Creativity Contests: An Experimental Investigation of Eliciting Employee Creativity

Running a contest can help managers elicit creative ideas from employees by providing employees with incentives to develop and share ideas that will help the firm. Little is known, however, about how contest design affects the outcomes of subjectively evaluated creativity-based contests. We conduct an experiment to investigate the impact of two contest design choices, the job role of the contest's evaluator, and the number of prizes that participants compete for, on employee participation behavior. We also examine how these contest design choices impact the creativity of the submitted ideas. We find that using a peer of the employees as an evaluator increases the number of ideas shared, but it does not impact the number of unique participants who enter the contest. In addition, we find that using peer evaluators leads to an increase in the creativity of the ideas. We find that awarding more prizes to participants does not increase overall participation, but it does increase the number of ideas shared by employees from underrepresented demographics. Awarding more prizes, however, reduces the creativity of the ideas. Together, these results show that contest design choices have an important impact on employee creative idea-sharing and that managers should carefully consider how to tailor contests to fit their firms' needs.     

Competition among contests

When several contests compete for the participation of a common set of players, a contest's allocation of prizes not only induces incentive effects but also participation effects. Our model predicts that an increase in the sensitivity with which contest outcomes depend on players' efforts makes flatter prize structures more attractive to participants. In equilibrium, contests that aim to maximize the number of participants will award multiple prizes if and only if this sensitivity is sufficiently high. Moreover, the prize awarded to the winner is decreasing in the contests' sensitivity. We provide empirical evidence from professional road running using race–distance as a measure of sensitivity. We show that steeper prize structures are more attractive to top‐ranked runners in longer, that is, less sensitive, races. In line with our theory, longer races do in fact offer steeper prize structures.     

Agenda chasing and contests among news providers

This article studies competition in contests with a focus on the news industry that is increasingly influenced by social media. The model assumes publishers to pick a single topic from a large pool based on the topics' prior “success” probabilities, thereby “chasing” potentially successful topics. Firms that publish topics that become successful divide a “reward” which can change with the number of competing firms and the number of successful topics. The results show that share structures can be categorized into three types that, in turn, lead to qualitatively different outcomes for the contest.     

Shareholder democracy in play: Career consequences of proxy contests

This paper shows that proxy contests have a significant adverse effect on careers of incumbent directors. Following a proxy contest, directors experience a significant decline in the number of directorships not only in the targeted company, but also in other nontargeted companies. The results are established using the universe of all proxy contests during 1996–2010. To isolate the effect of the proxy contest, our empirical strategy uses within-firm variation in directors? exposure to the possibility of being voted out and exploits the predetermined schedule of staggered boards that allows only a fraction of directors to be nominated for election every year. We find that nominated directors relative to non-nominated ones lose 58% more seats on other boards. The evidence suggests the proxy-contest mechanism imposes a significant career cost on incumbent directors.     

Bidder contests in international mergers and acquisitions: The impact of toeholds,preemptive bidding,and termination fees

For international mergers and acquisitions we analyze the effectiveness of different bidder strategies, first in preventing bidder competition, and second in increasing the likelihood of success. We provide robust empirical evidence of the effectiveness of toeholds and termination fees in reducing the likelihood of competition and, if a contest occurs, increasing the probability of success, especially after controlling for bidder asymmetries. The effects of termination fees vary over time and legal origin. Overall, there is hardly any evidence that high initial offers can prevent contests. However, competition is preempted in civil law countries with a high initial premium. A higher percentage of cash payment also increases the probability of success in bidder contest. Moreover, latent competition is generally not sufficient to curb the influence of observable bidder competition on target and bidder wealth. Finally, serial acquirers are more likely to prevent bidder contests and experienced and reputably advised bidders are more successful in deal completion. Overall, we offer novel evidence for the success of different bidding strategies in international mergers and acquisitions.     

Rising to the challenge: A model of contest performance

Contests are a ubiquitous form of promotion widely adopted by financial services advertisers, yet, paradoxically, academic research on them is conspicuous in its absence. This work addresses this gap by developing a model of contest engagement and performance. Using motivation theory, factors that drive participant engagement are modeled, and engagement's effect on experience and marketing success of the contest specified. Measures of contest performance, in-contest engagement and post-contest enduring interest are included. From the model, propositions are developed. Overall, the model provides financial service marketers with a theory-based foundation for designing and operating successful contests.     

Rising to the challenge: A model of contest performance

Contests are a ubiquitous form of promotion widely adopted by financial services advertisers, yet, paradoxically, academic research on them is conspicuous in its absence. This work addresses this gap by developing a model of contest engagement and performance. Using motivation theory, factors that drive participant engagement are modeled, and engagement's effect on experience and marketing success of the contest specified. Measures of contest performance, in-contest engagement and post-contest enduring interest are included. From the model, propositions are developed. Overall, the model provides financial service marketers with a theory-based foundation for designing and operating successful contests.     

The Impact of Asymmetric Information on Proxy Outcomes: An Empirical Test

If a manager-shareholder is better informed about the true value of a firm's shares than outside shareholders, then the management of an undervalued firm is hypothesized to use its incumbent advantage to win proxy contests to maintain control and to benefit from share revaluations induced by the positive signal value of the contest. Using insider trades as indicators of management's beliefs, this study finds an association between insider beliefs and proxy contest outcomes. In particular, when insider trades over a five-to-six month period preceding the proxy date are net purchases, the odds in favor of management winning are significantly higher.     

Proxy contests and debt contracting behavior: The interplay of managerial,shareholder and creditor incentives

We evaluate how heterogeneity in the strategic interplay among shareholder, creditor and manager incentives influences debt contracting behavior around proxy contests. We find that, after proxy contests, new loan originations have significantly higher spreads and more stringent non-pricing contracting terms. The effect, however, occurs largely in contest firms where Chief Executive Officers (CEOs) are provided with risk-taking incentives. Further, creditors’ simultaneous equity holdings and credit default swaps (CDS) trading attenuate the impact of proxy contests on debt contracting costs. Finally, proxy contests that culminate in voting and dissident victory experience the largest increase in loan pricing. Overall, our results suggest an increase in the agency cost of debt occurs after proxy contests, particularly when managerial risk-taking incentives are high, and when creditors do not simultaneously hold target firms’ equity or CDS.     

Performance responses to competition across skill levels in rank‐order tournaments: field evidence and implications for tournament design

Tournaments are widely used in the economy to organize production and innovation. We study individual data on 2775 contestants in 755 software algorithm development contests with random assignment. The performance response to added contestants varies nonmonotonically across contestants of different abilities, precisely conforming to theoretical predictions. Most participants respond negatively, whereas the highest‐skilled contestants respond positively. In counterfactual simulations, we interpret a number of tournament design policies (number of competitors, prize allocation and structure, number of divisions, open entry) and assess their effectiveness in shaping optimal tournament outcomes for a designer.     

CORPORATE OPERATING PERFORMANCE AROUND THE PROXY CONTEST

By comparing the operating performance (ROE) between a group of firms with proxy contests for control and a matching group of no-contest firms, this study concludes that contest firms generally underperformed matching firms in both pre- and post-contest periods. Lower profit margins of contest firms appear to be the major cause of underperformance. Results are different when proxy contest companies are segregated into successful and unsuccessful contest groups. Firms in which dissidents succeeded in gaining control were characterized by underperformance in the pre-contest period and improved performance in the post-contest period. The improvement seems to be due to more efficient management of the profit margin. The performance of firms in which dissidents failed, however, was close to that of the matching group in the pre-contest period but deteriorated in the post-contest period.     

National Culture and Takeover Contest Outcomes

We examine the effects of cultural differences on the outcome of takeover contests. Our main focus is on individuality, which we posit to have an effect on firm behavior in international takeover contests. In a sample of international acquisitions with bidders from multiple countries, we find that individuality positively relates to the probability of placing the winning bid. We further find that takeover contest winners with high individuality scores experience lower announcement returns. Our results are consistent with the literature that links individuality to overconfidence. Our evidence suggests that firms should control culture‐related behavioral biases in their mergers and acquisitions activity.     

The great industry gamble: market structure dynamics as a survival contest

Industry dynamics are studied as an endogenous tournament with infinite horizon and stochastic entry. In each period, firms’ investments determine their probability of surviving into the next period. This generates a survival contest, which fuels market structure dynamics, while the evolution of market structure constantly redefines the contest. More concentrated markets endogenously generate less profit, rivals that are more difficult to outlive, and more entry. The unique steady‐state distribution exhibits ongoing turbulence, correlated exit and entry rates, and shakeouts. The model’s predictions fit empirical findings in markets where firms trade off profits for smaller risk of failure (e.g., banking).     

Determination of equilibrium transaction fees in the Bitcoin network: A rank-order contest

Bitcoin users compete with one another over the timing of the settlement of their on-[block]chain transactions. Earlier settlement is valuable. Bitcoin users can accelerate the confirmation of the settlement of their transactions in the cryptocurrency by voluntarily bidding transaction fees with a user's optimal fee level dependent upon his or her impatience. We characterize this transaction competition as a contest with a rank-order allocation of prizes. Under this characterization, we derive the fee-bidding strategy at the symmetric equilibrium. Based on this equilibrium, we discuss the Bitcoin network and highlight the impacts of changes in different factors related to the mining industry. We find that fee–security feedback can amplify the impacts of these events.     

Prizes and lemons: procurement of innovation under imperfect commitment

The literature on research and development contests implicitly assumes that contestants submit their innovation regardless of its value. This ignores a potential adverse selection problem. The present article analyzes the procurement of innovations when the procurer cannot commit himself to never bargain with innovators who bypass the contest. We compare fixed‐prize tournaments with and without entry fees, and optimal scoring auctions with and without minimum score requirement. Our main result is that preventing bypass is more costly in the optimal auction, and the optimal fixed‐prize tournament is more profitable than the optimal auction.     

Beliefs Aggregation and Return Predictability

We study return predictability using a model of speculative trading among competitive traders who agree to disagree about the precision of private information. Although traders apply Bayes' Law consistently, returns are predictable. In addition to trading on long-term fundamental value, traders also trade on perceived short-term opportunities arising from foreseen future disagreement, as in a Keynesian beauty contest. Contradicting conventional wisdom, this short-term speculation dampens price fluctuations and generates time-series momentum. Model calibration shows quantitatively realistic patterns of return dynamics. Consistent with empirical evidence, our model predicts more pronounced momentum for stocks with higher trading volume.     

An empirical study of observational learning

This article provides an empirical examination of observational learning. Using data from an online market for music, I find that observational learning benefits consumers, producers of high‐quality music, and the online platform. I also study the role of pricing as a friction to the learning process by comparing outcomes under demand‐based pricing to counterfactual pricing schemes. I find that employing a fixed price (the industry standard) can hamper learning by reducing the incentive to experiment, resulting in less consumer surplus, but more expected revenue for the platform.     

Rent seeking and aid effectiveness

We introduce foreign aid and a rent seeking contest for public funds into the Barro (JPE 1990) growth model. We find that aid effectiveness depends on fiscal policies, the level of aid inflows and the quality of institutions that restrict appropriation of public funds by rent seeking agents. These results can be shown to be consistent with the best established findings in the empirical literature on aid effectiveness. Rent seeking may thus indeed be a major determinant of aid effectiveness. We further discuss how aid effectiveness depends on the way foreign aid is disbursed and on the determinants of institutional quality. JEL Classification F35 · D72 · D9 · H2     

Paradox,accounting values,and intelligible regulation

Expected utility theory, which includes estimating the probabilities of uncertain future outcomes, is the classical model for rational economic decision making, and, by implication, rational valuation and financial reporting regulation. In Wittgensteinian terms it is a ‘hinge’ of the language game in which these practices are embedded. When rendered explicit, however, this ‘hinge’ appears to be formally incoherent. The exploration of this problem has consequences for all of our arguments over the epistemological underpinnings of accounting reports – whether realist, representational, constructivist, or otherwise.Arguably, there are two complementary primitive models that underlie real-world probability estimation. Taken together, they generate a version of Goodman's inductive paradox (other versions of which also arise for non-inductive empirical generalisation). This, in its turn, is related to Kripke's paradox, which arises when we try to give behavioural accounts of rule following, and so of participation in a language game.This paper explicates this type of paradox in the context of commercial decision making, and considers its consequences. The existence of paradoxes should render the system that generates them completely incoherent, but (paradoxically …) they seem to be generated by any attempt to give complete accounts of some of the normative fundamentals which underlie linguistic practice – such as truth-telling, validity and rule-following.Whether or not these paradoxes represent a serious threat to the coherence of the empirical or behavioural sciences, it might be objected that commercial decision making methods and financial regulation rarely aspire to the kind of rigour that these disciplines attempt to achieve. Part of the argument of this paper will be that the intelligibility of commercial language suggests an approach to these paradoxes which is not obvious from more traditional philosophical perspectives.The intentionality of belief renders certain belief claims by participants in a shared language game incorrigible (within the game), in the sense that they can be doubted only by doubting the seriousness or quality of participation. If certain statements about rule following and word meaning have this same quality, then there is a way of avoiding the consequences of Goodman's and Kripke's paradoxes, and of sterilising the probability estimation paradox for any playable commercial language game.     

IPO Market Timing

I develop a model of information spillovers in initial publicofferings (IPOs). The outcomes of pioneers’ IPOs reflectparticipating investors’ private information on commonvaluation factors. This makes the pricing of subsequent issuesrelatively easier and attracts more firms to the IPO market.I show that IPO market timing by the followers emerges as anequilibrium clustering pattern. High offer price realizationsfor pioneers’ IPOs better reflect investors’ privateinformation and trigger a larger number of subsequent IPOs thanlow offer price realizations do. This asymmetry in the spillovereffect is more pronounced early on in a hot market. The modelprovides an explanation for recent empirical findings that illustratethe high sensitivity of going public decision to IPO marketconditions.