But connections with the wrong investors can inhibit a firm’s ability to innovate, according to new research by and , assistant professors of management at the 91̽�� Foster School of Business.

Their paper, “,” is in the October issue of the Academy of Management Journal.

In their study of medical device makers, Pahnke, Hallen and their co-authors document a siphoning of valuable information that can occur when firms are indirectly tied to a direct competitor via a shared venture capital investor.

Most vulnerable to this innovation-hindering leakage are firms whose investors are:

• geographically distant from them, because venture capitalists take a more active advising interest in nearby firms;
• less financially committed to them, because venture capitalists are more likely to share information with competitor firms in which they are more invested or reinvested; or
• new to their industry, because a venture capital firm is most likely to learn from its first investment and share it with subsequent investments in the same industry.

“Lacking power, status and resources,” Pahnke says, “entrepreneurial firms wield little sway over the relationships that their investors form with other firms and may have little control over what information gets shared.”

To understand the effect of entangled venture capital alliances on innovation, Pahnke and Hallen collaborated with Rory McDonald of Harvard Business School and Dan Wang of Columbia University to study 22 years of activity in the minimally invasive medical device industry. Integrating 30 distinct data sources, they compiled a full picture of the companies and their investors, and identified the instances in which venture capitalists invested in two firms in the same sub-segment of the industry.

This is not uncommon. Among venture capitalists in the medical device industry, the study revealed that 20 percent were invested in direct competitors at the same time.

These competing interests give rise to what the authors term “competitive information leakage.” This leakage impedes the firm’s ability to produce innovative products, as measured by FDA approval — a rigorous process that requires a device to improve upon existing devices in terms of patient outcomes. Just as good isn’t good enough.

“If someone gets a device approved ahead of you, it delays your own approval because you’re going to have to invent around them,” Pahnke says.

She adds that the sharing of information by investors from one firm to another is rarely done intentionally, or even consciously.

A venture capitalist’s first investment in an industry may encounter problems they’ve never seen before — a regulatory hitch or engineering problem, for instance,” Pahnke says. “So when another of their investments encounters a similar problem, they can offer advice on the solution. It’s not that they are deliberately leaking secrets. They may not even consciously realize that the solution came from an interaction with another one of their investments.”

So what is an entrepreneur to do? The study identifies instances in which a venture capitalist-funded firm is more or less vulnerable to competitive information leakage.

Less vulnerable are firms that are located near their shared investor, that are not their investor’s first in a given industry, and that have seen sustained interest from that same venture capitalist.

More vulnerable are firms that are their shared investor’s first in an industry and that are geographically distant from their investor.

High-status venture capitalists, who have more connections, tend to have a greater sharing problem. “Later investees glean wisdom from earlier ones,” Pahnke notes. “You want an investor who knows your market, but you don’t necessarily want them to learn the market from you.”

The message to entrepreneurs: Be cautious.

“If you were forming a direct relationship with a competitor — some kind of alliance — you’d be very careful about what you told them,” says Pahnke. “But when you’re forming a relationship with a venture capitalist, you have to be very open about everything. You don’t have control of what goes to your competitor and how.”

Still, capable entrepreneurs with marketable businesses should be able to navigate the pitfalls of competitive information leakage.

“The hope with this paper is not to make entrepreneurs view their relationships with venture capitalists as adversarial, but rather urge them to consider the risks as well as the benefits,” Pahnke says.

“Raising venture capital is hard, and entrepreneurs rightly get really excited about it. But good entrepreneurs have multiple options for investors and should be very thoughtful about which investors they take on.”

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For more information, contact Pahnke at 206-616-7725 or eacox@uw.edu; or Hallen at 360-830-8137 or bhallen@uw.edu.

Research from the 91̽�� finds that the single-mindedness that results from a state of hunger makes people more likely to commit unethical acts that would satisfy that hunger — but less likely to lie, cheat or steal for reasons that don’t address the immediate physiological need.

“We confirm that physiologically deprived people do engage in unethical behavior related to obtaining physiological satiation,” said co-author Kai Chi “Sam” Yam, a recent doctoral student at the Foster School who is now an assistant professor of management at the National University of Singapore. “But we also find that hungry and thirsty people engage in less physiologically-unrelated unethical behavior.”

The study, titled “,” has been published in the journal Organizational Behavior and Human Decision Processes.

The research also indicates that a strong and clearly communicated ethical culture can minimize the risk of unethical acts — even in the service of an immediate bodily need for food or drink.

The prevailing theory in psychology is that physiological deprivation depletes willpower, leading to increased unethical behavior for all manner of reasons.

But Yam and co-author , a professor of management at the Foster School, shared a question about this conventional wisdom.

“Much of the literature takes the assumption that only our willpower keeps us from doing bad. Deplete it and our baser instincts take over,” Reynolds said. “But we wanted to know if maybe depleting willpower might send people in the opposite direction.”

To find out, Yam, Reynolds and Jacob Hirsh at the University of Toronto designed five studies. In the first few, they administered a simple ethical test to students going in and coming out of a university cafeteria. The idea was to compare the behaviors of those who were physiologically depleted — hungry — versus those who were physiologically satiated — full. Participants were asked to self-report their performance on a set of impossible math problems, and were offered a reward of either snack food or office swag for every “correct” answer they claimed to have provided.

“Generally speaking, those in a depleted state of willpower — in our study, headed into the cafeteria — would lie for the chips, but not for the notebooks,” Reynolds said.

Subsequent studies extended the examination of physiological deprivation to thirst, with similar results.

What’s happening here? A measure of single-mindedness indicated that the hungry and thirsty study participants could think of little else but finding food or drink. This laser focus drove their actions.

“When we are hungry, we’re activating the system in our brain that focuses our attention on achieving goals,” Reynolds explained. “Hunger is going to make us very focused on achieving the goal of getting food. And so that’s what drives our behavior. And if our attention is directed toward getting food, then it’s not going to be attracted to all the other kinds of temptations that might be out there.”

Organizations around the globe have cause for concern regarding the ethical actions of their employees — whether they work in an assembly plant in Shenzhen or a high-rise office suite in Manhattan.

Physiological deprivation of all kinds — hunger, thirst and fatigue — can be difficult to prevent systematically. But it shouldn’t be encouraged, Reynolds said.

“There are some organizations that subscribe to the notion that you can’t be a good employee if you’re not a tired employee, or haven’t skipped a meal today for work,” he said. “We get the sense, intuitively, that maybe that’s not so wise. But now we actually have some evidence that shows it’s not wise. Good employees are well-rested and take care of their basic body needs so they can concentrate on things that really matter.”

Reynolds added one other bit of wisdom from this and other research: Culture can influence ethical behavior for good or ill. One of the study conditions was awareness of rules and guidelines. When undergraduate participants were reminded of the university honor code, for example, they were less willing to bend the rules — even when the reward for doing so would satisfy an intense hunger or thirst.

“It’s important to remind leaders that organizations can take steps to get people to behave better at work,” Reynolds said. “And when your employees might be physiologically depleted in one or more ways, even subtle reminders of a strong ethical culture can help them resist temptation.”

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For more information, contact Reynolds at 206-543-4452 or heyscott@uw.edu.

But gratitude can have a dark side; it can impel us to eat more sweets, according to new research by , professor of marketing at the 91̽�� .

A research by Schlosser has been accepted by the Journal of Consumer Psychology. Its title is “.”

“Gratitude has sweet side effects,” Schlosser said. “This study finds evidence that feeling grateful for the helpful — or metaphorically ‘sweet’ — actions of others increases preference for and consumption of sweets.”

And the more we feel connected to others, the more tempted we are to indulge in sweet things when we’re in a state of appreciation.

Around the world, people use flavor classifications as easy metaphors for emotions. While salty, sour and bitter often evoke more negative connotations, sweet is almost universally associated with benefiting from the positive actions of another. Empathy. Generosity. Kindness.

But beyond the metaphorical connection, is there an actual connection between kindness and sweetness?

To find out, Schlosser designed a series of studies triggering feelings of gratitude and other emotions in participants, then measured their tendencies to select and consume sweet or savory indulgences, or nothing at all. Through different variations on this simple design, she found that gratitude elevates one’s preference for sweets.

It does not, however, increase consumption of other kinds of foods. In fact, gratitude actually decreased preference for sour, salty or bitter foods.

“Because gratitude involves acknowledging benefits received from the kind — or metaphorically sweet — actions of another, individuals may infer that they must be deserving of sweetness,” Schlosser said. “As a result, they prefer foods with a congruent sweet taste.”

The study also demonstrates that the positive feeling of pride does not yield the same yearning for sweets as gratitude does because it does not carry the same “sweet” associations.

Another finding of the study is that the effect of gratitude on sweet preferences is strongest for those who feel connected to others. When feeling psychologically separate, Schlosser said, people value independence and tend to view others individually. When feeling psychologically connected, people see more similarities between themselves and others and view people more interdependently.

“Psychologically-connected individuals are typically more accepting of help and more likely to see themselves as playing a role in the kind act,” Schlosser said. “When they feel gratitude, they feel like they deserve this kind act, this sweetness. Psychologically-separate individuals don’t make as strong a gratitude connection.”

The  have been well documented recently. Sugar is considered addictive, and its overconsumption contributes to obesity, high blood pressure, high cholesterol and a litany of other diseases and disorders.

“Increased sugar consumption causes many serious health consequences,” Schlosser said. “And prior research tells us that people are largely unaware of the factors that drive their consumption.”

Schlosser, an Evert McCabe Faculty Fellow in the Foster School, noted that holidays can be times of temptation for overdoing it on sweets, in part because they are both occasions for gratitude and times when people feel connected to others.

“These are times when gratitude is being expressed and we’re likely to be with a group and feeling especially interdependent,” Schlosser said. “Being conscious of how these occasions might make you more likely to overconsume — especially sweet foods — can help you resist at least some of the temptation.”

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For more information, contact Schlosser at 206-685-7497 or aschloss@uw.edu.

So states new research on the social media multiplier of product recalls by , an assistant professor of marketing at the 91̽��’s .

His paper with co-author Gerard Tellis of the University of Southern California is titled “Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?” It has been accepted for publication in the Journal of Marketing Research.

Borah’s study of the automotive industry reveals that product recalls provoke a sharp increase in negative chatter on social media sites. This online trash talk amplifies the damage, slashing sales and the — or total market value of unpurchased shares — of the recalling company.

But the damage doesn’t end there. Innocent firms often face a similar fate when they get caught in a “perverse halo” of negativity created by a domestic competitor’s recall.

“Bad news travels fast on social media,” Borah said. “Our study demonstrates that a recall event increases negative chatter that can have damaging effects on the sales and stock market performance of rivals.”

The auto industry is rampant with recalls. In 2014 alone,  in the United States were ordered back to the dealership to repair defects. This, plus a proliferation of dedicated online discussion, blog and review sites — such as �����Ի��� — makes cars the perfect context for studying the relationship between social media and recall events.

For the study, Borah and Tellis considered four automobile manufacturers: Japanese firms Toyota, Honda and Nissan, and American firm Chrysler. They tracked multiple models within each automotive brand.

The authors analyzed the daily traffic, topic and tone on more than 1,000 automotive social media sites following recall announcements during an 18-month period. Using sentiment analysis or techniques — computer programs that evaluate public feelings about a product by reading social media — they found a sharp increase in negative chatter following a recall.

As might be expected, the negative chatter extended to other models of the same car brand — that is, a Toyota Corolla recall incited worries about Tacoma, Prius and RAV4, which are distinctly different classes of Toyota vehicles.

But they also found that a Toyota recall sparked negative chatter about competing manufacturers Honda and Nissan — brands whose cars had a clean bill of health. Such negative talk, the authors found, can increase damage to the bottom line even of domestic rivals.

Borah and Tellis call this phenomenon a “perverse halo,” or a perception that others share the problem of the product being recalled.

To assess the impact on company stock price, they aggregated car models — also called “nameplates” — across each brand and found that the online chatter sparked by a rival’s recall erased $7.3 million, on average, from an innocent firm’s market cap over six days.

To assess the impact on sales, they compared monthly figures of each brand’s most similar models — Toyota Corolla versus Honda Civic versus Nissan Sentra, for instance. What they found was that the negative online buzz about both the brand issuing the recall and its nearest rival multiplied the negative effect on sales of the “innocent” rival brand.

“If a Honda nameplate has an issue, the resulting chatter will cause Toyota’s closest car sales to go down, too,” Borah said.

He added that the perverse halo effect appears to act differently depending on how much the product dominates the market. That is, a recall a recall for a top seller like Toyota Corolla will have a greater negative impact on the smaller-market Nissan Sentra. Conversely, a Sentra recall will leave less of a dent on top-dog Corolla.

Curiously, Borah and Tellis found that the perverse halo has an inverse effect on car companies identified with different nations of origin. A recall of a Toyota car — recognized as a Japanese brand — resulted in a decrease in negative chatter about Chrysler cars, understood to be an American brand.

The result? A Toyota recall increases Chrysler sales and market cap, at least temporarily.

“A brand like Chrysler should be cashing in when a competitor from another country has a recall event,” Borah said.

Recalls are a growing phenomenon in a modern marketplace that’s seeing more defective food, drugs, toys and electronics than ever before.

Borah said that firms should be as concerned about their rivals’ recalls as they are about their own — especially rival firms of similar size and from the same nation or origin.

Borah advised that the recalling firm can mitigate the damage of a recall by quickly providing pertinent information to social media.

“During crisis situations, it is imperative for firms to communicate with consumers in the right way,” he said. “They can relay information about the recall, post a comprehensive set of FAQs to allay concerns, ensure that searches for information are directed to a dedicated recall microsite, and know the hashtags and keywords being used to discuss recalls so they can engage in two-sided dialogue to address specific concerns.”

What firms should not do, the authors say, is broadcast a public apology.

“We find that apology advertising has harmful effects on both the recalled brand and its rivals,” Borah said. “In general, such ads backfire because they increase attention to and elaboration about the crisis.”

His advice for firms caught up in a domestic rival’s perverse halo? Sit tight. Keep quiet. Wait it out. And try to differentiate your company from competitors so that the next time, you don’t get associated with another brand’s recall.

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For more information, contact Kromer at 206 685-2933 or ; or Andrew Krueger, Foster School director of alumni and media relations, at 206 543-1806 or .