This month’s round-up of research from INSEAD faculty explores the unintended consequences of regulatory leniency, the impact of buyer-supplier relationships on innovation, how the labour market can influence employee performance and ways to optimise sample size in marketing research.

Carrot or stick? The impact of regulatory leniency on disclosure compliance

Can an amnesty-style approach to enforcement backfire? New research by Delphine Samuels and her co-authors* on the US Securities and Exchange Commission’s 2014 Municipalities Continuing Disclosure Cooperation (MCDC) Initiative suggests that it can. The initiative was designed to offer more lenient settlements to municipal bond issuers and underwriters who voluntarily disclosed past SEC disclosure violations. 

However, the authors show that following the MCDC, although underwriters’ statements contained fewer false claims about past compliance, issuers’ compliance with continuing disclosure requirements deteriorated. The evidence suggests that this “carrot” approach may have undermined continuing disclosure by exposing how limited rule enforcement really was.

*Marc G. Maffett, University of Miami, and Frank S. Zhou, University of Pennsylvania.

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How supplier independence impacts product innovation

Firms often turn to their suppliers to generate new product ideas, procurement contests to spur innovation. But a study by Jürgen Mihm and his co-authors* shows that these contests may not deliver the intended results when one of the suppliers is affiliated with or even owned by the firm.

Challenging the assumption that suppliers compete on equal footing, the study finds that the presence of an affiliated supplier can dampen innovation across the entire supplier base. This happens when independent suppliers scale back their efforts believing the affiliated supplier has the advantage, while the affiliated supplier may not be sufficiently incentivised to innovate. The study thus suggests that maintaining supplier independence is needed to boost innovation and profits through procurement contests.

*Zhi Chen, National University of Singapore, and Jochen Schlapp, Frankfurt School of Business & Management.

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How competitive labour markets shape worker performance

Competition in the external labour market can be more effective than formal pay structures in incentivising worker performance, according to research by Gavin Cassar and Brian D. Cadman from the University of Utah. When employees face real-world consequences for success or failure – in the form of better or worse job prospects elsewhere – these external pressures can outweigh compensation. 

The findings, based on studying head football coaches under the National Collegiate Athletic Association, show that explicit incentives (compensation) increase as implicit incentives (competition) from outside opportunities weaken. If a competitive labour market can incentivise employee effort through career opportunities, employers should carefully balance compensation schemes with external market pressures when designing incentive contracts.

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How big is big enough? Optimal sample size in training targeted marketing models

Companies developing targeted marketing policies must train and validate targeting models, sometimes through experiments. But determining how much training data is needed for statistically significant results is complex. 

New research by Spyros I. Zoumpoulis and his co-authors* proposes algorithms for calculating optimal sample sizes, both to train a targeting model and to demonstrate its effectiveness. Their finding, based on data from a luxury fashion retailer, advances marketers’ ability to design experiments that deliver effective consumer-targeting strategies.

*Duncan Simester, MIT and Artem Timoshenko, Kellogg School of Management.

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