique companies over 71 quarters, the researchers reported the likelihood of a downward revision of current earnings estimates came at a 50-percent greater possibility than an upward revision: 19.5 percent downward vs.13 percent upward. When it came to revising stock-price targets and future-earnings estimates, however, the reverse was true to a 20-percent greater possibility: 11.2 percent upward vs. 9.3 percent downward. The firms most likely to meet or beat earnings were those with positive price-target revisions, suggesting those revisions were at least partially motivated by prior omitted earnings information.

Ham

There are two important takeaways from these findings, Kaplan and Ham said.

First, one of the reasons managers are so successful in meeting or beating earnings forecasts is that they persuade analysts to omit positive news from forecasts.

“Managers care a lot about beating earnings forecasts, and analysts rely a lot on managers, so upsetting them is not really an option,” Kaplan said. “Additionally, analysts care deeply about conveying information to their clients, so they cannot merely issue beatable forecasts. The way we find analysts deal with this dilemma is by conveying positive news through the text of their reports and share-price target revisions—this allows managers to meet or beat estimates while also allowing the analyst to update clients about positive news.

“Non-clients, who rely on earnings forecasts because they do not have access to the whole of an analysts’ work product, end up with skewed information, but this is not an issue for the analysts’ business,” Kaplan said.

The researchers said that analysts purposefully lower, or “walk down,” projections. By keeping earnings forecasts low and neglecting some positive developments, the researchers wrote, analysts “cater to managers’ preferences for a walked-down (earnings) forecast pattern. The pattern we document, however, includes avoidance of walking up rather than only a walk-down. … Non-earnings forecast signals are more prevalent for positive news than negative news, consistent with analysts responding to incentives to issue [earnings] forecasts managers will meet or beat.”

Second, by not disseminating all information through current quarter’s earnings forecasts, which are widely available through commercial databases, analysts provide an advantage to clients who have paid for access to the full breadth of their research product.

“Analysts convey information in ways that enable them to be of service to clients, who they care about, and, at the same time, to avoid displeasing corporate managers, who they also care about,” Ham said.

The study may offer a lesson to the broader public: Perhaps widely circulated earnings forecasts aren’t as informative as people think.  If you want the best information an analyst has to offer, you have to pay for it.

In a separate survey of brokerages’ reports to clients, the researchers learned that — without changing forecasts — analysts didn’t refrain from explicitly predicting firms would beat or miss their targets … and the “beat” or positive predictions outnumbered the “miss” or negative predictions by roughly 30 percent.

Image above courtesy of Shutterstock.




Xing Huang

Xing Huang

With a web browser or a cellphone, consumers today are making decisions about causes to fund, stocks to pick, movies to watch, restaurants to visit, products to buy, and music to hear partly based on the answer to a single question:

What does everyone else think?

Sites such as Yelp, Amazon, Rotten Tomatoes, and Kickstarter harness the collective wisdom of past consumers to guide future customers. But before those customers jump on the bandwagon and buy a dinner, a book, or a movie ticket, suppose there were a way to make the bandwagon better?

That’s the central question behind “Harnessing the Wisdom of Crowds,” a research paper by Olin’s Xing Huang published in the journal Management Science. Huang and Zhi Da of the University of Notre Dame used data from financial platform Estimize.com, where professional analysts, amateurs, and students provide quarterly earnings-per-share estimates for publicly traded companies.

The researchers found that the less each Estimize user knew about other users’ estimates, the more accurate the crowd’s average estimate became. In fact, the difference was profound: When Estimize users could see other users’ estimates, the consensus estimate beat the Wall Street consensus nearly 57 percent of the time. When they couldn’t, however, the consensus was more accurate 64 percent of the time.

“The problem with seeing others’ information is that people tend to herd with others,” Huang said. “That makes individual forecasts more accurate, but … reduces the consensus accuracy.”

The observed herding behavior was among the paper’s key takeaways. When individual users have access to forecasts from the community at large, they tend to “herd” along with other forecasts. But even further, herding behavior makes users “individually smarter, but collectively dumber.” The paper also noted that herding matters most when “influential users” make their forecasts early.

Results covering data from March 2012 to June 2015 were so stark, Estimize changed its platform by October 2015 to prevent users from seeing other users’ estimates before posting their own. “We were floored by the results,” the Estimize blog reported. “The ‘blind’ data set was unequivocally better.”

“We were also quite lucky to collaborate with Estimize to run experiments where we can randomize the information sets of users,” Huang said.

The researchers used data from 2,516 Estimize users who made estimates ahead of 2,147 earnings releases from 730 firms. But Huang said the results could be instructive for any site that aggregates crowd wisdom—including voting platforms, crowd-funding sites, or product review pages—if they can segregate individual views from those of the community at large.




Zandy Schorsch, MBA ’19, contributed this blog post on behalf of Olin’s Center for Experiential Learning.

Oscar Wilde once said that rugby is a good occasion for keeping 30 bullies far from the center of a city. This semester, students from the undergraduate and graduate levels of Washington University Olin Business School have been working with the Center for Experiential Learning to perform the opposite—assess the viability of bringing a professional rugby team to the city of St. Louis.

Rugby is one of the fastest growing sports in the United States, and Major League Rugby was founded last year to provide fans with professional-level rugby competition here in the states. The league kicked off its inaugural season with seven original teams. With nationally televised games on CBS and sold out tickets in many of the cities, there is a growing sense of optimism as MLR prepares for its second season.

The league has aggressive plans for expansion, with teams in New York and Toronto joining for the 2019 season and Atlanta, D.C., and Boston joining in 2020. St. Louis has emerged as one of the potential cities for an MLR expansion team, and the CEL was hired by a local entrepreneur to determine whether such a venture is feasible.

The CEL’s client, a husband and wife duo with a lifelong passion for rugby, believe the loss of the city’s football franchise has created an opening for rugby. Through dozens of interviews with rugby players, coaches, executives, and MLR league officials, the CEL team developed a strong understanding of how a rugby team in St. Louis would operate and the number of fans it would be able to attract.

Although St. Louis has always been a baseball town, there are hundreds of registered rugby players in the local area across all levels of the sport, as well as several nationally recognized rugby programs.

While the CEL team was able to develop a demand forecast for rugby in St. Louis, only so much can be learned about stadium financing and team operations from phone interviews and emails. As a result, the client decided to bring the CEL team to Glendale, Colorado, to meet with the Raptors, the MLR regular season champions, to learn more about the business side of rugby operations.

Learning about rugby operations from the Raptors.

During a full-day of meetings with the Raptors, the CEL team learned about stadium financing, team and stadium operating costs, revenue drivers, marketing and sales strategies, and unexpected expenses associated with managing a professional sports team.

The CEL team also got to learn the fundamentals of rugby from some of the professional players, such as tackling techniques and field goal mechanics.

While the CEL team requires more practice if they hope to play professionally, the data the team was able to collect from the Raptors proved invaluable for their analysis. The client capped off the trip with dinner at a local pub, a great opportunity for the student team to connect with their client informally.

Upon returning to St. Louis, the CEL team took the lessons learned from the Raptors to develop a financial model the client could use to make an informed decision about bringing professional rugby to St. Louis. The team developed an intuitive financial model that accounted for attendance numbers, concession sales, merchandise sales, stadium costs, advertising, and a host of other variables posed several challenges.

Effectively communicating the outputs from the financial model, as well as highlighting the key assumptions and inputs that produce those outputs, was also critically important.

By building a strong relationship with the client throughout the semester, and leveraging the abundant resources of the CEL and Washington University, the CEL team was able to provide a final deliverable that gave the client a holistic view of everything that goes into managing a professional sports team and stadium.

The financial analysis demonstrated that a team in St. Louis is feasible, so be on the lookout for a local MLR team in near future.

Overall, the CEL is a unique opportunity for students to work on real-world projects that have a direct impact on their community. Bringing a professional sports team to St. Louis is the type of project that major consulting firms and investment banks would be envious of, and for the clients who hire the CEL, they get to receive professional-level services from the very students who, upon graduation, will be joining those types of companies.




Bart Hamilton

Nearly three years ago, Barton Hamilton was preparing to moderate a panel discussion at Olin’s first family business symposium, among the earliest manifestations of the school’s fledgling family business initiative.

Three symposia and $9 million later, Olin has launched a full-fledged research center dedicated to the issues surrounding family-owned business—with Hamilton taking the lead as its first director.

Dean Mark Taylor appointed Hamilton to the post effective February 2 and with that appointment, the Koch Center for Family Business is officially launched. Sure, Hamilton said, there’s a lot of work to do moving forward.

But he’s thrilled to be part of realizing the vision of the Koch family—which includes two WashU alums and St. Louis real estate developers—who underwrote Olin’s sixth research center.

“The Kochs told me this is part of their legacy,” Hamilton said. “I feel great responsibly to be a steward for their legacy and do what I can do to make the vision a reality.”

A focus on research

Elke and Paul Koch, BSBA ’61, JD ’64, MBA ’68, and Fran and Roger Koch, BSBA ’64, MBA ’66, launched the focus on family business in 2016 with a $1.09 million donation to Olin Business School. The donation paved the way for a family business initiative featuring regular symposia on the subject, a course on family businesses, student practicum projects with family business owners and a student club.

The effort was, in part, also driven by interest from students, who approached former Dean Mahendra Gupta about the subject and later presented him, at his request, with a full-fledged outline and justification for the program.

Hamilton—who is also the Robert Brookings Smith Distinguished Professor of Economics, Management and Entrepreneurship—said the foundation laid by the family business initiative will remain in place and expand.

The secret sauce of the new center, however, will be research into the unique dynamics that drive family businesses and their power, representing 64 percent of the US economy.

“We want to know the secrets to success that Cargill and Enterprise have, but there’s a lot of companies in the $50 million to $200 million range that are the backbone of a lot of communities,” Hamilton said. “Those are also businesses that face a lot of challenges and we want to understand what those challenges are and figure out how we can help them achieve more success.”

For example, are family businesses more successful in the long run than non-family businesses? They’re not thinking about the next quarter, they’re thinking about the next generation. Yet, there is a tradeoff: How do family businesses introduce new ideas and innovation when the tendency may be to do things the way they’ve always been done?

Another area ripe for research: What is the interaction between family dynamics and business dynamics? As families grow, how do they provide dividends and wealth to an expanding slate of brothers, sisters and cousins, while continuing to invest in the growth of the business?

He is excited by the prospects for what research can tell us about family business, how it can help family business owners improve and how it will guide students who will be owners of, customers of, clients of and partners to family businesses.

“This is something we can be distinctive in,” Hamilton said. “We’re putting our flag on the map and telling the world that this is something that’s important to Olin and to Washington University.”

Next steps

One advantage of a funded research center, Hamilton said, is the ability to purchase data and fund research on a scale unavailable before. Data into family-owned and closely held businesses is hard to come by, often requiring a lot of manual effort to compile.

In fact, two of his own research projects are still a long way from publication because of the mammoth effort involved in collecting and analyzing the data. One project is looking at the differential performance of CEOs in family businesses, depending on whether the CEO came up from within the family, came up in the business (but were not family members) or came from outside the business altogether.

Hamilton said the family business symposia will continue, as will a class in family business led by adjunct professor Spencer Burke, principal at the St. Louis Trust Company, who has served as the initiative’s de facto leader since its launch.

Other steps ahead for the Koch Center for Family Business include searching for and identifying promising research projects, identifying staff administrative support and recruiting a board of advisers for the center.

“The Kochs want us to be a research leader in this area,” Hamilton said. “There’s not much that’s been done given the importance of this to the economy.”




When your online retail platform clears billions of transactions a year, what’s the harm in testing different prices for the same products on a relative handful of your customers? You might find a way to maximize revenue by increasing sales volume on your lower-priced products, right? Or, you might lock down sales on a product that your consumers were on the fence about.

That’s the theory behind “dynamic pricing,” a practice in vogue among online retailers as they attempt to better manage revenue and take advantage of massive amounts of data they’re collecting about their customers.

But a new paper by a team of researchers—including two Olin Business School professors—shows the practice of dynamic pricing can generate unintended consequences by changing the behavior of customers.

“Retailers didn’t realize that offering different prices to different customers may backfire in the long run,” said Dennis Zhang, assistant professor of operations and manufacturing management and one of the paper’s authors.

In the paper entitled “How Do Price Promotions Affect Customer Behavior on Retailing Platforms? Evidence from a Large Randomized Experiment on Alibaba,” the researchers focused on a promotional tool Chinese online retailer Alibaba Group uses to target customers who leave products to languish in their shopping carts.

Short-term sales increases

Between March 12 and April 11, 2016, Alibaba conducted an experiment on more than 100 million Alibaba customers who shopped at 11,000 retailers. They targeted a random set of customers who had products untouched in their shopping carts for more than 24 hours with special price promotions. Other customers who met the same criteria received no special price promotions. The researchers collaborated with Alibaba to analyze this experiment.

In the short term, the “dynamic pricing” program worked like gangbusters. Products flew out of the Alibaba shopping carts as sales doubled on the promoted products. But it didn’t take long for customers to get wise to what was happening.

“You’re training the customers to be more strategic and in this paper, we’re showing the unintended consequences of dynamic pricing,” Zhang said. “People are not just keeping stuff longer in the shopping cart, but they’re becoming bargain hunters. They’re spending more time looking for deals, even before they put something in their shopping cart.”

A mixed bag of results

In fact, the longer-term results of dynamic pricing and special shopping cart promotions showed three unintended consequences that were a mix of good and bad news for retailers.

  • First, and on the upside, retailers started to see more website views for their products and a higher likelihood of driving a purchase during the month.
  • Second, customers were indeed becoming more strategic about their shopping. They were adding more products to their carts and hoping for a price promotion, or they were being more choosy about what they bought, with the effect that even the sale of products without promotions were rising after the experiment period.
  • And third, the effects of these promotions spill over to a large set of sellers who never offered price promotions in the first place. They find that their customers start acting more strategically, too. In other words, once you’ve become more strategic, you’re not only more strategic with the promotion sellers, you’re also more strategic with the no-promotion sellers.

“If I learned that customers are looking for deals, I would probably be motivated to give those kind of deals to attract customers to increase sales,” said Olin’s Lingxiu Dong, professor of operations and manufacturing management and coauthor of the paper. The online platform, however, would worry that the practice could lead to a downward spiral as retailers undercut themselves to move products, but revenues continue to fall as customers keep bargain hunting.

“We also need to be creative about having customers’ time more engaged with the platform,” she said. Selling more brand awareness advertisements to capitalize on the bargain hunting web traffic might be an option, for example.

Dong and Zhang collaborated with Hengchen Dai from UCLA’s Anderson School of Management, as well as representatives of Alibaba Group. Ultimately, the research results persuaded the company to pull the plug on shopping cart promotions. The paper has been accepted for publication in Management Science.