How can companies innovate? New research suggests clear goals can harm, and the answer lies in giving employees the freedom to make decisions

In today’s competitive business environment, innovation is an often-heard mantra that eclipses all else. At the same time, teamwork has also gained greatly in importance, supported by the rise of workplace tools such as Slack, which have brought a “social media” design to collaborative corporate culture. While organisations must have individuals working together to create innovation, do excellence and innovation actually arise from having clearly defined goals that all employees must universally support?

This is a question set out in a new study by Dr John Lai, Senior Lecturer at the Department of Management at the Chinese University of Hong Kong (CUHK) Business School. Will goal clarity lower team innovation? A moderated mediation model of inter-team trust is a body of research between Dr Lai and Steven Lui at the UNSW Business School, Ben Luo Nanfeng at Renmin University of China, and Peter Moran at China Europe International Business School. Their work challenges conventional views that clear goals make innovation more likely.

team innovation
A clear strategy makes for more cohesiveness among teams, while a trusting environment would bolster innovation with more knowledge acquisition and sharing.

“When a team’s goal is clear, team members become more selective in the information they are motivated to seek and acquire and less selective in what they screen out,” says Dr Lai. “This resulting selectivity and commonality of knowledge sought by each team member suggests that the team as a whole is more likely to acquire less knowledge.”

Many existing studies have assessed the question of whether clear goals foster innovation due to a “team climate” or “knowledge integration” perspective. In team climate thinking, a clear strategy makes for more cohesiveness among teams. From a knowledge integration point of view, if the workplace is a trusting environment, innovation should further increase with more knowledge acquisition and sharing.

Dr Lai and his collaborators challenged the team climate perspective for neglecting how having clear goals affects gathering and disseminating knowledge. As the researchers point out, goal clarity could inadvertently restrict learning. The team also indicated that while trust is crucial to innovation, it is not uniform or universal within organisations. Some colleagues and teams can get along, while others have relationships that are marked by distrust. This will impact how much innovation can take place.

Debunking the myths of innovation

The researchers point out that previous studies have not resulted in a clear link between the impacts of team climate or knowledge integration perspective towards innovation. “Research often takes on a reduced form of hypothesis, where no empirical test of the specific mediating mechanism is reported,” Dr Lai points out.

Meanwhile, an increasing number of recent studies have demonstrated that knowledge transfer in an organisation is unrelated to innovation, and is much more specific to individual team relationships. Could this mean that if certain people or teams are particularly talented, they should be left to their own devices and away from the company-wide dictates and goals?

Our finding suggests that while goal clarity does not reduce the amount of knowledge acquired from other teams, it reduces the impact of the acquired knowledge on team innovation.

Dr John Lai

The gap was there that obviously needed to be bridged, and the team set about addressing this with a moderated mediation model. This showed how the interaction of goal clarity and inter-team trust impacts innovation, while looking at knowledge inflows within the symbiosis of inter-team trust and innovation. To test the model, the researchers examined service innovation at 150 outlets of a large apparel retailer in mainland China, Hong Kong and Macau.

There were several criteria involved in choosing these companies – continuous knowledge sharing through regular training workshops for shop managers, the importance placed on company-wide innovation, a recent corporate-wide brand revamp, and staff being introduced to new practices, with managers being able to adopt at their own pace. The study used two questionnaires in Chinese, one that was answered by retail shop managers and one by retail staff, along with 14 interviews with senior managers within the organisation. All studies were kept confidential to eliminate bias.

Goal clarity is a double-edged sword

In the age of social media and ever-increasing consumer demands, innovation is ever crucial to sales and profits. Retail was chosen as the arena for this study, as the stores are run by teams that sell an existing product and innovate to serve customers better. This study is important to show clear goals can have a negative effect on innovation, while trust only supports innovation when team goals are less clear.

team innovation
Clear goals can have a negative effect on innovation, while trust only supports innovation when team goals are less clear.

Having goal clarity is a double-edged sword for innovation, which according to Dr Lai “reinforces a shared mental model and hence sustains and amplifies the cognitive bias of a team that will restrict the acquisition and interpretation of external knowledge.”

This crucial aspect is often overlooked by previous studies, and can also be applied to the concept of trust. Dr Lai and his collaborators found that inter-team trust and innovation are linked positively when goal clarity is low. However, trust is hard to define within an organisation, and there are myriads of overlapping relationships between team leaders, co-workers, other teams and departments. In general, the connection between trust and innovation fluctuates significantly.

“Our finding suggests that while goal clarity does not reduce the amount of knowledge acquired from other teams, it reduces the impact of the acquired knowledge on team innovation,” says Dr Lai.

Harmful group-think can be avoided

The study offers practical advice for retail operators – teams competing for sales can nonetheless benefit each other by sharing knowledge of local markets, customers and inventory levels. “It is useful for business firms to build a trusting relationship among their work teams rather than advocating a hostile competition-based atmosphere that has become common in the retail industry nowadays,” says Dr Lai.

Having said that, managers need to be highly attuned to the cognitive biases that goal clarity creates among team members. “When goals are clear, team members could be biased against the use of new ideas and practices, and such bias could harm innovation,” Dr Lai adds.


How business talents embrace an innovative and sustainable future

With clear goals, the net positive effect that knowledge transfer has on innovation can be harmed. This is especially the case when managers have been assigned clear performance goals for their teams. As the study pointed out: Goal clarity benefits innovation, while cognitive bias deters innovation. The double-edged sword of goal clarity is an increase in biases and a reduction of knowledge transfer through inter-team trust.

To reduce bias, managers can seek to add diversity to their teams. This could be gender, cultural, educational, and personality-wise. They may also rotate people across teams. “Greater team diversity and personnel rotation may lower the tendency of group think. Importantly, both are readily employable in the retail sector,” says Dr Lai.

While intuition can be a valuable tool, it can also deceive us. A new study delves into the reasons why blindly trusting your gut is not the best approach

Have you ever found yourself in a situation where you made a decision that later turned out to be wrong, but you felt stuck and couldn’t change your mind? It’s like when you confidently solve a math problem, only to realise later that you made a mistake. Or perhaps you bought something you didn’t really need, only to regret it later.

Well, you’re not alone. A new study has shown that this is actually quite common. The way our brain makes decisions is more complex than we thought. Take a classic quiz called the “bat and ball problem” below to understand how people make decisions.

A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

A significant number of participants in the study failed to solve the problem, even after getting the hint that the 10 cents was the wrong answer. In another experiment with the same question, the researchers gave the respondents the correct answer, but many were still stuck with their initial responses. And if you’re struggling too, you may find the answer at the end of this article.

The result of the study showed that our first thoughts can be really strong, and it can be hard to change our minds once we have made a decision.

bat and ball problem
A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

“The biggest takeaway from this research is that initial conclusions can be very sticky, even if they were based on very little thought, and even if there’s simple logic that contradicts them,” says Andrew Meyer, Research Assistant Professor with the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

The study, conducted by Professor Meyer along with Professor Shane Frederick of the Yale School of Management, focused on how our intuition can sometimes lead us astray. So, how can we minimise these misleading hunches?

Two schools of thought

The study titled The formation and revision of intuitions documents Professor Meyer and Professor Frederick’s attempts to investigate methods to encourage reflective thinking and found that incorrect intuition often persists despite an additional reflection. They highlight that sometimes our quick, intuitive thoughts can be tricky, and it’s important to take our time and think things through carefully.

Furthermore, the researchers argue that the human brain has two systems for making decisions: system 1, which is fast and intuitive, and system 2, which is slow and analytical. Unfortunately, system 1 processes often override or corrupt system 2 processes, which means that people often rely on their intuition rather than taking the time to reflect on a problem.

“In other experiments, we told one group of people that a bat cost US$100 and a ball cost US$10, and we asked another group to solve the bat and ball problem for the prices of both objects, which most people said were US$100 and US$10,” says Professor Meyer. “Then, we asked everyone whether the prices differed by US$100.”

In the group that was given both prices, hardly anyone made the mistake of thinking that these two prices differed by US$100. But in the group that generated those two prices themselves, three-quarters went on to try justifying their answers by arguing how they differ by US$100.

“This suggests that once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error,” Professor Meyer explains.

Once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error

Professor Andrew Meyer

“The only way we could stop people from giving the erroneous intuitive response was by changing the question so that the easy calculation no longer led to a plausible answer,” he adds. “One takeaway is to expect lots of errors if there is an easy calculation that leads to a plausible answer.”

Practical implications

Dual system theory suggests that both systems work together to help individuals make decisions and judgments. However, the balance between the two systems can vary depending on the situation and individual differences.

This theory can be applied to various fields, including psychology, neuroscience, economics, and decision-making. It has been used to explain a wide range of phenomena, such as cognitive biases, heuristics, and decision-making errors.

“I would expect a lot of these forces to be particularly powerful in financial decision-making, where there are many potential calculations, and easy ones often lead to wrong answers and bad decisions,” says Professor Meyer.

dual system theory
Dual system theory can be powerful in financial decision-making, where there are many calculations and rooms for error.

For instance, if a person borrows US$100 and has to pay back US$10 per month for a year, the total payment would be US$120. Some might think that this is a 20 per cent effective annual interest rate. However, this would only be true if US$120 is paid at the end of the year.

As the borrower has to pay most of it back much earlier, the loan becomes a lot worse than a 20 per cent effective annual rate. Taking into account the impact of compounding – the process of earning interest on the original amount borrowed and the accumulated interest from previous periods – then the effective annual interest rate is actually 41.3 per cent.

“One prediction from the bat and ball research is that people will not only make the initial mistake and think that this monthly instalment plan is a 20 per cent effective annual rate, but persist and continue to make that mistake even if the logic, that the loan is paid back in much less than a year, is made clear to them,” Professor Meyer adds.

Does extra time help?

The researchers believe that solving the bat and ball problem requires deliberate thinking. Those who manage to solve it take much longer time, and solution rates are markedly reduced after imposing time limits or cognitive load. Therefore, in situations where time is limited, the intuitive system may dominate.

“Time pressure greatly reduces bat and ball solution rates, but encouraging people to take extra time has little effect, which is somewhat disappointing” says Professor Meyer.


The power of memory in stimulating purchases

Although a previous study suggests that many people can solve the problem intuitively, Professor Meyer is skeptical as the respondents in the previous study answered various modified versions of the problem, and many “intuitive” solutions came from later trials that participants had encountered repeatedly. The researchers believe that it’s crucial to differentiate between intuiting an answer and quickly applying a previously learned solution strategy.

Circling back to solving the ball and bat problem, setting up a simple equation will help. If “x” is the cost of the ball, then the cost of the bat is x + 1 and the total cost is x + (x + 1) = 1.10, or it can be simplified to 2x + 1 = 1.10. After subtraction and division, we get x = 0.05. Therefore, the ball costs US$0.05 or five cents.

Tenants are more vulnerable to increased risk about their housing stability when the property market soars, but they can find relief when real estate slows down, a new study finds

Access to affordable housing is a fundamental necessity, yet the scarcity of affordable homes has escalated into a worldwide crisis. Factors such as limited land availability, restricted mortgage lending, labour shortages, and rising material costs have collectively contributed to the increase in real estate prices. Consequently, the path to homeownership has become increasingly challenging, and many find themselves resigned to long-term renting.

Although 2023 has seen major cities worldwide experiencing a slump in housing prices due to inflation and economic uncertainties, the International Monetary Fund’s recent report, Housing Market Stability and Affordability in Asia-Pacific, highlights the rapid growth in property prices that outpaced income growth, leading to a significant deterioration in housing affordability.

In China, the housing market has reached unprecedented price levels in recent decades, leading to a thriving rental market as a result. According to a 2021 whitepaper published by real estate services firm Jones Lang LaSalle titled New Journey: Onwards and Upwards, the total number of rental housing units operated by leading 10 players of rental housing platforms in China’s top-tier cities nearly doubled from 356,000 in 2018 to 730,000 in 2020, with a 97.5 percent occupancy rate on average.

Despite the demand for long-term rentals, most property owners in China prefer to sign a one-year leasing contract with an option to renew for a second year. For tenants, the uncertainty of future housing availability due to short-term leasing contracts, known as “horizon risk”, can cause stress and anxiety as they need to find alternative places.

The uncertainty of future housing availability can cause stress and anxiety for tenants on short-term leasing contracts.

“Rental housing contracts are typically short-term, and renters face uncertainty regarding the actual ‘horizon’ for which they can occupy their homes,” says Maggie Hu, an Assistant Professor of Real Estate and Finance at The Chinese University of Hong Kong (CUHK) Business School.

“Horizon risk deters renters from making otherwise optimal long-term commitments, such as purchasing durable goods, forming a family, and raising children. Moreover, such risk can lead to increased search costs and relocation expenses while also amplifying rental uncertainty as a consequence of frequent moving.”

Against this backdrop, Prof. Hu and a team of researchers from Peking University investigated the impact of property investors’ housing market expectations on rental supply and contract duration. The researchers discovered that increasing housing prices lead to shorter rental contracts, suggesting that landlords are less likely to offer long-term contracts when they believe that property prices will keep rising.

This way, the landlords can retain flexibility and sell the house or adjust the rent more often to take advantage of the higher prices. On the other hand, when housing prices are expected to decrease, landlords may be more willing to offer longer-term contracts to secure their rental income.

When House Is Not Home

Long-term rental contracts would definitely reduce horizon risk and provide more stable housing for renters, but this practice is rarely seen in the real world. Landlords in general are reluctant to offer long-term contracts due to the uncertainty surrounding future housing market conditions. The prevailing housing affordability crisis makes the concept of horizon risk academically and practically intriguing.

In their research paper, Horizon Risk in Renting: Evidence from a PropTech Rental Platform, Prof. Hu and the team examined a unique dataset obtained from a prominent Chinese property technology platform, consisting of approximately 93,000 rental housing contracts in Beijing between 2015 and 2019. The research was focused on the national capital, where the platform has the largest market share and the longest operating period.

The analyses found that landlords are significantly less likely to renew expiring rental contracts for housing units located in neighbourhoods experiencing recent housing price growth, supporting the hypothesis that landlords offer shorter rental contracts following local housing price appreciations in preparation for a possible sale in the near future.

Rental housing contracts are typically short-term, and renters face uncertainty regarding the actual ‘horizon’ for which they can occupy their homes.

Prof. Maggie Hu

This effect is statistically significant and economically sizable, with a one-standard-deviation increase in housing price growth reducing contract duration by approximately one month. Conversely, when housing prices are expected to decline, landlords may be more willing to supply long-term contracts to lock in rental income.

Younger landlords and those with multiple rental units are found to be more responsive to housing price growth than older landlords, consistent with the hypothesis that older generations are less inclined to speculate and more likely to live off rental incomes, and also multi-homeowners are more likely to hold real estate assets for investment or speculative purposes.

A market with stable rental and housing price growth will encourage landlords to supply long-term rental contracts.

Finding the Perfect Abode

Looking deeper into the duration of rental contracts and how various factors influence them, the researchers grouped rental contracts based on their respective durations and plotted them against the mean rental price, creating the “term structure of rental supply” to determine the overall pattern of rental rates. The team then discovered that the housing price growth also impacts the term structure of rental rates.

As housing prices increase, the decline in long-term rental contracts drives up rental prices due to higher demand, which results in a counterclockwise shift in the term structure of rent, with long-term prices rising compared to short-term rates. Conversely, when housing prices decline, landlords are more inclined to offer longer-term contracts to secure predictable rental income and minimise the risk of losing potential gains from property sales.

“The result of our study implies that a market with stable rental and housing price growth will encourage landlords to supply long-term rental contracts and reduce horizon risk for renters,” says Prof. Hu.

The long-term rental housing supply shortage is a key friction when studying the risks and tradeoffs surrounding housing decisions. Policymakers need to consider regulations encouraging landlords to supply long-term rental contracts, such as tax incentives or subsidies. Renters may also benefit from policies that increase the supply of long-term rental housing, as this could lead to more stable and affordable housing options.


Do Borrowers Benefit from Using Lucky Numbers?

“We believe that future investigations to delve deeper into the implications of horizon risk would be fruitful. In particular, long-term rental housing can provide stability and peace of mind similar to that provided by homeownership,” says Prof. Hu.

“It is possible that the variations in long-term rental supply can help explain the variation in homeownership rates within and across countries. While the survey and anecdotal evidence both appear to support this conjecture, it remains crucial to systematically quantify these effects.”

Business leaders from different industries share their insights on how innovation, sustainability, and talents are shaping the future business world at CUHK Business School’s alumni forum

Human life and business are at a crossroads as the new era of AI technology and rapid climate change brought existential questions to the forefront.

The explosive use of the new AI tool ChatGPT since late 2022 has raised such questions as whether it will benefit our work and life or become a threat to us. Additionally, people around the world are experiencing more frequent extreme weather events this year, such as wildfires in North America and Europe, as well as rainstorms and floods in China and Africa. In the face of these climate challenges, sustainability is an issue that needs to be addressed more urgently than ever.

In light of these trends and transformations, business talents are facing both opportunities and challenges. They need to decide where to invest their time and energy to sustain their professional growth in the coming years. To shed light on this topic, four business leaders shared their observations and thoughts on innovation, talents, and sustainability in the present and future business world at a panel discussion. The panel discussion was moderated by Kalok Chan, Wei Lun Professor of Finance and Chairman of the Department of Finance at The Chinese University of Hong Kong (CUHK) Business School, and was held as part of the School’s Global Alumni Forum 2023.

Adapting to a Changing World

To kick off the event, Prof. Chan invited panel speakers to share the latest business trends in their sectors.

Dr. Paul Sin (MBA 2002), Director of Technology & Transformation of New World Development Company Limited, discussed the influence of AI on the workforce.

Dr. Paul Sin (MBA 2002), Director of Technology & Transformation of New World Development Company Limited, discussed the influence of AI on the workforce. While acknowledging the concerns about AI technology replacing workers, Dr. Sin believes that more talents will be needed even with technological advancements. He compared the AI revolution to the digital era ushered in by computers, in which the demand for talents actually increased.

Dr. Sin raised the hot issue that businesses are increasingly concerned about: data privacy and tightened regulations. These trends have made people more cautious about adopting new technologies. In addition, he said, companies are finding it difficult to secure innovation funding due to the sluggish economy. This has put pressure on them to demonstrate solid returns on investment in innovations that are highly relevant to people’s needs.

“The world has changed significantly due to innovation and sustainability [issues], and we need to adapt to it,” said Ms. Loretta Fong (PACC 1993), President of Hong Kong Institute of Certified Public Accountants.

Ms. Fong highlighted the significant impacts of innovations, such as the Metaverse and blockchain, on accounting and auditing professionals, urging them to consider how to navigate these emerging challenges. She mentioned a new principle called “double materiality,” which requires companies to disclose information that not only affects their financial value but also encompasses their environmental and social impacts. This increased scope of responsibility has called for talents with different skill sets.

“We need every type of talent today in our sector, including IT professionals and environmentalists,” she said.

Ms. Susanna Wong (IBBA 1992), a seasoned retail industry executive and the former CEO of Yata Limited, shared her opinion on innovation in retail industry.

Growing Awareness of Sustainability

Ms. Susanna Wong (IBBA 1992), a seasoned retail industry executive and the former CEO of Yata Limited, said innovation is not a new concept in the labour-intensive retail industry. Over the years, new technologies were adopted to reduce reliance on manpower and enhance consumer insights. However, she noted that the term “sustainability” had gained significant traction in the retail industry in recent years.

Ms. Wong acknowledged that some may criticise retailers for promoting unnecessary consumption and wasteful spending. Yet, retailers are increasingly aware of the importance of sustainability, and are making a concerted effort to contribute in their own way.

“One of the challenges faced by senior management in this industry is ensuring that the staff understands the importance of sustainability,” she said.

As more and more people have realised the importance of a low-carbon economy, Environmental, Social, and Governance (ESG) investment is becoming increasingly popular. Mr. Frank Tsui, Managing Director and Head of ESG Investment of Value Partners Group, shared his observations in this field.

“There is a high level of advancement in terms of sophistications in all aspects of ESG in the last few years,” he said, adding that advanced AI technology and algorithms have been applied to assess a company’s ESG data.

When it comes to the selection criteria for ESG companies, Mr. Tsui explained that there is a standardised list to evaluate a company’s performance in ESG. However, he emphasised that engaging with companies is still the most valuable approach to measuring performance. Direct engagement allows investors to validate whether a company’s actions genuinely align with the information they disclose.

Mr. Frank Tsui, Managing Director and Head of ESG Investment of Value Partners Group, shared his observations in sustainability.

In terms of sustainability and ESG development in Hong Kong, Mr. Tsui noted that the city is still in its initial stage, but there would be significant growth in the future “because we are starting from scratch.”

Mr. Tsui observed a substantial increase in the quality of talents compared with previous years. He highlighted how much more specific job candidates are when addressing ESG topics at interviews. They would engage in comprehensive discussions of biodiversity and materiality impacts in financial analysis, rather than just touching on environmental topics in a vague way.

At the same time, Mr. Tsui said, sustainability practices within the asset management field have advanced significantly. Both asset owners and managers now prioritise detailed ESG criteria in their investments.

The Irreplaceability of Human Judgement

The impact of AI on talent acquisition and the overall job market is a question that business leaders must consider. In the next part of the panel discussion, Prof. Chan invited speakers to share their ideas about how AI technology affects their business and how talents can better prepare for the future business world.

“I am pretty sure that many individuals ought to be concerned about the future,” says Ms. Fong. She cited a recent study stating that AI could replace 95 percent of accountants. Undoubtedly, new technology introduced in the accounting and auditing process could improve efficiency and free people from tedious work such as vouching. “But, after all, AI cannot replace judgement,” she said. “I still believe that this is the most valuable [quality of] auditors.”

Ms. Loretta Fong (PACC 1993), President of Hong Kong Institute of Certified Public Accountants, emphasised the importance of human judgement.

While many business graduates are contemplating the idea of acquiring programming or coding skills to alleviate their anxiety in a highly digitalised world, Dr. Sin suggested that it is more important for business students to focus on understanding what new technologies can actually do rather than making speculations based on media coverage.

“You need to combine [innovative technologies with] your business knowledge. [It’s important to] understand the limitations of such innovations,” said Dr. Sin. “[Only] then can you create value.”

Continuing on the subject of innovation, Ms. Wong offered a fresh perspective, suggesting that innovation should not be limited to technological advancements. “Don’t look at innovation as technology innovation only; innovation [can be] any ideas or improvements in your process to make things better,” she said.

The widespread use of AI technology, the urgency of addressing climate challenges, and the importance of sustainability are rapidly transforming the business landscape. Business talents must navigate these changes, invest in the right areas, and adapt to ever-evolving circumstances to grow professionally and contribute to a more sustainable future of our planet.

A new study reveals that U.S. households spend more on products from firms that prioritise corporate workplace equality, especially after major social events

Which would you choose: a bag produced by a firm known for its equal treatment of all staff or a bag produced by a company currently embroiled in a discrimination scandal? Conscious consumers, who prioritise ethical, social, and environmentally friendly products when making purchasing decisions, would likely choose the former.

A report indicates that 79 percent of respondents believe sustainability is either “somewhat important” or “very important” when making purchasing decisions. Additionally, 68 percent express a willingness to pay more for environmentally sustainable and socially responsible products.

Our research delves deeper than merely looking at diversity and equality at the executive level. It gauges workplace equality practices for the broader workforce.

Prof. Cen Ling

Given the rise of conscious consumers in recent years, companies should look beyond product quality and consider ESG (Environmental, Social, and Governance) or CSR (Corporate Social Responsibility) factors. While previous research has shown that strong ESG or CSR practices can decrease a firm’s risk exposure, the direct cash flow implications of such practices are still unclear.

Researchers from The Chinese University of Hong Kong (CUHK) recently aimed to understand how the purchasing decisions of conscious consumers who value ESG and CSR can directly impact a company’s cash flow.

The study, The Rise of Conscious Consumers: The Impact of Corporate Workplace Equality on Household Spending, was conducted by Cen Ling, Associate Professor of Finance, and Wu Jing, Associate Professor of Decisions, Operations, and Technology, both at CUHK Business School. They were joined by Prof. Han Yanru from Stevens Institute of Technology, and Liu Chang, a PhD candidate from City University of Hong Kong.

The market harshly punishes discrepancies between a firm’s declared commitment to and actual practices of workplace equality.

Prof. Wu Jing

“There’s a significant uptrend in ESG investment. Do investors like firms with good ESG practices purely based on their preferences? Or, a company’s ESG strategy truly benefit investors in generating higher returns? If so, does ESG contribute to higher returns by affecting the risk component or the cash-flow component, or both?” asks Prof. Cen. He expressed interest in exploring potential long-term economic incentives for companies to adopt ESG strategies.

Existing studies offer varied insights on the influence of ESG strategy on corporate operating performance. This research hones in on corporate workplace equality to gauge its effect on consumers’ buying habits. “This approach demystifies how specific ESG strategies can impact a company’s bottom line. Cash flow is a direct barometer of a company’s financial health,” notes Prof. Wu.

Measures to Evaluate Workplace Equality

To address these inquiries, the researchers developed a measure of corporate workplace equality, known as the EEO Score. This metric is based on the textual analysis of Equal Employment Opportunity statements found in millions of U.S. online job listings.

The research is based on the textual analysis of Equal Employment Opportunity statements found in millions of U.S. online job listings.

“Our EEO Score delves deeper than merely looking at diversity and equality at the executive level. It gauges workplace equality practices for the broader workforce,” Prof. Cen states, emphasising the public’s greater concern for the rights of everyday employees over board members.

Prof. Wu adds, “Our EEO Score zeroes in on workplace equality for the average worker, filling a gap left by prior studies that centered on upper-tier corporate roles.”

The researchers highlight that their algorithm assigns higher EEO Scores to companies that make detailed, genuine, and enthusiastic EEO pledges in their job listings. While skeptics might dismiss online job listings as mere corporate rhetoric, the researchers have undertaken multiple validation steps to alleviate such concerns.

They underscored the EEO Score’s accuracy by demonstrating its foresight in predicting future discrimination-related litigation and headlines. They also pointed out the inherent costs that discourage companies with low equality standings from merely parroting those with higher commitments.

“The market harshly punishes discrepancies between a firm’s declared commitment to and actual practices of workplace equality,” Prof. Wu observes, emphasising the gravity of making an EEO commitment.

Consumers Favour Companies that Champion Equality

The next phase involved correlating household buying decisions with the EEO Scores of product manufacturers. They tapped into Nielsen Consumer Panel data that capture consumer behaviour of individual household.

“Instead of crafting a simulated consumer behaviour test in laboratories, we turned to genuine data, revealing the authentic spending habits of Americans,” Prof. Cen explains.

Given the rise of conscious consumers in recent years, companies should look beyond product quality and consider ESG (Environmental, Social, and Governance) or CSR (Corporate Social Responsibility) factors.

Findings were consistent with their hypothesis: U.S. households tend to spend more on products from companies that score high on workplace equality. However, Professor Cen highlights the presence of potential confounding factors in the positive correlation between household purchase decisions and EEO Scores, such as product quality. In other words, consumers might choose products from companies with high EEO scores solely because firms with better workplace equality practices also offer better product quality.

He adds, “To mitigate the endogeneity in this positive correlation between corporate workplace equality and household consumption, we looked at whether minority consumers displayed a heightened sensitivity in their spending patterns toward producers that championed workplace equality.”

As hypothesised, the pro-equality spending trend was more pronounced among racial or gender minority consumers.

Prof. Wu posits, “If product attributes unrelated to workplace equality were driving the correlation between spending and EEO Scores, it’d be challenging to explain the heightened sensitivity exhibited by minority consumers.”


Unintended Benefits: How Employment Protection Increases Households’ Stock Market Participation

To further solidify their findings, the researchers employed two methods based on exogenous social events. First, they observed a spending boost on products from California-based firms post the 2018 enactment of the California Gender Board Diversity Law. Next, they noticed that the linkage between household expenditure and a producer’s EEO Score generally strengthened post-societal events that heightened equality awareness, like the #MeToo movement in 2017 and the Black Lives Matter movement in 2020.

In summary, the research underscores the tangible cash flow benefits of corporate workplace equality. Prof. Cen admits that the current buying surge, led by racial and gender minority consumers, doesn’t ensure a direct short-term boost in spending as a result of improved workplace equality. However, he believes that as consumer consciousness around equality becomes more widespread, firms will invariably see the financial advantages of ESG strategy adoption.

New study finds “green consumerism” is alive and well in China, with consumers willing to pay more for sustainable food

The 17 Sustainable Development Goals (SDG), which form the United Nations’ Post-2015 Development Agenda, are designed to provide a blueprint for achieving global peace and prosperity by 2030. Central to the agenda is the second SDG, which aims to “end hunger, achieve food security and improved nutrition, and promote sustainable agriculture.”

Meeting such policy objectives is critical to the prospects of many developing countries, as well as emerging economic powerhouses such as China, but they also pose a formidable challenge. Global food production is predicted to more than double by 2050, to meet growing demand that comes mainly from developing countries, as the world’s population, which reached eight billion in 2022, expands by around 0.8 percent per year.

The government should work together with other agencies to boost consumers’ trust in sustainable food by ensuring that the information provided is scientifically-based, accurate, comprehensive and communicated effectively.

Prof. Francisco Cisternas

Not only does the speed of population growth make the goal of food security hard to achieve, but demand for carbon-intensive meat products in developing countries tends to increase as they become richer. This trend, which is accelerating in China, following decades of rapid economic growth, can result in significant environmental damage, thereby frustrating the goal of making agriculture more sustainable.

A Growing Demand of Animal Protein

As populations switch to a Western-style diet, there is also a growing demand from consumers for beef and dairy products instead of other forms of animal protein. However, previous research shows that cattle farming results in eight times more greenhouse gas emissions per 100g of protein than the production of chicken or fish.

Previous research found that cattle farming results in higher greenhouse gas emissions than the production of chicken or fish.

So how can food production be made more environmentally sustainable and resilient, while also feeding more people more effectively? A novel approach to cracking this conundrum that has emerged over recent years is focused on changing consumption patterns away from carbon-intensive foods such as meat and dairy products and towards sustainable foodstuffs. But can consumers actually be motivated to change their behaviour?

A timely new study from the Chinese University of Hong Kong (CUHK) has addressed this question by investigating the factors that motivate consumers in China to purchase food which is produced in a way that protects the environment, conserves natural resources such as air, energy and water, and uses less energy.

Entitled The future of sustainable food production in China, the study was conducted by Francisco Cisternas, Assistant Professor in the Department of Marketing at CUHK Business School; in partnership with five other CUHK academics. They are Prof. Lam Hon Ming and Dr. Carolina Andrea Contador Sariego of School of Life Sciences; Prof. Shelly Lap-Ah Tse, Dr. Shuyuan Yang and Dr. Zhiguang Liu of the Jockey Club School of Public Health and Primary Care; Scholars from other universities in China, Canada and the UK also took part.

Attitudes and Social Norms Affect Consumer’s Choice

The researchers theorised that consumers’ willingness to purchase environmentally friendly food is determined by their intentions, which in turn are affected by their attitude towards such purchasing behaviour; the social norms to which they are exposed; the degree of perceived control over their ability to make such purchases; and their perceptions of the food’s quality.

The study finds that “green consumerism” is alive and well in China.

To test out the theory, they conducted a face-to-face survey of 2,422 Chinese consumers in rural and urban districts across five provinces, spanning northern and southern China, who formed a representative sample of the whole population. The five cities involved – Beijing, Nanchang, Xi’an, Taiyuan, and Shenyang – were chosen to reflect different income levels across China.

Respondents’ behavioural attitudes were measured in terms of their degree of concern about deforestation, drying lakes and rivers, and other damage caused by the use of land and water resources for agricultural production; while social norms were assessed by examining the extent to which participants were influenced to buy sustainable food by pressure from government bodies, the media, experts, international agencies, and social media commentators.

Perceived behavioural control was measured in terms of the cost and convenience of making purchases and participants’ views on certification systems and purchase conditions. The perceived quality of sustainable food was assessed by examining their views on the ingredients, nutritional values and health benefits of the food, plus their degree of trust in certification schemes.  Certification agencies involved in the study included international agencies, the Chinese central government, and local universities and scientific institutions.

Consumers Prioritise Environment in Food Purchases

The results confirm that Chinese consumers are inclined to purchase sustainable food.

“The results confirm that Chinese consumers are inclined to purchase sustainable food,” says Prof. Cisternas. “Among the four factors, behavioural attitude contributed most to people’s willingness to buy sustainable food.

“These consumers are highly concerned about the impact of their food consumption on the environment, rather than simply considering personal benefits such as food safety. They limit their demand for non-sustainable food and replace their needs with sustainable alternatives.”

Prof. Cisternas says this willingness to spend more for sustainable food may be a form of the sort of “green consumerism” that prompts people to buy fair trade products, which cost more without necessarily offering better quality, yet still provide consumer satisfaction.

The second biggest impact on people’s willingness to purchase sustainable food was from social norms, with government promotions, and information in the media and on social media from experts, academics and commentators all influencing their readiness to pay more for environmentally friendly food, the study found.


Leaning on Innovation to Combat Plastic Pollution in Oceans

Perceived quality also played a part, with nutritional values, and health and nutritional benefits having more impact than the simple ingredients of the food, while lower levels of perceived behavioural control – partly measured by the distance between a participant’s home and markets stocking sustainable food – had the expected negative impact.

Enhancing Food Certifications Builds Trust in Sustainable Consumption

“The result showed that greater difficulty in accessing sustainable food reduced participants’ willingness to purchase such food,” says Prof. Cisternas. “This indicates that making it more convenient to purchase sustainable food would boost consumers’ intention to buy these items.”

Consumers” willingness to buy sustainable food is affected by the type of its certification scheme.

The study also found that participants’ willingness to buy sustainable food was affected by the type of certification scheme it was covered by, with consumers placing most trust in certification by the Chinese central government. However, compared to consumers in other countries, Chinese consumers had a lower level of trust in food certification schemes overall.

Prof. Cisternas says the findings, which can be generalised to the whole population of China – and similar countries and regions – due to the representative nature of the survey, have implications for food policy.

“Information disseminated through the media and social media by government bodies, experts, international agencies, and commentators is more likely to influence consumers, when the organisations concerned are considered trustworthy,” he says.

“The government should work together with other agencies to boost consumers’ trust in sustainable food by ensuring that the information provided is scientifically-based, accurate, comprehensive and communicated effectively. Further improvements to certification schemes and better regulation and compliance monitoring may also help to build trust.”

CUHK scholar shares insights on U.S. interest rate outlook and how to forecast it through a structural framework

Following a series of 10 consecutive hikes, the U.S. Federal Reserve voted to pause its aggressive campaign of interest rate increases in mid-June. The Federal Open Market Committee (FOMC) decided to maintain its benchmark lending rate at a range of 5.0 to 5.25 percent. However, the rate-setting committee also hinted at the possibility of further monetary tightening before the end of the year.

Given that the United States is the world’s largest economy and the U.S. dollar is the world’s primary reserve currency, fluctuations in the U.S. interest rate have immediate effects on global markets. Acting as the central bank of the nation, the Federal Reserve’s primary objective is to maintain a stable U.S. economy. When the economy booms, issues such as inflation and asset bubbles can arise and threaten economic stability. To cool down an overheated economy, the Fed has traditionally stepped in and raised interest rates. When interest rates are raised, the costs of borrowing money (e.g., mortgage, car loans, and credit cards) increase, and consumers tend to pull back on spending. This can reduce the supply of money in circulation, which is a way to lower inflation.

The most difficult but rewarding strategy to forecast the U.S. interest rate is to ‘do your own economic analysis’, which would help people ‘beat the market’ and gain more significant returns.

Dr. Andrew Yuen

Acting as the central bank of the nation, the Federal Reserve’s primary objective is to maintain a stable U.S. economy.

As the U.S. interest rate directly affects people’s spending habits and investment returns, it would be helpful to forecast whether the U.S. government will increase or decrease it in the coming month. An educated forecast can help consumers find clues and make wiser investment decisions.

Andrew Yuen, Senior Lecturer at the Department of Decision Sciences and Managerial Economics,  The Chinese University of Hong Kong (CUHK) Business School, shared his thoughts on these questions in a masterclass for the school’s EMBA programme titled “U.S. Interest Rate Outlook 2023” which took place in May 2023 .

Utilising Public Information Effectively

According to Dr. Yuen, people with varying degrees of economic knowledge can use different methods to forecast the U.S. interest rate. “The easiest and most effective way for those who don’t have any knowledge about economics is to look at the financial market data and follow the predictions of investment analysts,” he said. To obtain the latest probabilities of the U.S. interest rates, he recommended using the CME FedWatch Tool.

During an EMBA master class, Dr. Yuen shared his insights regarding the outlook of U.S. interests.

However, rather than just obtaining information passively from the market, people can pursue a more advanced strategy. Dr. Yuen proposed analysing information from the FOMC. The FOMC is the branch of the Federal Reserve System that determines the U.S. interest rate. By analysing the information on the FOMC website, such as their meeting dates, after-meeting statements and projection materials, people can gain insights into the future trends of the U.S. interest rate.

Dr. Yuen illustrated how people can extract key information by comparing different statements from the committee. He highlighted a sentence in the March statement: “The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy.” He explained that this sentence indicated a further increase of the interest rate in FOMC’s May meeting. This was confirmed when the committee members met in May. Noticeably, the same sentence was deleted in the May statement, which suggested that the FOMC would not increase the interest rate in the upcoming meeting. As he anticipated, the Fed voted to maintain the interest rate in June, validating the initial inference.

Besides information from the FOMC website, people should also pay attention to what the FOMC members say in news reports. “The views of the voting members are quite important, especially [those of] Jerome Powell, the Chair of the Federal Reserve,” Dr. Yuen said.

Understanding the Causes of Interest Rate Fluctuations

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the U.S. interest rate.

In addition to the two strategies mentioned above, Dr. Yuen noted that the most difficult but rewarding strategy to forecast the U.S. interest rate is to “do your own economic analysis”, which would help people “beat the market” and gain more significant returns.

Before attempting to make a forecast, however, one must first understand the primary objectives of the FOMC — maximum employment and stable prices. Therefore, Dr. Yuen said, individuals should examine the labour market and inflation trend to forecast the interest rate. “If the unemployment rate is very high, the interest rate will be reduced, and if the inflation rate is very high, the interest rate will be increased,” he explained.

As an abstract concept, inflation can be reflected in commodity prices.

While the FOMC’s decision-making process is theoretically straightforward, conducting one’s own forecast can be quite challenging. “When you forecast the interest rate, you need to forecast the inflation rate and unemployment rate in the future, just like the Fed would,” said Dr. Yuen. He further explained that interest rate decisions are forward-looking because any monetary policy takes time to become effective.

Dr. Yuen then discussed some indicators that individuals can use to analyse inflation trends. As an abstract concept, inflation can be reflected in commodity prices. He noted that housing, food and services are three major factors influencing inflation. More specifically, if the latest rental cost is trending down in the coming year, inflation is likely to also decrease. As such, the Fed would not increase the interest rate hastily. Likewise, decreasing food prices is also a sign of lowering inflation. Other indicators of U.S. inflation include the U.S. Producer Price Index (PPI) and China’s inflation figures. In general, interest rates will likely decrease if inflation rates decrease, Dr. Yuen summarised.

“Besides commodity prices, the U.S. labour market trends also affect the interest rate,” he said, adding that people should pay attention to U.S. salaries. If salaries decrease, people can expect lower inflation and lower interest rates.


Global Economic Growth: Inflation or Double Dip Recession?

In the masterclass, Dr. Yuen shared his latest forecast of the U.S. interest rate for the end of 2023. After his sharing, he emphasised the importance of adjusting the figure based on the latest developments in the market. “The most important thing here isn’t for me to tell you my conclusion, but to show you how to conduct your own analysis.”

Dr. Yuen also encouraged attendees to put theory into practice. “Practice makes perfect. Try to apply what you have learned in this class and see if those methods are effective,” he advised.

New research provides clear guidelines for e-commerce vendors on how to handle customer complaints in the digital marketplace

Online shopping received a huge boost during the COVID-19 pandemic, as consumers battled to obtain scarce goods, while obeying social distancing regulations. The share of global retail sales met through e-commerce rose from 16 percent to 19 percent in 2020 alone, according to UNCTAD, the UN’s trade and development body.

However, as the e-commerce market has grown, so too have concerns about deceptive or manipulative design features in online shopping sites – known as “dark patterns” – that seek to steer consumers into making decisions that may not be in their best interests.

Countdown clocks; free trials that lead to hidden subscriptions; drip pricing with extra fees added at the point of sale; and false time-limits for discounts; are among tactics used by online vendors that have prompted a rash of negative reviews in online forums.  Besides, mis-ascribed problems caused by other reasons, such as a delay in order fulfilment due to poor planning, are often reported in online reviews and ascribed to the seller’s integrity issue. Moreover, sometimes customers forget to cancel free trials and are charged for subscriptions, but they may also wrongly attribute this to sellers’ integrity-based violations like hidden subscriptions.

Earlier studies have shown that accepting responsibility is an effective way to demonstrate sincerity in restoring a broken relationship and that such sincerity is critical to repairing trust.

Prof. Wang Weiquan

Such reviews often criticise a vendor’s integrity for violating consumer trust and are easily accessed by potential future customers. They can have a devastating impact on a vendor’s business by reducing potential customer’s trust in – and willingness to transact with – the firm.

However, a new study by Wang Weiquan, Professor at the Department of Decision Sciences and Managerial Economics at the Chinese University of Hong Kong (CUHK) Business School, reveals a unique formula for repairing customers’ trust in an online vendor following negative postings in forums about alleged deceptions on the seller’s website. The guidance, which is specific to e-commerce settings, is based on empirical evidence set out in the study.

Entitled Repairing Integrity-Based Trust Violations in Ascription Disputes for Potential E-Commerce Customers, the study was conducted by Prof. Wang, in collaboration with Prof. Kai H Lim of Hong Kong Polytechnic University, and  Prof. Honglin Deng of Tongji University.

Traditional Remedies Ineffective in Online Settings

It is believed to be one of the first studies ever to examine repair strategies for disputed trust violations in the online marketplace.

The researchers propose a two-stage model for repairing trust in an online seller among potential customers who are reading for the first time a negative online review that accuses the vendor of an “integrity-based trust violation”.

Some tactics such as hidden subscriptions used by online vendors have prompted a rash of negative reviews in online forums.

Such accusations blame the incident on the honesty, morality, truthfulness and consistency of the seller’s character, and therefore can be highly damaging, while traditional remedies – such as an apology or denial – may prove inadequate.

“Apologies have been shown to be ineffective in repairing integrity-based trust violations, because they suggest that the perpetrator is admitting to a lack of integrity, leading to concerns that they will deceive customers again in future,” says Prof.Wang.

Moreover, in an online setting, the risks are magnified because large numbers of potential customers are exposed to such complaints, while the recurrent face-to-face interactions between customer and seller that may take place in a physical shop, where pledges to improve performance can be checked by the victim, are lacking, the paper states.

Re-Ascribe the Violation to Non-Integrity-Based Factors

“As distinct from the traditional approach in which the vendor denies the violation itself, following our model, they will accept responsibility for the violation but reject the accusation that it is due to their integrity,” says Prof.Wang. “They will then re-ascribe the violation to a lack of competence or benevolence, before pledging to address such shortcomings and not to let such an incident happen again.”

The model is based on prior studies that show integrity is widely perceived as an unchanging characteristic, while competence and benevolence are qualities that can be improved through learning and adaptation. Therefore, pledges to change in these areas – known among social psychologists as “stability attributions” – are more likely to be credible.

However, the theory also predicts that efforts to repair trust through this two-step approach would be more effective for e-commerce vendors with a high reputation than for those with a low one. Offering financial compensation to the aggrieved customer is therefore proposed as an alternative remedy for situations where rebuilding trust through social means does not work.

The model was tested through four lab experiments held at a Chinese university. A total of 300 participants took part in the four blind trials using the e-commerce platform, after being told the experiments were investigating how customers choose products and sellers on the website.

The participants were presented with a manipulated webpage about an online tailor called Tailor KC, giving various combinations of five positive reviews; a negative review; and the tailor’s response to the negative review; depending on which trial they were allocated to.

Afterwards, the respondents were asked to complete a questionnaire. Statistical analysis of the results supported all five main hypotheses in the model, with the proviso that one sub-hypothesis was found to be only marginally significant.

Low-Reputation Firms Need Extra Efforts

Researchers offer e-commerce vendors clear guidelines on how to effectively manage customer complaints in the digital marketplace.

“Our proposed approach to rebuilding trust, along with the disclosure of financial compensation, provides clear guidelines to help online sellers minimize the damage caused by trust violations that are incorrectly ascribed to the vendor’s integrity,” says Prof.Wang.

In this situation, the seller should respond to the online review by re-ascribing the incident to their competence or benevolence – despite the possible harm this could do to customers’ beliefs about them in regard to these attributes, he explains. The seller must then repair such potential further harm by promising to address the problem and prevent it from happening again.

“Our approach works because the seller accepts responsibility for the violation,” Prof.Wang says. “Earlier studies have shown that accepting responsibility is an effective way to demonstrate sincerity in restoring a broken relationship and that such sincerity is critical to repairing trust.”


How To Detect and Deter Customer Misbehaviour on Social Media

The researcher notes that financial cost of the proposed social approach to making amends is considerably lower than providing financial compensation. However, e-commerce firms should note that customers are unlikely to believe such promises from sellers with a low reputation.

“These sellers must exert additional effort to repair trust, for example by providing financial compensation to victims, and publicly disclosing such compensation in order to address trust concerns among potential customers,” says Prof. Wang.

An entrepreneurial spirit can help people from all walks of life achieve self-improvement, says CUHK expert

Everyone dreams of starting their own business and becoming an entrepreneur, but for many, reality may get in the way. It’s often quoted that more than 90 percent of start-ups fail, and out of that, around 20 percent don’t make it past their first year. Against this bleak backdrop, what can aspiring entrepreneurs do to improve their chances of success? Also, is entrepreneurial spirit hardwired into our DNA, and can anyone be a successful entrepreneur?

These are some of the questions that Joyce Iun, Professional Consultant at the Department of Management at The Chinese University of Hong Kong (CUHK) Business School, sought to address in a masterclass held in October 2022 for the school’s MBA programme titled “Is Entrepreneurial Decision-making a Rocket Science?”, in which she sought to demystify the decision-making processes that every entrepreneur must make and highlight the importance of adopting a growth mindset for everyone, including those without entrepreneurial leanings.

What Makes an Entrepreneur Tick?

An entrepreneur refers to an individual who creates a new business, bears most of the risks, and enjoys most of the rewards simultaneously. Dr. Iun notes that they also often tend to question the status quo, to seek growth and understanding, and to embrace challenges and opportunities.

Successful entrepreneurs are typically associated with being passionate leaders who possess the drive required to get new business ventures off the ground, but at the same time are willing to delay their gratification until their toils come to fruition.

Making good decisions is essential for entrepreneurs.
Making good decisions is essential for entrepreneurs.

Some people may strike upon their entrepreneurial spirit early in their lives. To illustrate, Dr. Iun cited the example of Tony Fadell, the American engineer best known as the man behind the invention of the Apple iPod music player, who started his first business when he was just nine years old. Kicking off his entrepreneurial career, a young Mr. Fadell bought cheap eggs from a farmer and sold them in his neighbourhood, which gave him pocket money and the first taste of freedom.

“I believe an entrepreneurial trait is something that is potentially within our DNA,” says Dr. Iun, referring the young age at which many well-known successful businesspeople tend to display their interesting at starting new ventures. On the other hand, while creating a wildly successful business venture may bring fame and fortune, not everyone wants to be an entrepreneur, she says. “However, that doesn’t mean they can’t be an intrapreneur.”

What is an Intrapreneur?

An intrapreneur is someone who develops new and innovative ideas within an existing organisational framework. The term is widely credited to being coined by the American author and entrepreneur Gifford Pinchot III, who described in his book Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur in 1985 that the concept of intrapreneurship is related to encouraging people in organisations to advocate, create and make changes. For example, today’s widely used Gmail is a successful outcome of Google’s 20 percent initiative, which encourages its employees to spend at least 20 percent of their time exploring or working on projects that are not expected to benefit the company immediately, but may lead to bigger opportunities. While people associate entrepreneurs to those who start businesses, intrapreneurs are often referred to as “change agents” within an organisation, Dr. Iun says.

Gmail is a successful outcome of Google’s 20 percent initiative, which encourages its employees to spend at least 20 percent of their time exploring or working on side projects.
Gmail is a successful outcome of Google’s 20 percent initiative, which encourages its employees to spend at least 20 percent of their time exploring or working on side projects.

According to Dr. Iun, a large part being an intrapreneur involves possessing sufficient drive and determination to improve and succeed. More specifically, she says intrapreneurs need to maintain a reflective and non-complacent mindset.

Staying reflective requires people to spend some time regularly to think about what they have learned, and which can positively influence their behaviour. Evidence shows people who spend 15 minutes everyday to think about what they can do to improve their own performance are often able to increase their effectiveness by 23 percent after ten days, compared to those who do not reflect, Dr. Iun says.

“Being non-complacent is having the feeling you aren’t quite satisfied with yourself. Someone like that would want to keep on challenging themselves,” says Dr. Iun, adding that a person with this mindset tends to spend time trying to figuring out where they want to be in the future and striving to improve incrementally every day.

Although entrepreneurs and intrapreneurs play different roles across the business landscape, they do share some common traits, such as the ability to think innovatively and being persistent. In Dr. Iun’s eyes, the most prominent similarity is having a growth mindset, which refers to a person’s interest in the pursuit of continuous and progressive growth. Dr. Iun notes that even for people who do not want to start their own businesses, a growth mindset can be highly beneficial, allowing them to strive for continued self-improvement.

Making Better Decisions

From food, clothing to career choices, people face thousands of decisions each day. Making good decisions is essential for entrepreneurs, but Dr. Iun argues that decision-making skills are necessary for everyone, including entrepreneurs and intrapreneurs. To make good decisions, she proposes that prospective entrepreneurs and intrapreneurs alike adopt a multi-level perspective. The multi-level perspective should include four levels: individual, group, organisational, and environmental.

I believe an entrepreneurial trait is something that is potentially within our DNA.

Dr. Joyce Iun

At an individual level, people need to consider their own personal business skills, networking skills and whether they have the confidence to pitch ideas, the ability to withstand uncertainty and resilience to overcome failures.

On a group level, people need to make wise decisions on whom they want to collaborate with. Particularly, Dr. Iun stresses the importance of finding appropriate team members. Rather than focus on finding like-minded friends, she suggests those looking to enhance their decision-making should seek out team members who possess strengths that complement their own weakness. “That way, they can develop a team that synergises, creating a scenario where one plus one equals three,” says Dr. Iun, emphasising that founding of teams should be based on the matching of complementary skills.


How Does Experience Matter for Entrepreneurs?

The third layer is the organisation level, which suggests that decision-makers pay close attention to factors such as a company’s core values, business model for generating revenues, as well as stakeholders in their deliberations. Last but not least, at the environmental level, people need to pay attention to considerations such as political and legal concerns, demographics, prevailing economic and sociocultural trends, as well as global issues such as the COVID-19 pandemic. “Addressing the decision-making process from a multi-level perspective is a good starting point if entrepreneurs want to increase their probability of success,” says Dr. Iun, adding that a multi-level lens provides clear guidance for people to examine what factors they need to take into consideration during the decision-making process.

Dr. Iun notes that although the operational decisions of entrepreneurs and intrapreneurs may differ, they both need to make quality decisions to achieve their respective goals. For intrapreneurs, having a multi-level perspective to guide them can potentially be the difference between success and failure. “It will help people to make better quality decisions with sense and sensibility,” she says, adding that passion, personal goals and persistence in continuous improvement will help people make better decisions as well.

Study finds that companies with more geographically diverse operations outperformed during the peak of the outbreak

The COVID-19 pandemic has created havoc around the world. Not only did it exact a heavy toll in the loss of human life, but it also constituted one of the biggest shocks to the global economic order in modern history. Consider that in March 2020, as the world became increasingly aware of the spread of the pandemic, global stock markets fell by over 30 percent as investors panicked en masse. Its economic effects were felt everywhere, with neither emerging markets or developed economies spared.

#CBKOnlinesSeries | How Investors Rewarded Diversification during the Pandemic

Given the massive economic impact of the pandemic, much effort has been focused on whether and how some companies were better able to weather the uncertainty it brought about, while others fell by the wayside. It is with this in mind that a group of researchers, including at The Chinese University of Hong Kong (CUHK) Business School, chose to look at the role of geographical diversification in allowing companies to outperform during the outbreak.


COVID-19: Which Companies Are More Immune?

The study Geographic Scope and Real Estate Firm Performance during the COVID-19 Pandemic was conducted by Desmond Tsang, Associate Professor at the School of Hotel and Tourism Management and Co-Director of the Centre of Hospitality and Real Estate Research, at CUHK Business School, in collaboration with Dr. Chu Xiaoling at The University of Hong Kong and Prof. Lu Chiuling at National Taiwan University. It found that companies which spread their operations across a wider geographical region tended to be viewed by investors as being better able to withstand the volatility brought about by the spread of the virus, and this was reflected in their performances in the stock market.

“Our aim in this study is to look at how geographic scope and diversification allows firms to weather the economic volatility brought about by the spread of COVID-19 during the pandemic,” says Prof. Tsang. “Unlike other episodes in recent history such as the Global Financial Crisis of 2008, the pandemic affects different places in a different manner, depending on the severity of positive cases in a given region as well as the local government response. This served as an ideal backdrop for us to test out our theories.”

Focusing on the Chinese Real Estate Sector

To do this, the researchers looked specifically at the stock market performance of real estate firms in China from the beginning of February 2020 to the end of March that same year, a period which coincided with the implementation and subsequent lifting of a lockdown in the Chinese city of Wuhan in Hubei province, where initial reports of virus transmission appeared.

Corporate diversification could be especially useful in mitigating negative stock market reactions that firms experience during times of crises, such as during the pandemic.
Prof. Desmond Tsang

They chose China to study the impact of diversification on stock market returns because the country provided a “clean” timeline for study. As a result of the stringent measures that the government undertook to control the spread of COVID-19, including lockdowns not only in Wuhan but also in other cities throughout the country, China largely succeeded in suppressing the spread of the virus and avoiding a more widespread outbreak. Unlike other jurisdictions, the policies implemented there also largely prevented any large-scale flare-ups from further taking place.

The researchers chose China to study the impact of diversification on stock market returns because the country provided a “clean” timeline for study.

Moreover, by focusing on the real estate sector – where firms tend to invest in property assets in specific locations – the researchers were able to cleanly identify a company’s geographical scope. Chinese real estate firms were also easier to compare, since most firms tend to dabble in developing residential and commercial projects, unlike in some markets such as the U.S., where real estate firms focus on various forms of property operations. Finally, real estate developers had a shorter investment horizon than passive investment vehicles such as REIT, or Real Estate Investment Trusts, and thus they might be more likely to be affected by the short-term volatility brought about by the pandemic.

To go about their study, Prof. Tsang and his co-authors first examined the returns of A-share companies listed on the Shanghai and Shenzhen stock exchanges with the growth rate of the number of confirmed COVID-19 cases as a measure of exposure to the pandemic. This confirmed the onset of the COVID-19 pandemic caused equity prices for real estate firms in China to fall significantly. As expected, it found that firms that were bigger in size, which employed lower leverage and which had higher cash holdings were affected less.

Next, the researchers looked into their main research question at whether firms’ geographic scope affected their stock prices during the period. They found that those with broader geographic scope and more geographically diversified property allocations were better able to endure the crisis. “In other words, the results indicate that investors seemed to perceive that firms with a more geographically diversified portfolio as being better able to weather the COVID-19 pandemic,” says Prof. Tsang.

The Effects of Leverage and Firm Size

Pressing on, the researchers then turned their attention to whether this ability of geographical diversification to shield companies from negative stock market consequences of the pandemic was able to help firms with weak fundamentals. It found that firms with higher leverage reported lower returns during the pandemic no matter their levels of diversification, indicating that geographical diversification did little to soften the valuations hit that real estate companies took during the pandemic if they had high leverage, which in turn signalled a higher risk of bankruptcy especially at times of crises.

The study examined how the returns of A-share companies listed on the Shanghai and Shenzhen stock exchanges varied with the growth rate of the number of confirmed COVID-19 cases.

Interestingly, when examining firms with strong fundamentals, they found that larger firms were only able to lessen the adverse impact of the pandemic if they adopted a geographically diversified strategy. Conversely, larger firms may be actually be more seriously exposed to the pandemic if they were geographically focused. Prof. Tsang added that while smaller firms, by definition, may find it difficult to expand their portfolio geographically, investors only viewed larger firms in a favourable light if these companies recognised the importance of geographical diversification.

To conclude, Prof. Tsang says with the pandemic creating an unprecedented crisis for the world and for global stock markets, it has become increasingly important that firms and policymakers better understand the factors that can allow markets and individual businesses alike to become more resilient to such shocks. “Overall, our results do much to validate what many would consider common sense but not all firms have actually been doing. Corporate diversification, in this case geographical diversification, could be especially useful in mitigating negative stock market reactions that firms experience during times of crises, such as during the pandemic, though its effect is not almighty when it comes to firms with weak fundamentals,” he says.

“However, for larger organisations, which typically have access to better resources and are considered to be usually better at absorbing losses when the going gets tough, we show that diversification could actually become more essential, as these firms are expected by the market to be more diversified and to have put fewer eggs in one basket.”

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