Aggregate investment in cash and liquid assets as a share of total corporate investment is negatively related to subsequent U.S. stock market returns between 1947 and 2003. The share of cash in total investment is a more stable predictor of returns than scaled price variables and performs well in out-of-sample predictability tests. Cash investment is a stronger predictor of market returns in years in which external predictability tests. Cash investment is a stronger predictor of market returns in years in which external financing is also high. The results support a theory in which firms in the aggregate actively time security issuance relative to investment needs, taking advantage of a time varying cost of capital.
60 pages

I present evidence of inefficient information processing in equity markets by documenting that biases in analysts' earnings forecasts are reflected in stock prices. In particular, I show that investors fail to fully account for optimistic bias associated with analyst disagreement. This bias arises for two reasons. First, analysts issue more optimistic forecasts when earnings are uncertain. Second, analysts with sufficiently low earnings expectations who choose to keep quiet introduce an optimistic bias in the mean reported forecast that is increasing in the underlying disagreement. Indicators of the missing negative opinions predict earnings surprises and stock returns. By selling stocks with high analyst disagreement institutions exert correcting pressure on prices.
48 pages

This paper examines asset fire sales, and institutional price pressure more generally, in equity markets, using market prices of mutual fund transactions caused by capital flows from 1980 to 2003. Funds experiencing large outflows (inflows) tend to decrease (increase) existing positions, which creates price pressure in the securities held in common by these funds. Forced transactions represent a significant cost of financial distress for mutual funds. We find that investors who trade against constrained mutual funds earn highly significant returns for providing liquidity when few others are willing or able. In addition, future flow-driven transactions are predictable, creating an incentive to front-run the anticipated forced trades by funds experiencing extreme capital flows.
43 pages

No abstract.
44 pages

No abstract.
34 pages

We argue that the field of International Business should evolve its rhetoric from the relatively uncontroversial idea that "history matters" to exploring how it matters. There are three conceptual reasons for doing so. First, historical variation is at least as good as contemporary cross-sectional variation in illuminating conceptual issues. As an example, we show that conclusions reached by the literature on contemporary emerging market business groups are remarkably similar to independently reached conclusions about a very similar organizational form that was ubiquitous in the age of empire. Second, history can allow us to move beyond the oft-recognized importance of issues of path-dependence to explore the roots of Penrosian resources. Third, there are certain issues that are un-addressable, except in the really long (that is, historical) run. Exploring the causal relationship (if any) between foreign direct investment, a staple of the International Business literature, and long-run economic development provides one important example.
26 pages

This paper examines the portability of star security analysts' performance. Star analysts who switch employers show an immediate decline in performance, which persists for at least five years. This decline in performance is most pronounced for star analysts who move to lower-rated firms (downward movement) and star analysts who move without other members of their team (solo). Star analysts who move between two similar firms (lateral movement) also exhibit a drop in their performance but only for two years. Stars who switch to higher-rated firms (upward movement) and stars who change firms with their team members show no significant decline in short-term or long-term performance. These findings suggest the value of firm-specific and team-specific skills, as well as the impact of firms' capabilities on star analysts' performance. In fact, if skill specificity exists for one of the most likely professions to qualify for the free agent status (star security analysts), then it is likely to be present for many others. Moreover, hiring of star analysts is seen by the stock market as value-destroying for the hiring firms. Particularly, downward movement of star analysts generates a more severe negative stock market reaction than lateral or upward movement of star analysts.
51 pages

We describe the patterns of international capital flows in the period 1970-2000. We then examine the determinants of capital flows and capital flows volatility during this period. We find that institutional quality, such as legal origin of country, have a direct effect on today's foreign investment. Policy plays a significant role in explaining the increase in the level of capital flows over time and their volatility. JEL Classifications: F21, F41, O1 Key words: capital flows, determinants, volatility, fiscal policy, capital controls, institutions
81 pages

We examine one of the channels through which financial integration can help promote growth. In particular, we study the effects of capital account liberalization on the imports of capital goods. We pay particular attention to the effects of equity market liberalization. We find that for the period 1980-1997, after controlling for trade liberalization and other macroeconomic reforms and policies, stock market liberalization leads to a substantial increase in the share of imports of capital goods. Our results suggest that with the increased access to international capital firms noticeably increase their spending on imports of machinery and equipment. Thus, this paper provides evidence that access to international capital allows countries to enjoy the benefits embodied in international capital goods. JEL Classification: E22, F15, F21, F40, G15 Key words: capital account liberalization, stock market liberalization, trade liberalization, capital goods, equipment imports, international technology diffusion.
46 pages

At its core, sustainable development requires a change in the way we think as individuals, as organizations and as a society. Yet, what is well understood within the organizational literature is that such changes are difficult and are usually met with resistance. Sustainability is no exception; executives and organizations have been slow to adopt wise practices. In this chapter, we offer insight from both behavioral decision research and organizational theory to explain barriers to change. We identify specific obstacles to the implementation of sustainability initiatives, suggest means of surmounting them and offer direction for diffusing wise practices at a faster rate.
35 pages

In this article, I analyze climate change as a "predictable surprise": an event that leads an organization or nation to react with surprise, despite the fact that the information necessary to anticipate the event and its consequences was available (Bazerman and Watkins, 2004). I then assess the cognitive, organizational, and political reasons why society fails to implement wise strategies to prevent predictable surprises generally and climate change specifically. Finally, I conclude with a call to action and outline a set of response strategies to overcome barriers to change.
28 pages

Authors propose two categories of situational moderators of gender in negotiation: situational ambiguity and gender triggers. Reducing the degree of situational ambiguity constrains the influence of gender on negotiation. Gender triggers prompt divergent behavioral responses as a function of gender. Field and lab studies (1 and 2) demonstrate that decreased ambiguity in the economic structure of a negotiation (structural ambiguity) reduces gender effects on negotiation performance. Study 3 shows representation role (negotiating for self or other) functions as a gender trigger by producing a greater effect on female than male negotiation performance. Study 4 shows decreased structural ambiguity constrains gender effects of representation role, suggesting situational ambiguity and gender triggers work in interaction to moderate gender effects on negotiation performance.
64 pages

A major challenge facing business leaders is how to enhance the effectiveness of their social responsibility initiatives while at the same substantially improving overall organizational performance. This will not occur by tinkering with existing activities: it requires a fundamental transformation in the way they do business. It entails identifying new opportunities and creating new strategies, services, organizational structures, and management processes to pursue them. It is more powerful to envision this challenge as an entrepreneurial undertaking. To shape our collective understanding of what this implies, we suggest developing the concept of Corporate Social Entrepreneurship (CSE), which is a process for creating much more advanced and powerful forms of CSR.
12 pages

Individuals working in groups often egocentrically believe they have contributed more of the total work than is logically possible. Actively considering others� contributions effectively reduces these egocentric assessments, but this research suggests that undoing egocentric biases in groups may have some unexpected costs. Four experiments demonstrate that members who contributed much are actually less satisfied and less interested in future collaborations after considering others' contributions, compared to those who contributed little. This was especially true in cooperative groups. Egocentric biases in responsibility allocation can create conflict, but this research suggests that undoing them can have some unfortunate consequences. Some members who look beyond their own perspective may not like what they see.
62 pages

Organizations often fail at strategy execution. Various sources have reported implementation failure rates at between 60 and 90 percent. A Bain Consulting study of large companies in eight industrialized countries found that seven out of eight companies failed to achieve profitable growth between 1988-1998, defined, rather modestly, at 5.5% annual real growth in revenues and earnings, with returns that exceeded their cost of capital. Interestingly, 90% of companies in the Bain study had strategic plans with targets exceeding these growth targets; few achieved them.1

For the past 15 years, we have studied companies that achieved performance breakthroughs by placing the Balanced Scorecard as the centerpiece of a new strategy management system. The successful companies align their key management processes for effective strategy execution. Many of these companies have now sustained their focus on strategy execution by establishing a new corporate-level unit, an Office of Strategy Management (OSM). Not all organizations, however, have understood the need for a corporate-level office to align existing management processes to strategy. Companies, after developing Balanced Scorecards, often make a major error by continuing to plan, allocate resources, budget, report, communicate, and review performance as they had in the past.

[1] Chris Zook, with James Allen, Profit from the Core (Boston, MA: Harvard Business School Press, 2001).

21 pages

In the presence of limits to arbitrage, cross-sectional variation in periodic investor demand should be related to the degree of comovement of returns. I exploit the unusual weighting system of the Nikkei 225 index in Japan to identify cross-sectional variation in periodic demand for index stocks. Relative to their weights in a value weighted index, some stocks in the Nikkei are overweighted by a factor of ten or more. Using overweighting as an instrument for the proportionality between demand shocks for index stocks, I find a strong positive relation between overweighting and the comovement of a stock with other stocks in the index, and a negative relationship between index overweighting and comovement with stocks outside of the index. Put simply, overweighted stocks have high betas. The results suggest that excess comovement of stock returns is a consequence of an institutionalized commonality in trading behavior, rather than inefficiencies related to the speed at which index stocks incorporate economy-wide information.
49 pages

Starting from the assumption that good theories are of practical value, this paper offers an account of what theory-building research is and how it is done. Rather than arguing on one side of a debate about deductive vs. inductive or qualitative vs. quantitative, this paper describes the cycle through which theory-building research continually passes. We argue that the cycle passes through three stages: description, categorization and causality. When new descriptions reveal anomalies the cycle is repeated and current theory can be potentially altered. By building a common understanding of the theory building process, we hope this will help avoid many of the debates that sidetrack our "collective" research efforts and identify potential changes in how we design research programs, evaluate each others' work and teach the craft of scholarship to our students.
28 pages

No abstract.
13 pages

This paper examines how changes in the business context and production technologies involved in an innovation process change the way the process is structured. We propose a simple model that relates (1) the demand for novelty in a product and (2) the underlying cost structure of production tasks, to (3) the process structure. To provide context for the model, we focus on questions implicit in debates among software developers about process structure. The model specifics conditions in which developers should use particular development process structures; our conclusions suggest that both sides in current software development "methodology debates" may be correct, depending on the environments they work in. We frame out arguments within a discussion of how productive activities have changed historically, and we derive explanations that apply to productive activities beyond software development. Framed within a historical context, our model suggests that the emergence of "agile" software development may signify a transformation in the nature of many other kinds works as well.
33 pages

Keywords: Mentoring, Developmental Networks, Professional Identity, Longitudinal Study, Career development, Careers

Purpose: This paper examines the relationship between individuals' developmental mentoring networks and a subjective career outcome, clarity of professional identity. We explore (1) whether developmental networks change over time, and if so, how, and (2) how developmental network characteristics are related to professional identity over time.

Design/methodology/approach: This is a three-wave, longitudinal survey study, covering a span of 5 years (1996-2001). The participants (n=136), who were full-time MBA students at the inception of the study, provided complete developmental network data on each of the three surveys. We leveraged our unique longitudinal data using two analytical methods, individual growth modeling and multiple regression models.

Findings: Developmental networks change over time. Further, developmental network density, which reflects the professional identity exploration process, is negatively related to clarity of professional identity.

Research limitations/implications: The study is limited by our use of graduating MBA students from a single, top-20 business school as participants.

Practical implications: Our findings suggest that people might be able to improve their careers through making changes in their developmental networks, particularly during the early years of their careers.

Originality/value: This paper provides novel insights to the mentoring, identity, and careers literatures, as well as applying an underutilized statistical technique, individual growth modeling. Given the previously uncharted territory of understanding the dynamics of developmental networks and its relationship to career outcomes, our study opens up avenues for future research, while also answering questions about developmental networks and the ways they change with time.
38 pages

This paper examines the empirical question of whether systematic equity risk of U.S. firms as measured by beta from the Capital Asset Pricing Model reflects the risk of their pension plans. There are a number of reasons to suspect that it might not. Chief among them is the opaque set of accounting rules used to report pension assets, liabilities, and expenses. Pension plan assets and liabilities are off-balance sheet, and are often viewed as segregated from the rest of the firm, with its own trustees. Pension accounting rules are complicated. Furthermore, the role of Pension Benefit Guaranty Corporation further clouds the real relation between pension plan risk and firm equity risk.

The empirical findings in this paper are consistent with the hypothesis that equity risk does reflect the risk of the firm's pension plan despite arcane accounting rules for pensions. This finding is consistent with informational efficiency of the capital markets. It also has implications for corporate finance practice in the determination of the cost of capital for capital budgeting. Standard procedure uses de-leveraged equity return betas to infer the cost of capital for operating assets. They do not adjust the estimated beta for the risk of non-operating assets such as pension plan assets and for off-balance sheet risks such as pension plan liabilities. Failure to make this adjustment will typically bias upwards estimates of the discount rate for capital budgeting. The magnitude of the bias is shown here to be large for a number of well-known U.S. companies. This bias can result in positive net-present-value projects being rejected. JEL Classification: G14; G23; G31 Keywords: Defined Benefit Pension Plan, Market Efficiency, Cost of Capital, Capital Budgeting
39 pages

R&D performance volatility plays a critical role in various industries. Prior work in the innovation and product development literature has examined the factors influencing various dimensions of R&D performance. However, still little is known about the volatility of R&D output over time at the firm level. In this paper, we use a simulation model to explore such phenomenon, with a specific focus on the pharmaceutical industry. We argue that the fluctuations in R&D performance over time, while rooted in the uncertainty characterizing the development process, can be exacerbated by the heuristics decision makers use in managing the firm�s R&D project portfolio. In particular, we focus on the impact on volatility of two types of heuristics: resource allocation and project termination strategies. Implications for both research and management practice are discussed.
32 pages

When facing a decision, people often ask others for advice. Whether people use advice in a way that is helpful to them is not well understood. How do people evaluate the usefulness of the advice they receive? Drawing on aspects of behavioral decision theory, this paper argues that the cost of advice, independent of its quality, will affect how it is used. Two experiments were conducted. In both studies, participants were asked to answer different sets of questions about American history. Before they answered some of the questions, I made available advice on the correct answers. In the first study, participants had the opportunity to choose whether to get this advice for free or to pay a certain amount of money for it. In the second study, participants received either free or costly advice by default. The results show that participants used costly advice significantly more than they used free advice.
35 pages

For over three decades, the benefits of operational focus have been touted under the guiding principle that dedicated attention to a subset of linked tasks will improve performance. The empirical evidence on the benefits of focus, however, is mixed. We explore the effect of operational focus by studying the investigative sites in biopharmaceutical clinical trials. Within a given trial, multiple investigative sites recruit eligible volunteers, enroll them into a common clinical protocol, and process them according to the same quality specifications. Because these sites vary substantially in their organizational structure, this setting allows us to examine whether focus is associated with increased operational structure, this setting allows us to examine whether focus is associated with increased operational performance, as measured by patient enrollment across a given trial. After controlling for selection, scale, and learning effects, we find that sites that focus on performing clinical trials significantly outperform those that mix trial activity with the provision of traditional patient care. Diversified sites that separate clinical trial activity and traditional patient care through a "plant-within-a-plant" structure achieve performance that is statistically equivalent to that of a fully focused site dedicated solely to clinical trials. Finally, we find that sites characterized by focus only at a level of front-line production workers experience similar benefits to those characterized by focus only at the level of management.
38 pages

Although the management literature often treats custom and standard processes as separate, service managers must often provide both within the same operating system, dynamically combining the two types of service process. The challenge this poses is particularly evident in health care, once resolutely customized and now an uncomfortable mix of custom and standard. Using examples drawn from healthcare delivery, this paper proposes four operational strategies for combining custom and standard processes. Sorting strategies group customers into those whose needs can be met with pure a custom or standard process and combining strategies mix the two process types. The choice of operating strategy depends on the characteristics of both the customer's needs and the service processes. Mismatch between these characteristics and the operating strategy chosen is discussed. Keywords: Service operations management, Healthcare services, Custom and standard processes
30 pages

Economics is the social science that dominates public policy debate and formulation. Economic assumptions lay the foundation for policy initiatives and economic principles provide the framework for design of regulations that govern our society. We argue that other social sciences, and in particular psychology, have a great deal to offer, and that our failure to incorporate the lessons from other social sciences leads to inferior public policy. The chapter outlines five predominant myths, adapted from pervasive economic assumptions, which serve as guiding policy principles and destroy value in society. We elaborate on the consequences of our over-reliance on these myths, and demonstrate how psychological lessons and insights might inform policy decisions.
28 pages

What is the effect of pre-release advertising on the demand for a product? And does the magnitude of that effect vary according to the quality of the good? We empirically examine these questions in the context of the motion picture industry. We make use of a unique, proprietary data set that covers weekly television advertising expenditures, weekly expectations of the market performance, and quality measures for a sample of nearly 300 movies. The focus on expectations creates a valuable advantage: our measure of expectations, which is derived from a stock market simulation, is an accurate predictor of sales; however, while sales data are only available after the product launch, we can observe the dynamic nature of expectations before the release, and relate those to dynamics in the advertising allocation process. We find that advertising affects the updating of market-wide expectations prior to release, and that this effect is stronger the higher the product quality. The latter suggests that advertising plays an informative--and not simply a persuasive--role.
36 pages

This article addresses the question of whether lump-sum bonuses motivate salespeople to work harder to attain incremental orders or whether they induce salespeople to play timing games (behaviors that increase incentive payments without providing incremental benefits to the firm) with their order submissions. We find that lump-sum bonuses primarily motivate salespeople to work harder, a result that is consistent with the widespread use of bonuses in practice, but that contradicts earlier empirical work in academics.
46 pages

As in many countries (Canada, France, Germany, Japan, Italy, Sweden), concentrated ownership has been a ubiquitous feature of the Indian private sector over the past seven decades. Yet, unlike in most countries, the identity of the primary families responsible for the concentrated ownership changes dramatically over time. The resulting turnover is perhaps even more than turnover in leading U.S. firms over the same time period. It does not appear that concentrated ownership in India is entirely associated with the ills that the literature has recently ascribed to it in emerging markets. If the concentrated owners are not exclusively, or even primarily, engaged in rent-seeking and entry-deterring behavior, concentrated ownership may not be inimical to competition. Indeed, as a response to competition, we argue that at least some Indian families have consistently tried to leverage internal markets for capital and talent inherent in business group structures to launch new ventures in environments where external factor markets are deficient. In the process they have either failed -- hence the turnover in identity -- or reinvented themselves. Thus concentrated ownership is a result, rather than a cause, of inefficiencies in markets. Even in the low capital-intensity, relatively unregulated setting of the Indian software industry, we find that concentrated ownership persists in a privately successful and socially useful way. Since this setting is the least hospitable to the existence of concentrated ownership, we interpret our findings as a lower bound on the persistence of concentrated ownership in the economy at large.
53 pages

This paper reports data from a study that seeks to characterize the differences in design structure between complex software products. We use Design Structure Matrices (DSMs) to map dependencies between the elements of a design and define metrics that allow us to compare the structures of different designs. We use these metrics to compare the architectures of two software products � the Linux operating system and the Mozilla web browser � that were developed via contrasting modes of organization: specifically, open source versus proprietary development. We then track the evolution of Mozilla, paying attention to a purposeful �re-design� effort undertaken with the intention of making the product more �modular.� We find significant differences in structure between Linux and the first version of Mozilla, suggesting that Linux had a more modular architecture. Yet we also find that the re-design of Mozilla resulted in an architecture that was significantly more modular than that of its predecessor, and indeed, than that of Linux. Our results, while exploratory, are consistent with a view that different modes of organization are associated with designs that possess different structures. However, they also suggest that purposeful managerial actions can have a significant impact in adapting a design�s structure. This latter result is important given recent moves to release proprietary software into the public domain. These moves are likely to fail unless the product possesses an �architecture for participation.�
39 pages

Members of dispersed work teams can span a number of geographical locations, individually or in subgroups. In fully dispersed teams, each member resides in a unique location, whereas partially dispersed teams are composed of some collocated and some distant members. Some configurations of partially dispersed teams may activate harmful geographical faultlines, diminishing trust and increasing conflict between subgroups in different locations. We drew upon the faultline concept from the diversity literature to conceptualize how member locations may be a source of geographic faultlines and how these faultlines impact team functioning. We advance hypotheses comparing three forms of configurational dispersion in six-person teams: (1) fully dispersed, (2) three collocated subgroups with two people each, and (3) two collocated subgroups of three people each. In a study of 45 groups consisting of graduate students from 14 different schools, the results supported our hypotheses. Differences in location appeared to be a source of geographic faultlines in dispersed teams. These faultlines were stronger when the team was divided into fewer, equally-sized, collocated subgroups and when these subgroups were homogeneous along dimensions other than location. The study suggests that geographic diversity, along with demographic diversity, is a salient feature of group composition and that geographic faultlines can impair group functioning.
49 pages

Based on a survey of empirical research on gender in organizations published over a 20-year period, this paper argues that cumulatively, studies of sex difference tend to neglect organizational features. Drawing on concepts from feminist theory, we outline how greater attention to the links among gender, identity, and power in organizations would enrich the field. We conclude with examples of research that has retained a focus on the individual while incorporating analysis of the impact of organizational factors.
46 pages

In this paper, we investigate the effectiveness of the firm's proactive management of consumer-to-consumer communication.  We are particularly interested in understanding how, if at all, the firm should go about effecting meaningful word-of-mouth.  To tackle this problem, we implemented a large-scale field-based quasi experiment in which a national firm created word of mouth through two (non-randomized) populations:  loyal customers and non-loyal customers.  We break our theoretical problem into two subproblems.  First, we ask, "What kind of WOM drives sales?"  Motivated by previous research, we hypothesize that the WOM that is most effective at driving sales occuring between acquaintances (not friends) and is created by non-legal customers, not loyals.  We find support for this.  This result is also noteworthy as it demonstrates the potential usefulness of exogenously created WOM.  Then, we ask, "Which agents are most effective at creating this kind of WOM?"  In particular, we are interested in evaluating the effectiveness of the commonly-used opinion leader designation.  While we find that for the agents that were very loyal to the product, opinion leadership was associated with the creation of more WOM, this was not the case for less loyal agents.  This finding may present a challenge for a firm attempting to design a WOM campaign.  In a final exploratory analysis, we suggest a measure of one's social network intensity as a predictor of effectiveness of non-loyals as potential buzz agents. Keywords:  Word of Mouth, Promotion, Advertising
30 pages

Firms can manipulate their stock price by restricting the tradable float. When risk averse investors have differences of opinion and are short-sale constrained, reductions in the float freeze out pessimistic investors, pushing up prices. When the float is released, prices fall. To formally test this idea, I examine a series of corporate events in Japan in which firms actively reduced their float between 0.1 and 99.9 percent for periods of one to three months. Consistent with the theory, (a) prices rise when the float is contracted and fall when the float is released, and (b) returns are cross-sectionally related to the reduction in float. Firms are more likely to issue equity or redeem convertible debt during the period when float is low, suggesting strong incentives for manipulation. More generally, the results may explain why several pricing anomalies are associated with low float.
56 pages

In 1997 Mexico allowed foreign banks unrestricted entry to the market. What impact did foreign mergers and acquisitions have on Mexico's banks? We find that all banks in Mexico have become increasingly risk averse, and that foreign banks are even more so. Foreign banks grant less credit, screen loans more intensively, and charge lower interest rate spreads. The cause is Mexico's weak contract rights environment. One would normally associate risk aversion with lower profits. We find, however, that foreign banks are more profitable than domestically owned banks because their market power allows them to charge higher service fees than domestic banks.
49 pages

In this chapter I analyze the evolution of the debate over capital controls within the International Monetary Fund (IMF, or the Fund), the organization whose near universal membership makes its codified rules the legal foundation of the international monetary system. Although the IMF's rules have, since 1944, obliged members to move toward current account convertibility, they have also reserved for members the right to control capital movements. The IMF's Articles of Agreement thus list among the organization's purposes the liberalization of trade, but not of capital. I show in this chapter, however, that the IMF began during the 1980s actively to promote capital account liberalization in the absence of any legal authority or mandate to do so. As one former IMF Executive Director (ED) observes, "Capital account liberalization had become an accepted part of our orthodoxy. It had for some time been Fund policy to promote capital account liberalization." Then, during the middle of the 1990s the Fund's management sought to amend the Articles to give the Fund jurisdiction over capital movements and to endow the organization with a new purpose: the liberalization of capital flows. In other words, an open capital account had emerged as a social norm for Fund members, and some sought to codify the norm, to make the movement toward an open capital account an obligation of membership. Managing Director Michel Camdessus recalled:

The idea first emerged at the end of the 1980s and the beginning of the 1990s with the sea changes of that time. It was a moment of the ascendance of some important ideas: globalization, democracy, and the market economy. It was time for us - without rushing - to accompany countries to full liberalization of capital. We would monitor the health of the bank systems and the stability of financial movements along the way. It was time to define the goal, even if it were to take us fifteen or twenty years. The IMF's role would be to help countries adapt to a new world. The natural consequence of this thinking was to change the Articles.  

The present research adapts analogical training to teach negotiators broad thought processes for creating value. Recently, specific analogical training, wherein negotiators draw analogies between different cases involving the same strategy, was shown to be effective for learning and transferring specific value-creating strategies. The current results suggest that such specific learning may have limited generalizability to other value-creating strategies. The current results suggest that such specific learning may have limited generalizability to other value-creating processes. Diverse analogical training, wherein negotiators compare several different value-creating strategies, was shown to be more effective for learning underlying value-creating principles. This method facilitated transfer to a very distinctive task and improved performance on a variety of value-creating strategies, including some never previously encountered. The improved performance was also accompanied by a deeper understanding of the potential to create value.
72 pages

There is a widespread belief that increases in the cross-border integration of markets are associated with increases in global concentration along various dimensions. This article reviews the available evidence and presents new data indicating that increasing global integration has not been accompanied by general increases in four types of global concentration measures: industry seller concentration, cross-industry superconcentration, national/regional hegemony, and geographic concentration. The article also discusses the possible causes and consequences of a systematic bias towards believing in increasing concentration, as well as some practical remedies.
40 pages

Group members often reason egocentrically, both when allocating responsibility for collective endeavors and when assessing the fairness of group outcomes. These self-centered judgments are reduced when participants consider their other group members individually or actively adopt their perspectives. However, reducing an egocentric focus through perspective taking may also invoke cynical theories about how others will behave, particularly in competitive contexts. Expecting more selfish behavior from other group members may result in more self-interested behavior from the perspective taker themselves. This suggests that one common approach to conflict resolution between and within groups can have unfortunate consequences on actual behavior.
40 pages

Shareholder delegation of the power to fire the CEO to the board of directors is central to corporate governance. While the board ideally acts as desired by shareholders, board entrenchment may insulate a poorly performing manager from shareholders agitating for her removal. The conventional �costly firing� model of managerial entrenchment views this protection from shareholders as purely negative. Yet recent anecdotal evidence on managerial turnover suggests an alternative view of entrenchment: If shareholders misattribute poor performance to the CEO rather than to circumstance, then insulating management from the whims of shareholders may lead to better firing decisions. We propose that entrenchment has an inherent trade-off. We present a model that directly incorporates both sides of this trade-off, and generates a set of empirical predictions that we explore using recently collected data on governance statutes and on the dismissals of CEOs of large U.S. corporations. Our results demonstrate that governance is a very important mediating factor in the relationship between performance and firing. Furthermore, we find support for the �misguided shareholder� view of entrenchment. Fundamentally this paper explores whether, in caving in to shareholder demands, boards act in the best interest of shareholders or simply respond to their whims: Do they do just do something, or do the right thing?
41 pages

No abstract.
36 pages

One of the most vexing challenges in the management of R&D concerns decisions whether to continue or halt development of a project. Such decisions must often be made in the face of significant uncertainty regarding the technical or commercial feasibility of projects and aggregate resource constraints. To reduce uncertainty, firms should exploit the information that becomes available in the development cycle. In this paper, we argue that in different R&D contexts there are significant differences in the timing with which information becomes available during the development cycle. In some contexts, information becomes available relatively quickly due to advanced prototyping and test technologies and the availability over the course of the development cycles. We use the term "information regime" to describe these different inter-temporal patterns of information availability over the course of the development cycle. Our thesis is that R&D performance is influenced by the match between risk management heuristics and the information regime in which the firms operates. We test this argument using a simulation model of the R&D process.
39 pages

This article identifies a property of several standard discrete-choice models that amounts to an implicit assumption about individual choice behavior. This property, which I call the Invariant Proportion of Substitution (IPS), implies that the proportion of growth in expected own-good choice that an individual consumer draws from a given competing alternative is the same no matter which own-good attribute is improved. The IPS and Independence from Irrelevant Alternatives (IIA) properties are similar. But models that relax IIA, such as generalized extreme value (GEV) and covariance probit models, do not necessarily also relax IPS. Some models that do relax IPS are discussed.
24 pages

We examine the impact of the 1993 Land Law of Vietnam which gave households the power to exchange, transfer, lease, inherit and mortgage their land-use rights. We use household surveys before and after the law was passed, together with the considerable variation across provinces in the speed of implementation of the reform to identify the impact of the law. We find that the additional land rights led to significant increases in the share of the law. We find that the additional land rights led to significant increases in the share of total area devoted to long-term crops and in labor devoted to non-farm activities. These changes appear to be driven by the increased security of tenure provided by the law, rather than by increased access to credit markets or greater land market participation. JEL Classification: Q15, Q12, O13.
45 pages

Individuals working in groups often reason egocentrically, believing they have contributed more work than is logically possible. Actively thinking about others� contributions effectively reduces these egocentric judgments, but this research suggests such perspective taking may contain hidden costs as well. In two experiments with journal authors and MBAs, leading participants to think about (or �unpack�) their collaborators as individuals reduced egocentric biases in responsibility allocation. However, unpacking other group members also decreased enjoyment and interest in continued collaboration among those who believed they contributed more than others, especially in cooperative groups (Study 3). Caution is therefore urged when attempting to reduce egocentric biases in groups. Members who look into the minds of their collaborators may not like what they see.
41 pages

Learning-curve research has found that rates of learning can vary across similar settings, such that cumulative experience is a necessary but insufficient predictor of learning-curve slope. One explanation for this finding is that how the learning process is managed affects rates of learning. We investigate an additional possibility. At any point in time, organizations can learn along multiple, potentially competing, performance dimensions. In particular, we suggest that organizations adopting a new technology or practice can "learn" on more than one dimension at the same time, such that more than one meaningful learning curve may exist for the same learning challenge. Thus, by arguing that effort invested in learning on one dimension may inhibit learning on another dimension, we propose a new explanation of learning-curve heterogeneity across organizations. Using a sample of sixteen academic and community hospitals adopting a new surgical technology, we demonstrate a tradeoff in organizational rates of learning on two dimensions: improving proficiency in an existing application use of the technology (efficiency) and applying the technology to novel and more challenging uses (application innovation). Our results provide support for our proposed explanation of learning-curve heterogeneity and suggest the salience of both rate and direction (i.e., dimension) in learning. We also find that the goal orientation of the organization influences the direction of learning (efficiency vs. application innovation).
35 pages

This paper compares economic outcomes across areas in India which were under direct British colonial rule with areas which were under indirect colonial rule. Controlling for selective annexation using a specific policy rule, I find that areas which experienced direct rule have significantly lower levels of access to schools, health centers and roads in the post-colonial period. I find evidence that the quality of governance in the colonial period has a significant persistent effect on post-colonial outcomes.
Keywords: colonial rule, development, public goods
JEL classification: O11, P16, N45
59 pages

This note attempts to provide a conceptual overview of macroeconomics.  Designed for managers and students of management, it emphasizes fundamental ideas and relationships, rather than mathematical models and formulas.  The note identifies -- and is structured around -- three essential pillars of macroeconomics: output, money, and expectations.
59 pages

In this article, I discuss three methods of decomposing the elasticity of own-good demand. One of the methods, the decision-based decomposition (Gupta, 1988), is useful in determining the influence of changes in consumers' decisions on the growth in owngood demand. The other two methods, the unit-based decomposition (van Heerde et al., 2003) and the share-based decomposition (Berndt et al., 1997), are useful in determining whether the growth in own-good demand has been stolen from competing goods. The objective of this article is to provide a clear and accurate method that attributes the growth in own-good demand to changes in: (1) consumers' decisions, (2) competitive demand, and (3) competitive market share. I will accomplish this by settling some confusion about what the decision- and share-based decompositions mean, by discussing how each of the decompositions relate to the others, and by discussing the research questions that each of the decompositions can answer.
38 pages

Mergers and acquisitions improve market efficiency by capturing synergies between firms. But takeovers also impose externalities (both positive and negative) on the remaining firms in the industry. This paper describes a new equilibrium concept designed to explain and predict mergers in this setting. We experimentally compare the new equilibrium concept to that of competing concepts in situations without and with externalities. Moreover, we examine the predicted dynamics of takeovers and outcome implications of those dynamics. Our experimental results support the predictions of the new equilibrium concept and provide implications for further empirical tests. JEL: G34, C9, C7   Keywords: Mergers, Acquisitions, Synergies, Externalities, Dynamics, Experiment, Bargaining
58 pages

The business of birth control is hardly ever a pretty one. For essentially, it is a business centered on a taboo; a business traditionally conducted under a cloak of both personal and commercial secrecy. Until the advent of the pill, indeed, the business of birth control was almost entirely clandestine, with �customers� rarely flaunting their purchases and sellers wary of trumpeting their wares. Yet it was nevertheless a business � a big business at times, and one that both affected and reflected the society in which it occurred. This essay traces the history of the contraceptive market from ancient Egyptian poultices to the modern pill. What emerges is a checkered past with strong, albeit complex, patterns. Specifically, we suggest that the business of birth control has been divided over time into two distinct strands, one composed of small and diffuse suppliers, the other of larger and more powerful industries. The composition of the industry strongly influences both the legitimacy and profitability of its products. Moreover, we demonstrate that business in this industry is not always a passive recipient of social norms. On the contrary, business frequently shapes the boundaries of acceptability, helping to distinguish � in its own interest � the line between illicit and legitimate trade.
43 pages

I suppose that people react with anger when others show themselves not to be minimally altruistic. I show that, with heterogeneous agents, this can account for the experimental results of ultimatum and dictator games. Moreover, it accounts for the surprisingly large fraction of individuals who offer an even split with parameter values that are more plausible than those that are required to explain outcomes in these experiments with the models of Levine (1998), Fehr and Schmidt (1999), Dickson (2000) and Bolton and Ockenfels (2000).
32 pages

This paper explores monarchies through a corporate branding lens. It is based on extensive field interviewing with individuals with knowledge and experience in what we (not they) term "managing the Crown as a brand," including senior members of the Swedish Royal Court and the Swedish Royal Family. It also draws from literature regarding monarchies across a range of disciplines beyond management; we found no previous brand-related literature on the topic.

The principal questions we examined were:

• What makes the Crown (monarchy) a brand (especially one similar to a corporate brand)?
• How has the positioning of the monarch and monarchy (the Crown) evolved over time in terms of relationships with the nation and the people?
• What are the essential attributes of the Crown as a brand-what we term the "royal 5R's"?
• What are the core values and the brand promise of a monarchy, its covenant with its people?
• What roles can communications play in supporting/defending the Crown?
• How are concepts from branding employed to build and protect the Crown?
• How does and should a monarchy judge "How are we doing?"
• What can threaten a monarchy as a brand?
• What conclusions emerge from the above regarding understanding and managing monarchies as brands?

• A monarchy's strength rests significantly in its symbolic nature and its use of symbols.
• The monarchy as an entity transcends the reigning monarch as a "brand-rooted institution."
• A constitutional monarchy depends upon its people's and parliament's approval and willingness to support it. These are the primary criteria for assessing the performance of individual monarchies.
• The Crown can be threatened by reputational trouble leading to erosion of public approval and support for the institution, as is the case for corporate and nonprofit brands.
• Managing a modern monarchy's "brand image" requires balancing responsiveness to high media interest and the need to maintain respect and relevance in a time when the public seeks a less remote monarchy.
• "Managed visibility" on behalf of the Crown is done without traditional corporate advertising and public relations; however, proactive management of its identity and image can reduce the risk of reputational erosion.
• There is a key difference between branding on behalf of monarchies compared to companies. Companies try to employ branding concepts to leverage their brands in order to improve their financial balance sheets and shareholder value. In contrast, we think a monarchy typically can be seen as trying to employ them to enhance the country's social balance sheet and core values.

The motion picture industry provides a fruitful research domain for scholars in marketing and other disciplines, The industry has a high economic importance and is appealing to researchers because it offers both rich data that cover the entire product lifecycle for a large number of new products and because it provides many unsolved 'puzzles.' Despite the fact that the amount of scholarly research in this area is rapidly growing, its impact on practice has not been as significant as in other industries (e.g., consumer packaged goods). In this article, we discuss critical practical issues for the motion picture industry, review existing knowledge on those issues, and outline promising research directions. Our review is organized around the three key stages in the value chain for theatrical motion pictures: production, distribution, and exhibition. We discuss various conjectures, framed as research challenges or specific research hypotheses, related to each stage in the value chain, followed by a set of specific research avenues for each of those stages. We focus on what we believe are critical managerial issues. Keywords: Motion Picture Industry, Entertainment Industry, Review, Research and Models
56 pages

There are different arguments in favor and against nominal and indexed debt which broadly include the incentive to default through inflation versus hedging against unforeseen shocks. We model these arguments and calibrate the model to assess the quantitative importance of each. We use a dynamic equilibrium model with tax distortion, government outlays, uncertainty, and contingent debt service, which we take to mean nominal debt. In the model, the benefits of defaulting through inflation are tempered by higher future interest rates. We obtain that calibrated costs from contingent inflation more than offset the benefits for any amount of nominal debt. We further discuss sustainability of nominal debt in volatile (developing) countries. JEL classification: E6, E62, F37, H63 Key words: nominal debt, indexed debt, default, tax smoothing, moral hazard, contingent service.
25 pages

On the Origin of Strategy: Action and Cognition Over Time
No. 05-005
Giovanni Gavetti and Jan W. Rivkin
Strategy
July 2004

We use an in-depth case history to develop a perspective on how managers search for a strategy. The perspective employs the variable time to frame the question of strategy's origins in a distinctive way. Over time, the cognitive and physical elements that make up a strategy become less plastic, while mechanisms to search rationally for a strategy become more available. This highlights a fundamental tension in the origin of strategy: managers struggle to understand their environment well enough to search rationally for an effective strategy before their firms lose the plasticity necessary to exploit that understanding. A focus on time also allows us to synthesize and extend the evolutionary and positioning models of strategic search. We identify times when strategic search displays the limited plasticity and rationality of the evolutionary model, times when other combinations of plasticity and rationality prevail.
60 pages

This paper studies the determinants of organizational forms by looking at the case of Mexico, a Civil Law country, between 1886 and 1910.  Using a newly assembled dataset of chartered companies, we run Multinomial Logit models to determine the importance of firm characteristics in the election of particular organizational structures.  Our findings suggest that although some companies took advantage of the set of organizational options only available in Civil Law countries, these structures had a negligible effect in terms of capital formation.  In contrast, the organizational forms associated with the Common Law system emerged as the dominant organizational features.
30 pages

Perceived Relative Power and Its Influence on Negotiations
No. 05-033
Rebecca J. Wolfe and Kathleen L. McGinn
Negotiation, Organizations, and Markets 
December 2004

In an experimental study, we investigate perceived relative power in negotiations and its effect on the distribution of resources and the integrativeness of agreements. We contrast perceived relative power with the objective individual level measure of power often used in past research: the parties� alternatives to a negotiated agreement. We found that alternatives affected the distribution of outcomes, while perceived relative power and alternatives affected the integrativeness of outcomes. We found that negotiating pairs who perceived a smaller difference in relative power reached agreements of greater integrativeness than pairs who perceived a greater power difference, even after controlling for alternatives and aspirations. We explore the implications of treating power in negotiations as a perceived and relational construct. Keywords: power, negotiation, perceptions, aspirations, alternatives.
40 pages

Consumers confronted with a product that offers an unexpected benefit are often uncertain whether the benefit is relevant to them. They might choose (or not) to reduce this uncertainty by thinking more about the offered benefit�s relevance to their life. This paper argues that such heightened involvement depends on the price posted by the firm as well as on such other factors as level of uncertainty, magnitude of the offered benefit, and effort of thinking. It is shown that a profit-maximizing firm that takes into account the effect of price as a stimulus to think should sometimes price above or below, but not at, a consumer�s initially revealed willingness to pay. These pricing strategies are respectively termed �transgressive� and �regressive� pricing. Conditions congruent with these strategies are identified and the impact of the strategies on entry decisions are analyzed. Entry opportunities are shown to be potentially profitable even when the differentiating firm faces a high cost handicap. Additionally, firms that view price as a stimulus to think should develop preferences about the consumer�s cost thinking. Conditions are explored under which it is in the firm�s best interest (or not) to empower consumers through activities aimed at reducing the cost of thinking (e.g., education, product trials, projective advertising). Finally, analysis is extended to the converse case in which a firm, instead of offering an additional benefit, simplifies a product thereby generating consumer uncertainty about the relevance of the withdrawn benefit. Consideration is given to conditions under which such product simplification should be accompanied by either a light or deep discount. Analysis predicts that the prescribed discounts can ease market entry. Moreover, firms with a product simplification strategy will often seek to make thinking more costly to discourage consumers from thinking about the relevance of withdrawn benefits.
37 pages

A new theoretical link between price format and preferences is analyzed for transactions involving multicomponent goods. Multicomponent goods combine a focal object or service (e.g. a book or item of clothing, theater tickets) with one or more infrastructural elements that fulfill some necessary, complementary role (e.g. shipping and handling, booking service). In this context, firms need to decide whether to post a single price (aggregated pricing) or break down the expense into a series of prices that reflects the underlying product structure (disaggregated pricing). Evidence from four studies consistently supports the general hypothesis that price format modifies the shape of the utility function that characterizes a consumer�s preferences. This framing effect is captured by a multiattribute utility model in which alternative price formats change the relative weight of focal and infrastructural components in evaluation. From a prescriptive standpoint, firms aware of the influence of price format on preferences need to pay particular attention to the perceived value of each type of component in the transaction and align the way price information is presented accordingly.
48 pages

No abstract.
29 pages

No abstract
19 pages

Analyzing the events surrounding the Columbia shuttle tragedy, we explore a high-risk organization's response to a recovery window, defined as the period between a threat and a major accident (or prevented accident) in which constructive collective action is feasible.  A threat is a stimulus that may signal the risk of future harm to the system.  Our analysis characterizes the Columbia's recovery window � the period between the launch of the Shuttle when shedding debris presented an ambiguous threat and the disastrous outcome sixteen days later � as systematically under-responsive.  We show that Columbia's recovery window was characterized by active discounting of risk, fragmented disciplinary-based analyses, and a wait-and-see orientation to action.  We propose mechanisms at three levels of analysis to explain this confirmatory response and then suggest an alternative, preferred response to ambiguous threats in high-risk systems, characterized by over-responsiveness and a learning orientation, which we call an exploratory response.  Leadership is critical to moving an organization away from the natural tendency to downplay ambiguous threats and toward an exploratory response.  
48 pages

In the 35 years since the first field research was conducted at National Products, we have learned a great deal about how companies allocate scarce resources to craft corporate strategy. We have presented and discussed many important contemporary contributions to our understanding of the resource allocation process (RAP) by authors who have built upon the RAP model. The working theory that continues to bind his collective research remains consistent: the way resources are allocated in the firm shapes the realized strategy of the firm. The fundamental implication of this theory is that understanding RAP is at the heart of understanding how strategy is made and how to craft better strategy.
24 pages

During the past fifty years, organizational scholarship on leadership has shifted from a focus on the significance of leadership for meaning-making to the significance of leadership for economic performance. This shift has been problematic for two reasons. First, it has given rise to numerous conceptual difficulties that now plague the study of leadership. Second, there is now comparatively little attention to the question of how individuals find meaning in the economic sphere even though this question should arguably be one of the most important questions for organizational scholarship. This chapter discusses several reasons for the shift, arguing that one of the most important has been the lack of a clear definition and operationalization of meaningful economic activity. As a first step to redressing this shift, we offer a definition and operationalization of meaningful action, and we propose a typology of executive behaviors as a foundation for a systematic exploration of the meaning-making capacity of leaders. We conclude with a discussion of the relationship between the capacity of leaders to infuse meaning and the capacity of leaders to impact on performance.
60 pages

Several models draw on experimental psychology to suggest that investor reactions increase as a series of similar earnings surprises continues, and show that increasing reactions can explain cross-sectional stock return patterns such as post-earnings-announcement drift, momentum and mean-reversion. In addition, the underlying psychology literature suggests that behavior should vary based on investor sophistication. This paper tests whether traders on the NYSE, for a large ten-year sample, exhibit increasing reactions and whether the behavior varies with trade size, a proxy for investor sophistication. Results show consistent evidence that smaller traders exhibit an increasing reaction, with significant increases in reaction strength between the first, second, and third surprises. The increasing reaction pattern is weaker for larger trade-size groups while the largest traders do not exhibit an increase. In addition, results indicate that drift is weaker for each subsequent surprise in a series, suggesting that increasing reactions are not attempts to take advantage of increasing returns. Finally, controls for prior returns show that small traders generally act as contrarians while large traders generally act as momentum traders, strengthening the significance of the small trader increasing reaction patter. JEL Classifications: G14, G10, G12, M41 Keywords: Earnings Announcements; Trading; Investor Behavior; Anomalies
38 pages

Young firms going public are dependent upon the decisions of investors for a successful public offering. Yet convincing investors to invest is not easy, as young firms have limited track records and thus, faces challenges of legitimacy in their respective industries. This paper examines ways in which select information about firms undertaking an initial public offering (IPO) can affect investor decisions. Building upon recent research on upper echelons and signaling theory, we propose that the composition of a firm�s top management team can signal organizational legitimacy that in turn affects investor decisions. In the context of young firms undertaking an IPO, such signals are critical, especially when objective measures of firm quality are not easily available. We introduce a typology of signals of organizational legitimacy to elaborate on our hypotheses. Analyses of a comprehensive set of data on the career histories of the top management teams of young biotechnology firms show that investor decisions are affected by the extent to which a firm�s top management team has employment affiliations with prominent downstream organizations (e.g., pharmaceutical companies), with a diverse range of organizations, and upon the role experience of one key member of th