HBS Working Papers Collection
2007 - 2008
Accountability in Complex Organizations: World Bank Responses to Civil Society*
(10/07)
Accountability and Inequality in Single-Party Regimes: A Comparative Analysis of Vietnam and China*
(05/08)
Accounting information as political currency*
(05/08)
Acting Globally but Thinking Locally? The Influence of Local Communities on Organizations*
(11/07)
Agency and Institutions: A Review of Institutional Entrepreneurship
(05/08)
Allocating Marketing Resources*
(02/08)
Attracting Flows by Attracting Big Clients: Conflicts of Interest and Mutual Fund Portfolio Choice
*
(01/08)
Bank Accounting Standards in Mexico. A layman's guide to changes 10 years after the 1995 bank crisis*
(04/08)
Bank Structure and the Terms of Lending to Small Businesses*
(06/08)
Board of Directors' Responsiveness to Shareholders: Evidence from Shareholder Proposals*
(01/08, revised 03/08)
The Causes and Consequences of Industry Self-Policing*
(09/07, revised 10/07)
Collaborative Architectures for Innovation*
(06/08)
Colonial Land Tenure, Electoral Competition and Public Goods in India*
(02/08)
Coming Clean and Cleaning Up: Is Voluntary Self-Reporting a Signal of Effective Self-Policing?*
(05/08, revised 07/09 - previously titled "Coming Clean and Cleaning Up: Is Voluntary Disclosure a Signal of Effective Self-Policing?")
Competition in Modular Clusters*
(12/07)
Consumer Demand for Prize-Linked Savings: A Preliminary Analysis*
(02/08)
Contracting for Servicizing*
(02/08)
Correlated Equilibrium and Nash Equilibrium as an Observer's Assessment of the Game*
(07/07)
Deterring Online Advertising Fraud Through Optimal Payment in Arrears*
(02/08, revised 08/08, 10/08, 02/09 -- previously titled "Optimal Deterrence when Judgment-Proof Agents Are Paid In Arrears - With an Application to Online Advertising Fraud")
Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry*
(07/07, revised 02/09)
Diffusing Management Practices within the Firm: The Role of Information Provision*
(03/08)
Digital Interactivity: Unanticipated Consequences for Markets, Marketing, and Consumers *
(09/07)
Diversification of Chinese Companies-An International Comparison*
(08/07)
Do Legal Origins Have Persistent Effects Over Time? A Look at Law and Finance around the World c. 1900*
(01/08)
The Dynamic Interplay of Inequality and Trust - An Experimental Study*
(10/07)
Dynamics of Platform Competition: Exploring the Role of Installed Base, Platform Quality and Consumer Expectations*
(11/07)
The effect of consumer's safe experience on recall effectiveness*
(02/08)
Embracing Commitment and Performance: CEOs and Practices Used to Manage Paradox*
(01/08)
Entrepreneurship and the Discipline of External Finance*
(01/08, 03/09 - previously titled "Cost of External Finance and Selection into Entrepreneurship")
The Ethical Mirage: A Temporal Explanation as to Why We Aren't as Ethical as We Think We Are*
(08/07, revised 01/09 -- previously titled "Why We Aren't as Ethical as We Think We Are: A Temporal Explanation")
The Ethnic Composition of US Inventors*
(08/07, revised 12/08)
Evaluating the Impact of SA 8000 Certification*
(05/08)
Evidence from Goodwill Non-impairments on the Effects of Unverifiable Fair-Value Accounting*
(09/07, revised 05/08 -- previously titled "Evidence on the Effects of Unverifiable Fair-Value Accounting")
Exclusivity and Control*
(08/07, revised 02/09)
An Exploration of Technology Diffusion*
(04/08)
Exploring Inventory Trends in Six U.S. Retail Segments*
(08/08)
Exploring the Duality between Product and Organizational Architectures: A Test of the Mirroring Hypothesis*
(03/08, revised 10/08)
Fair (and Not So Fair) Division*
(09/07)
The "Fees → Savings" Link, or Purchasing Fifty Pounds of Pasta*
(11/07)
Finding Missing Markets (and a disturbing epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya*
(02/08)
Front-line Staff Perspectives on Opportunities for Improving the Safety and Efficiency of Hospital Work Systems*
(09/07)
The Future of Social Enterprise, Harvard Business School Working Paper*
(06/08)
Gender in Job Negotiations: A Two-Level Game*
(05/08)
Harnessing Our Inner Angels and Demons: What We Have Learned About Want/Should Conflicts and How That Knowledge Can Help Us Reduce Short-Sighted Decision Making*
(09/07)
Hedge fund investor activism and takeovers*
(07/07)
How Can Decision Making Be Improved?*
(06/08, revised 07/08 -- previously titled "Bounded Decision Making: From Description to Improvement")
How Firms Respond to Being Rated*
(10/07, revised 05/08, 08/08, 11/08, 04/09, 06/09 - previously titled "Shamed and Able: How Firms Respond to Being Rated")
How to Capture Value from Innovation: Shaping Intellectual Property and Industry Architecture*
(09/07)
I Am Not on the Market, I Am Here with Friends: Using On-Line Social Networks to Find a Job or a Spouse
(04/08)
The Impact of Component Modularity on Design Evolution: Evidence from the Software Industry*
(12/07)
The Impact of Shareholder Activism on Financial Reporting and Compensation: The Case of Employee Stock Options Expensing*
(09/07)
Incompatible Assumptions: Barriers to producing multidisciplinary knowledge in communities of scholarship*
(12/07)
Institutional Stock Trading on Loan Market Information*
(01/08)
An Interdisciplinary Model for Effective Software Requirements Engineering*
(11/07)
Intra-Industry Foreign Direct Investment*
(09/07)
An Investigation of Earnings Management through Marketing Actions*
(02/08, revised 02/09)
Irving Fisher, Economic Forecasting, and the Myth of the Business Cycle *
(11/07)
Laws vs. Contracts: Legal Origins, Shareholder Protections, and Ownership Concentration in Brazil, 1890-1950*
(01/08)
Lean Principles, Learning, and Software Production: Evidence from Indian Software Services*
(07/07, revised 07-08, 03/09 -- previously titled "Explicating Lean Principles by Examining Indian Software Services")
Learn-how to Improve Collaboration and Performance*
(07/07, revised 07/08, 02/09 -- previously titled "Improving Infant Mortality Rates: The Impact of Front-line Staff Collaboration on Neonatal Care")
Learning Processes in Environmental Policy Making and Implementation*
(02/08)
Long-Run Stockholder Consumption Risk and Asset Returns*
(01/08)
Mental Accounting and Small Windfalls: Evidence from an Online Grocer*
(09/07, revised 03/08, 09/08)
Modeling Expert Opinions on Food Healthiness: A Nutrition Metric*
(03/08, revised 03/08)
Modularity, Transactions, and the Boundaries of Firms: A Synthesis*
(09/07)
No harm, no foul: The outcome bias in ethical judgments*
(02/08, revised 07/08, 04-09)
On Best-Response Bidding in GSP Auctions*
(01/08)
Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry*
(04/08)
Peer Effects and Entrepreneurship*
(01/08, revised 01/09)
The Political Economy of "Natural" Disasters*
(12/07, revised 11/08)
Political Instability and Untimely Dissolution: Partnerships, Corporations, and the Mexican Revolution, 1910-1929*
(04/08)
Positions of Power and Status: Reciprocity in the Venture Capital Industry*
(02/08)
The Private Equity Advantage: Leveraged Buyout Firms and Relationship Banking*
(01/08)
Product Development and Learning in Project Teams: The Challenges are the Benefits*
(01/08)
Psychological Influence in Negotiation: An Introduction Long Overdue*
(01/08)
Recognizing the New: A Multi-Agent Model of Analogy in Strategic Decision-Making*
(10/07)
A Replication Study of Alan Blinder's "How Many U.S. Jobs Might Be Offshorable?"*
(06/08)
A Resource Belief-Curse: Oil and Individualism*
(11/07)
Rewriting History*
(01/08)
See No Evil: When We Overlook Other People's Unethical Behavior*
(01/08)
The Seer of Wellesley Hills: Roger Babson and the Babson Statistical Organization*
(11/07)
Sell Side School Ties*
(02/08)
The Small World of Investing: Board Connections and Mutual Fund Returns*
(01/08)
Some Neglected Axioms in Fair Division*
(05/08)
Strategic Interactions in Two-Sided Market Oligopolies*
(08/07, revised 02/09)
The Strength of Peripheral Ties: Maintaining Status When Firms Lose Resources*
(02/08)
Structural Closure and Exposure: Formation of Structural Inequality in Managerial Labor Markets
(04/08)
Structural Closure and Exposure: Market Reactions to Announcements of Acquisitions and Divestitures
(04/08)
A Taste For Obscurity: An Individual-Level Examination of 'Long Tail' Consumption*
(08/07)
Team Familiarity, Role Experience, and Performance: Evidence from Indian Software Services*
(09/07, revised 02/08, 07/08)
Testing a Purportedly More Learnable Auction Mechanism*
(02/08)
Testing Strategy with Multiple Performance Measures Evidence from a Balanced Scorecard at Store24*
(02/08)
Unconventional Insights for Managing Stakeholder Trust*
(01/08)
Underweighting rare events in experience-based decisions: Beyond sample error*
(02/08)
Using Financial Innovation to Support Savers: From Coercion to Excitement*
(04/08)
Variance-Seeking for Positive (and Variance-Aversion for Negative) Experiences: Risk-Seeking in the Domain of Gains?*
(02/08)
What Do Non-Governmental Organizations Do?*
(12/07)
Where Does it Go? Spending by the Financially Constrained*
(03/08, revised 04/08)
Why Do Intermediaries Divert Search?*
(08/07, revised 02/09 -- previously titled "Designing a Two-Sided Platform: When To Increase Search Costs?")
Accountability in Complex Organizations: World Bank Responses to Civil Society
No. 08-027
Alnoor S. Ebrahim and Steve Herz
General Management
October 2007
Complete Text (Acrobat PDF Version)
Civil society actors have been pushing for greater accountability of the World Bank for at least
three decades. This paper outlines the range of accountability mechanisms currently in place at
the World Bank along four basic levels: (1) staff, (2) project, (3) policy, and (4) board
governance. We argue that civil society organizations have been influential in pushing for greater
accountability at the project and policy levels, particularly through the establishment and
enforcement of social and environmental safeguards and complaint and response mechanisms.
But they have been much less successful in changing staff incentives for accountability to
affected communities, or in improving board accountability through greater transparency in
decision making, more representative vote allocation, or better parliamentary scrutiny. In other
words, although civil society efforts have led to some gains in accountability with respect to
Bank policies and projects, the deeper structural features of the institution - the incentives staff
face and how the institution is governed- remain largely unchanged.
37 pages
No. 08-099
Regina Abrami and Edmund Malesky and Yu Zheng
May 2008
Complete Text (Acrobat PDF Version)
Over the past two decades, no two economies have averaged more rapid economic growth than China and Vietnam.
But while China's income inequality has risen rapidly over that same time frame, Vietnam's has only grown
moderately. Structural and socio-cultural determinants fail to account for these divergent pathways. Existing political
variables are also unhelpful. China and Vietnam are coded in exactly the same way, even in the path-breaking work
on authoritarian regimes. In this paper, we take a deeper look at political institutions in the two countries,
demonstrating that profound differences between the polities directly impact distributional choices. In particular, we
find that Vietnamese elite institutions require construction of broader coalitions of policymakers, place more
constraints on executive decision making, and have more competitive selection processes. As a result, there are
stronger political motivations for Vietnamese leaders to provide equalizing transfers that limit inequality growth.
46 pages
No. 08-100
Karthik Ramanna and Sugata Roychowdhury
Accounting and Management
May 2008
Complete Text (Acrobat PDF Version)
We test whether accounting can be used as political currency. Our setting is the US congressional election of 2004, where outsourcing of US jobs was a campaign issue. We find that the largest corporate donors to principal candidates in closely watched congressional races manage earnings downwards in the two quarters immediately preceding the 2004 election. We find no evidence of such downwards earnings management among corporate donors to candidates in all other congressional races. Election outcomes for candidates are also systematically associated with the extent of donors' downwards earnings management in closely watched races, but not all other races. The findings are consistent with firms managing accounting information in circumstances where this is likely to benefit allied politicians.
40 pages
No. 08-034
Christopher Marquis and Julie Battilana
Organizational Behavior
November 2007
Complete Text (Acrobat PDF Version)
We develop an institutional theory of how local communities continue to matter
for organizations, and why community factors are particularly important in a global age.
Since globalization has taken center stage in both practitioner and academic circles,
research has shifted away from understanding effects of local factors. In this paper, our
aim is to redirect theoretical and empirical attention back to understanding the
determinants and importance of local influences. We review classical and contemporary
research from organizational theory, sociology and economics that have focused on
geographic influences on organizations. We adapt Scott's (2001) influential three pillars
model, including regulative, social-normative and cultural-cognitive features to
conceptualize an overarching model of how communities influence organizations. We
suggest that because organizations are simultaneously embedded in communities and
organizational fields, by accounting for both of these different levels, researchers will
better understand isomorphism and change dynamics. Our approach thus runs counter the
idea that globalization is a homogeneity-producing process, and the view that society is
moving from particularism to universalism. With globalization, not only has the local
remained important, but in many ways local particularities have become more visible and
salient, and so understanding these dynamics will be helpful for researchers addressing
institutional isomorphism and change.
49 pages
No. 08-096
Bernard Leca, Julie Battilana and Eva Boxenbaum
Organizational Behavior
May 2008
This paper analyzes the literature that has been published on institutional entrepreneurship since Paul DiMaggio introduced the notion in 1988. Based on a systematic selection and analysis of articles, the paper outlines an emerging consensus on the definition and process of institutional entrepreneurship. It also presents the previously identified enabling conditions for, and reviews the research methods that have been applied to the study of, institutional entrepreneurship. Finally, the paper highlights future directions for research on this topic. Researchers are encouraged to use this paper to build sophisticated, targeted research designs that will add value to the growing body of literature on institutional entrepreneurship.
52 pages
No. 08-069
Sunil Gupta and Thomas J. Steenburgh
Marketing
February 2008
Complete Text (Acrobat PDF Version)
Marketing is essential for the organic growth of a company. Not surprisingly, firms spend billions of dollars on marketing. Given these large investments, marketing managers have the responsibility to optimally allocate these resources and demonstrate that these investments generate appropriate returns for the firm. In this chapter we highlight a two-stage process for marketing resource allocation. In stage one, a model of demand is estimated. This model empirically assesses the impact of marketing actions on consumer demand of a company's product. In stage two, estimates from the demand model are used as input in an optimization model that attempts to maximize profits. This stage takes into account costs as well as firm's objectives and constraints (e.g., minimum market share requirement). Over the last several decades, marketing researchers and practitioners have adopted various methods and approaches that explicitly or implicitly follow these two stages. We have categorized these approaches into a 3x3 matrix, which suggests three different approaches for stage-one demand estimation (decision calculus, experiments and econometric methods), and three different methods for stage-two economic impact analysis (descriptive, what-if and formal optimization approach). We discuss pros and cons of these approaches and illustrate them through applications and case studies.
46 pages
No. 08-054
Lauren H. Cohen and Breno Schmidt
Finance
January 2008
Complete Text (Acrobat PDF Version)
We explore a new channel for attracting inflows using a unique dataset of corporate 401(k) retirement plans and their mutual fund family trustees. Families secure substantial inflows by being named trustee of a 401(k) plan. This affords the plan sponsor potential influence on the family's portfolio decisions. Consistent with this, we find that family trustees significantly overweight their 401(k) client firm's stock. Trustee overweighting is more pronounced when the conflict of interest of the trustee family is more severe and when other mutual funds are selling the client firm's stock. This overweighting is not explained by superior information. We quantify a potentially large benefit to the 401(k) sponsor firm of having its price propped up by its trustee fund's more severe overweighting. We also estimate the resulting loss to mutual fund investors, which can be large in some cases.
45 pages
No. 08-090
Gustavo A. Del Angel, Stephen Haber, and Aldo Musacchio
Business, Government and the International Economy
April 2008
Complete Text (Acrobat PDF Version)
After the 1995 crisis, the Mexican banking system experienced significant changes in bank accounting standards. Most of these changes took place between 1996 and 2001, and had a significant impact in the structure and interpretation of financial information of banks. This document explains the major changes on bank accounting, their purpose and structure, and discusses their impact on financial information reported by Mexican banks. It also provides the English equivalent of the major accounting terms used by Mexican banks. The main purpose of this document is to provide a standardized guide to better understand financial information produced before and after the crisis, within the current context of internationalization of Mexican banks' ownership.
32 pages
No. 08-101
Rodrigo Canales and Ramana Nanda
Entrepreneurial Management
June 2008
Complete Text (Acrobat PDF Version)
Using loan-level data from Mexico, we study the relationship between the organizational structure of banks and the terms of lending to small businesses. We find that banks with decentralized lending structures - where branch managers have autonomy over the terms of lending - give larger loans to small firms and those with more "soft information" - particularly in states with weak legal enforcement of financial contracts. However, decentralized banks are also more responsive to the competitive environment when setting loan terms. They are more likely to restrict credit and to charge higher interests rates when they have market power, more so to smaller firms that have fewer outside options for external finance. These findings highlight a 'darker side' to decentralized banks and suggest that the relative benefit of a decentralized bank structure for small business lending depends critically on the nature of the competitive environment in which banks are located.
35 pages
No. 08-048
Yonca Ertimur, Fabrizio Ferri, and Stephen R. Stubben
Accounting and Management
January 2008, revised March 2008
Complete Text (Acrobat PDF Version)
Using a sample of 620 non-binding, majority-vote (MV) shareholder proposals between 1997 and 2004, we analyze the frequency, determinants and consequences of boards' implementation decisions. The frequency of implementation has almost doubled after 2002, reaching more than 40%. Shareholder pressure (e.g. the voting outcome and the influence of the proponent) and the type of proposals are the main determinants of the implementation decision, while traditional governance indicators do not seem to matter. Outside directors implementing MV shareholder proposals experience a one-fifth reduction in the likelihood of losing their board seat and in the likelihood of losing other directorships.
61 pages
No. 08-102
Katherine L. Milkman, Dolly Chugh, and Max H. Bazerman
Negotiation, Organizations & Markets
June 2008, revised July 2008
Complete Text (Acrobat PDF Version)
The optimal moment to address the question of how to improve human decision making has arrived. Thanks to fifty years of research by judgment and decision making scholars, psychologists have developed a detailed picture of the ways in which human judgment is bounded. This paper argues that the time has come to focus attention on the search for strategies that will improve bounded judgment because decision making errors are costly and are growing more costly, decision makers are receptive, and academic insights are sure to follow from research on improvement. In addition to calling for research on improvement strategies, this paper organizes the existing literature pertaining to improvement strategies, highlighting promising directions for future research.
12 pages
No. 08-021
Jodi L. Short and Michael W. Toffel
Technology and Operations Management
September 2007, revised October 2007
Complete Text (Acrobat PDF Version)
Innovative regulatory programs are encouraging firms to police their own regulatory compliance and voluntarily disclose, or "confess," the violations they find. Despite the "winwin" rhetoric surrounding these government voluntary programs, it is not clear why companies would participate and whether the programs themselves do anything to enhance regulatory effectiveness. Tasked with monitoring the legality of its own operations, why would a firm that identifies violations turn itself in to regulators rather than quietly fix the problem? And why would regulators entrust regulated entities to monitor their own compliance and enforce the law against themselves? This paper addresses these questions by investigating the factors that lead organizations to self-disclose violations, the effects of selfpolicing on regulatory compliance, and the effects of self-disclosing on the relationship between regulators and regulated firms. We investigate these research questions in the context of the US Environmental Protection Agency's Audit Policy.
16 pages
No. 08-105
Gary P. Pisano and Roberto Verganti
Technology and Operations Management
June 2008
Complete Text (HBS access only, Acrobat PDF Version)
Abstract is not available at this time
26 pages
No. 08-062
Abhijit Banerjee and Lakshmi Iyer
Business, Government and the International Economy
February 2008
Complete Text (Acrobat PDF Version)
No abstract available
33 pages
No. 08-098
Michael W. Toffel and Jodi L. Short
Technology and Operations Management
May 2008, revised July 2009
Complete Text (Acrobat PDF Version)
Administrative agencies are increasingly establishing voluntary self-reporting programs, both as an investigative tool and as a way of encouraging regulated firms to police themselves. Effective self-policing is critical to contemporary regulatory designs, which rely heavily on regulated entities to monitor and assure their own regulatory compliance. We investigate whether self-reporting, or the voluntary disclosure of legal violations, can serve as a reliable signal of the discloser's effective self-policing efforts, which might warrant a reduction in regulatory scrutiny. We find that voluntary disclosures are associated with improvements in regulatory compliance and environmental performance, indicating that self-reporting is associated with effective self-policing. In addition, we find evidence that regulators subsequently reduced their scrutiny over voluntary disclosers, which suggests that self-reporting can help regulators economize government enforcement resources and develop cooperative relationships with firms that are committed to self-policing.
Keywords: Self-reporting; Self-policing; Self-regulation; Voluntary Programs; Environmental Regulation; Environmental Performance; Pollution; Audits; Signaling
42 pages
No. 08-042
Carliss Y. Baldwin and C. Jason Woodard
Finance
December 2007
Complete Text (Acrobat PDF Version)
The last twenty years have witnessed the rise of disaggregated "clusters," "networks," or "ecosystems" of firms. In these clusters the activities of R&D, product design, production, distribution, and system integration may be split up among hundreds or even thousands of firms. Different firms will design and produce the different components of a complex artifact (like the processor, peripherals, and software of a computer system), and different firms will specialize in different stages of a complex production process. This paper considers the pricing behavior and profitability of these so-called modular clusters. In particular, we investigate a possibility hinted at in prior work: that for composite goods, a vertical pricing externality operating across complements can offset horizontal competition between substitutes. In this paper, we isolate the offsetting price effects and show how they operate in large (as well as small) clusters. We argue that it is possible in principle for a modular cluster of firms to mimic the pricing behavior and profitability of a vertically integrated monopoly. We then use our model to compare open and closed standards regimes, to understand how commoditization affects a cluster, to determine the relative profits of platform firms and firms that depend on the platform, and to assess the impact of horizontal and vertical mergers. Our model highlights a collective action problem: what is good for an individual firm is often not good for the cluster. We speculate that this conflict may be a source of strategic tension in platform firms.
49 pages
No. 08-061
Peter Tufano, Nick Maynard, and Jan-Emmanuel De Neve
Finance
February 2008
Complete Text (Acrobat PDF Version)
This paper reports on a small-scale survey of the potential American demand for prize-linked savings accounts, an account that awards prizes as part of the saving product's return. In October 2006, Centra Credit Union launched a prize-linked savings pilot. As part of that initiative, we conducted a mall intercept survey of over 500 people in Clarksville, Indiana, the community where the program was launched. This preliminary data suggests that low-to-moderate income Americans may have substantial demand for prize-linked savings, with a majority of survey participants expressing an interest in opening a prize-linked savings account. As predicted by theory and international experience, interest in prize-linked savings is greatest among people who do not have regular saving habits, who have little actual savings, who play lotteries extensively, and who are optimistic about their futures.
30 pages
No. 08-063
Michael W. Toffel
Technology and Operations Management
February 2008
Complete Text (Acrobat PDF Version)
Servicizing, a novel business practice that sells product functionality rather than
products, has been touted as an environmentally beneficial business practice. This
paper describes how servicizing transactions mitigate some problems associated
with sales transactions, but creates several others. The success of servicizing-or
product service systems-requires manufacturers to develop contracts that attract
customers while protecting their interests. Several propositions are offered to
facilitate empirical testing of the concepts discussed.
32 pages
No. 08-005
John Hillas, Elon Kohlberg and John Pratt
Strategy
July 2007
Complete Text (Acrobat PDF Version)
Noncooperative games are examined from the point of view of an outside observer who believes that the players are rational and that they know at least as much as the observer. The observer is assumed to be able to observe many instances of the play of the game; these instances are identical in the sense that the observer cannot distinguish between the settings in which different plays occur. If the observer does not believe that he will be able to offer beneficial advice then he must believe that the players are playing a correlated equilibrium, though he may not initially know which correlated equilibrium. If the observer also believes that, in a certain sense, there is nothing connecting the players in a particular instance of the game then he must believe that the correlated equilibrium they are playing is, in fact, a Nash equilibrium.
22 pages
No. 08-047
Ramana Nanda
Entrepreneurial Management
January 2008, revised March 2009
Complete Text (Acrobat PDF Version)
Abstract:
I exploit a tax reform and use unique micro-data from Denmark to study how an exogenous increase in the cost of external finance impacted individuals' entry into entrepreneurship. Differences-in-differences estimates show a 40% fall in entry rates for individuals whose cost of finance increased. However, the greatest decline in entry came from individuals with lower human capital, particularly among those who were wealthy. The findings suggests that an important part of the positive relationship between personal wealth and entrepreneurship may be driven by the fact that wealthy individuals with lower ability can start new businesses because they do not face the disciplining effect of external finance.
Keywords:
cost of external finance, financing constraints, entrepreneurship, entry, occupational choice.
34 pages
No. 08-010
Andrei Hagiu and Bruno Jullien
Strategy
August 2007, revised February 2009
Complete Text (Acrobat PDF Version)
We analyze the incentives to divert search for an information intermediary who enables buyers (consumers) to search affiliated sellers (stores). There are three motives for diverting search (i.e. inducing consumers to search more than they would like): i) trading off higher total consumer traffic for higher revenues per consumer visit; ii) reducing the variance of store profits when store affiliation decisions are endogenous; and iii) influencing stores' choices of strategic variables (e.g. pricing) once they have decided to affiliate. We show that search diversion remains a necessary strategic instrument for the intermediary even when the contracting space is significantly enriched: allowing the intermediary to charge consumers fixed fees, to offer them screening contracts, to subsidize search; allowing stores' strategic decisions to be contractible or controlled by the intermediary.
Keywords:
Market Intermediation, Search, Two-Sided Markets, Platform Design.
39 pages
No. 08-003
Ramana Nanda and Tarun Khanna
Entrepreneurial Management, Strategy
July 2007, revised February 2009
Complete Text (Acrobat PDF Version)
This study explores the importance of cross-border social networks for entrepreneurs in developing countries by examining ties between the Indian expatriate community and local entrepreneurs in India's software industry. We find that local entrepreneurs who have previously lived outside India rely significantly more on diaspora networks for business leads and financing. This is especially true for entrepreneurs who are based outside software hubs - where getting leads to new businesses and accessing finance is more difficult. Our results provide micro-evidence consistent with a view that cross-border social networks play an important role in helping entrepreneurs to circumvent the barriers arising from imperfect domestic institutions in developing countries.
Keywords:
Diasporas, Informal Networks, Institutions, Entrepreneurship.
30 pages
No. 08-085
Michael J. Lenox and Michael W. Toffel
Technology and Operations Management
March 2008
Complete Text (Acrobat PDF Version)
A key role of corporate managers is to encourage subsidiaries to adopt innovative practices. This paper examines the conditions under which corporate managers use information provision to encourage subsidiaries' adoption of advanced management practices. Focusing on the distribution of expertise across subsidiaries, we propose that corporate managers elect an information provision strategy when (i) subsidiaries, on average, possess moderate levels of related expertise, (ii) subsidiaries exhibit significant heterogeneity in this expertise, and (iii) the subsidiaries are more diversified and less concentrated. We examine the efforts to diffuse pollution prevention practices exhibited by manufacturing firms in the information and communication technology sector in the United States, and find empirical support for the four hypotheses developed here. The research presented in this paper has implications for our understanding not only of who adopts advanced environmental management practices, but more broadly, of when firms adopt information provision strategies to encourage knowledge transfer within the organization.
37 pages
No. 08-017
John A. Deighton and Leora Kornfeld
Marketing
September 2007
Complete Text (Acrobat PDF Version)
The digital interactive transformation in marketing is not unfolding, as many thought it would, on the model of direct marketing. That model anticipated that digital media using rich profiling data would intrude marketing messaging more deeply and more precisely into consumer lives than broadcast media had been able to do. But the technology that threatened intrusion is delivering seclusion. The transformation is unfolding on a model of consumer collaboration, in which consumers use digital media that lie beyond the control of marketers to communicate among one another, responding to marketing's intrusions by disseminating counterargument, information sharing, rebuttal, parody, reproach and, though more rarely, fandom. Globally the media of collaboration range from consumer review sites like Epinions and Trip Advisor, to collaborative networking sites like Bebo, Facebook, Orkut and Meetup, to trading sites like Craigslist and EBay, and user-generated content sites like YouTube, Cyworld, and blogs. This paper reviews five emerging paradigms governing marketing in the environment of these new media. It concludes that while meaning-making remains the central purpose of marketing communication, the shift from broadcasting to interaction within digital communities is moving the locus of control over meanings from marketer to consumer and rewarding more participatory, more sincere, and less directive marketing styles.
28 pages
No. 08-007
Joseph P.H. Fan, Jun Huang, Felix Oberholzer-Gee, Troy D. Smith and Mengxin Zhao
Strategy
August 2007
Complete Text (Acrobat PDF Version)
Purpose - This paper provides a systematic comparison of the level of business diversification in China
and eight other large economies for the 2001 to 2005 period. We investigate reasons why Chinese firms
are more diversified than companies elsewhere.
Design/methodology/approach - We collect data on the number of business segments in which publicly
traded companies operate from the Thomson One Banker database. We analyze the data using
nonparametric tests and regression analysis.
Findings - The mean number of business segments per firm varies significantly by country. Notably, there
is no evidence in our sample that emerging-market companies are systematically more diversified than their
developed-market counterparts. In most countries, firms have become less diversified over time. However,
there is no such trend in China. The level of diversification of Chinese enterprises does not vary over our
study period (2001-2005), making Chinese firms the most diversified in our sample by 2005. China's
growth rate does not seem to explain the higher level of firm diversification. However, we find that Chinese
state-owned enterprises diversify their operations more aggressively than other Chinese firms.
Research limitations/implications - Ownership data and business group affiliations were not available for
all firms in our sample, making it difficult to control for these effects across economies.
Practical implications - Government involvement in state-owned enterprises may be contributing to a
divergence in the pattern of business diversification between China and other economies.
Originality/value - This paper quantifies anecdotal evidence that Chinese firms are more diversified than
similar firms in other countries.
11 pages
No. 08-030
Aldo Musacchio
Business, Government and the International Economy
January 2008
Complete Text (Acrobat PDF Version)
How persistent are the effects of legal institutions adopted or inherited in the distant past? A substantial literature argues that legal origins have persistent effects that explain clear differences in investor protections and financial development around the world today (La Porta et al, 1998, 1999 and passim). This paper examines the persistence of the effects of legal origins by examining new estimates of different indicators of financial development in more than 20 countries in 1900 and 1913. The evidence presented does not yield robust results that can sustain the hypothesis of persistence effects of legal origin, but it is not powerful enough to reject it either. Then the paper examines if there were systematic differences in the extent of investor protections across countries, since that is the main channel through which legal origin affects financial development, and shows that all the evidence supports the idea of relative convergence in corporate governance practices across legal families circa 1900. The paper concludes that, if the evidence presented is representative, the variation observed in financial development around the world today is likely a product of events of the twentieth century rather than a consequence of long-term (and persistent) differences occasioned by legal traditions.
64 pages
No. 08-026
Ben Greiner, Axel Ockenfels, and Peter Werner
October 2007
Complete Text (Acrobat PDF Version)
We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time.
In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects' inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.
27 pages
No. 08-031
Feng Zhu and Marco Iansiti
Technology and Operations Management
November 2007
Complete Text (Acrobat PDF Version)
This paper seeks to answer three questions. First, which drives the success of a platform, installed base,
platform quality or consumer expectations? Second, when does a monopoly emerge in a platform-based
market? Finally, when is a platform-based market socially efficient? We analyze a dynamic model
where an entrant with superior quality competes with an incumbent platform, and examine long-run
market outcomes. We find that the answers to these questions depend critically on two parameters:
the strength of indirect network effects and consumers' discount factor of future applications. In
addition, contrary to the popular belief that indirect network effects protect incumbents and are the
source of market inefficiency, we find that under certain conditions, indirect network effects could
enhance entrants' quality advantage and market outcomes hence could be more efficient with stronger
indirect network effects. We empirically examine the competition between the Xbox and PlayStation
2 consoles. We find that Xbox has a small quality advantage over PlayStation 2. In addition, the
strength of indirect network effects and consumers' discount factor in this market are within the
range in which platform success is driven by quality advantage and the market is potentially efficient.
Counterfactual experiments suggest that PlayStation 2 could have driven Xbox out of the market had
the strength of indirect network effects more than doubled or had consumers' discount factor increased
by fifty percent.
48 pages
No. 08-076
Gregory M. Barron and Stephen Leider
Negotiation, Organizations & Markets
February 2008
Abstract is not available at this time
20 pages
No. 08-052
Tobias Fredberg, Michael Beer, Russell Eisenstat, Nathaniel Foote, and Flemming Norrgren
Complete Text (Acrobat PDF Version)
We tend to assume that great leaders must make difficult choices between two or more conflicting outcomes. In an interview study with 26 CEOs of top American and European companies (incl. IKEA, Campbell Soups, Nokia, H&M), we find that instead of choosing between conflicting outcomes such as long-term strategy or short-term performance drivers, top tier managers argue that their role is to embrace such paradoxes to make both things happen simultaneously. The study identifies five groups of practices that make this possible. Together, they reveal a systematic approach to managerial work at the top, which is seldom found in the literature. By building on the engagement of many in the development of the organization, the practices are important for our understanding of how a CEO facilitates the partaking of many in strategy making. The paper contributes to theory by relating the current findings to the literature on the connection between commitment and performance and on the strategic management literature that focuses on the proliferation of strategy and strategy as practice.
42 pages
No. 08-006
William R. Kerr
Entrepreneurial Management
August 2007, revised December 2008
Complete Text (Acrobat PDF Version)
The ethnic composition of US scientists and engineers is undergoing a significant transformation. This study applies an ethnic-name database to individual patent records granted by the United States Patent and Trademark Office to document these trends with greater detail than previously available. Most notably, the contributions of Chinese and Indian scientists to US technology formation increased dramatically in the 1990s, before noticeably leveling off after 2000 and declining in the case of Indian researchers. Growth in ethnic innovation is concentrated in high-tech sectors; the institutional and geographic dimensions are further characterized.
27 pages
No. 08-097
Michael J. Hiscox, Claire Schwartz, and Michael W. Toffel
Technology and Operations Management
May 2008
Complete Text (Acrobat PDF Version)
SA 8000, along with other types of certification standards and corporate codes of conduct, represents a new form of private governance of working conditions, initiated and implemented by companies, labor unions, and non-governmental activist groups. Whether these codes represents a substantive or merely symbolic approach to governing working conditions is the subject of an ongoing debate, which to date has been dominated by philosophical and political discourse due to a lack of systematic evaluation. Very little empirical evidence is available to indicate whether these codes legitimately distinguish adopting companies and factories as providing better working environments (e.g., health and safety, freedom of association, fair pay practices) and whether these codes have affected their business outcomes (e.g., staff turnover and absenteeism, product defect rates, sales growth). In this book chapter, we review the existing evaluations of other private codes governing workplace conditions, including the Ethical Trading Initiative's Base Code, Nike's code of conduct, and Fair Trade. We then describe several key elements of program evaluation that are becoming standard practice in other domains, which we believe should be incorporated in future evaluation studies of these codes. We emphasize the importance of examining performance over time, comparing adopters to non-adopters, and incorporating strategies to overcome selection bias. Evaluations that meet the highest methodological standards are critical to inform the debates about this new form of private governance, and to highlight opportunities for improvement in their standards and monitoring procedures.
19 pages
No. 08-014
Karthik Ramanna and Ross L. Watts
Accounting and Management
September 2007, revised May 2008
Complete Text (Acrobat PDF Version)
SFAS 142 requires firms to use unverifiable fair-value estimates to determine goodwill impairments. Standard setters suggest managers will use the discretion given by such estimates to convey private information on future cash flows, while agency theory predicts managers will use the discretion opportunistically. We test these alternative hypotheses using a sample of firms with market indications of goodwill impairment (firms with book goodwill and two successive years of book-to-market ratios above one). We find non-impairment of goodwill is increasing in firm characteristics predicted to be associated with greater managerial discretion. We also find evidence that the discretion is being used in a manner consistent with agency-based predictions. The evidence does not confirm managerial discretion is being used to convey private information.
55 pages
No. 08-009
Andrei Hagiu and Robin S. Lee
Strategy
August 2007, revised February 2009
Complete Text (Acrobat PDF Version)
We analyze platform competition for content in the presence of strategic interactions between content distributors and content providers. We provide a model of bargaining and price competition within these industries, and show that whether or not a piece of content ends up exclusive to one platform depends crucially on whether or not the content provider maintains control over the pricing of its own good. If the content provider sells its content outright and relinquishes control over its price, the content will tend to be exclusive unless there are sufficient market expansion effects. On the other hand, if the content provider maintains control of its pricing, the strategic interaction between prices set by the content provider and by the platforms leads to a non- monotonic relationship between exclusivity and content quality: both high and low quality content will multihome and join both platforms, but there will be a range of quality for which content will be exclusive despite foreclosing itself from selling to a portion of the market. In addition, we show that contrary to standard results on double marginalization and pricing of complementary goods, a platform who already has exclusive access to content may prefer to relinquish control over pricing and associated revenues from the content to the content provider in order to reduce price competition at the platform level.
37 pages
No. 08-001
Bradley R. Staats and David M. Upton
Technology and Operations Management
July 2007, revised July 2008, March 2009
Complete Text (Acrobat PDF Version)
Abstract:
While the concepts of lean production are frequently applied in service organizations there is little work that rigorously has examined implementing lean production in contexts other than manufacturing as well as lean production's impact on performance in these settings. In this paper we set out to accomplish both tasks by investigating the implementation of a lean production system at an Indian software services firm. Combining a detailed case study and empirical analysis we document the internal processes that the lean initiative influences. We find that lean projects perform better than the non-lean projects in our sample in many, but not all cases. Building on this result we see that the impact of the techniques on problem solving, coordination, and standardization of work improve the way that the firm learns as well as its productivity. In so doing, we gain insight into how a company can build an operations-based advantage.
Keywords: lean production, operations strategy, organizational learning, software
34 pages
No. 08-093
Diego A. Comin and Bart Hobijn
Business, Government and the International Economy
April 2008
Complete Text (Acrobat PDF Version)
We develop a model that, at the aggregate level, is similar to the one sector neoclassical growth model, while, at the disaggregate level, has implications for the path of observable measures of technology adoption. We estimate our model using data on the diffusion of 15 technologies in 166 countries over the last two centuries. We evaluate the implications of our estimates for aggregate TFP and per capita income. Our results reveal that, on average, countries have adopted technologies 47 years after their invention. There is substantial variation across technologies and countries. Over the past two centuries, newer technologies have been adopted faster than old ones. The cross-country variation in the adoption of technologies accounts for at least a quarter of per capita income differences.
48 pages
No. 08-078
Adenekan (Nick) Dedeke and Noel H. Watson
Technology and Operations Management
August 2008
Complete Text (Acrobat PDF Version)
Our paper describes inventory trends for both public and private U.S. firms in six retail segments between 1993 and 2005. This period coincided with the deployment of large-store formats, multiple store formats and extensive channel blurring in the U.S. retail industry. Our analysis is based on aggregate segment-level data from the Annual Retail Trade Survey (ARTS), the Monthly Retail Trade Survey (MRTS), and the U.S. Bureau of the Census end-of-month inventory survey. We find that the end-of-month inventory significantly increased in four of the six retail segments studied and that, after controlling for sales and macroeconomic factors, the positive time trends for the end-of-month inventory remained significant. Though all categories of macroeconomic factors investigated were found to be significant for at least one segment, only consumer price index, personal savings rate, and real gross domestic product were strongly significant. To explore further the dynamics of the segments and to provide an explanation for the increasing inventory trends, we examined the relationships between inventory, gross profit dollars, and gross margin return on inventory. We find that inventory is positively correlated to gross profit dollars but negatively correlated to gross margin return on inventory. This supports a potential explanation: Inventory trends may reflect the use of higher inventory levels by retailers to drive increased profits but with overall reduced gross profitability returns on the inventory investment. These results support the notion that the increased deployment of large-store, multiple store formats and the strategy of channel blurring by retailers, have generally increased both inventory levels and gross profit dollars across retail segments.
33 pages
No. 08-039
Alan D. MacCormack, John Rusnak, and Carliss Y. Baldwin
Technology and Operations Management, Finance
March 2008, revised October 2008
Complete Text (Acrobat PDF Version)
A variety of academic work argues a relationship exists between the structure of a development organization and the design of the products that this organization produces. Specifically, products are often said to "mirror" the architectures of the organizations from which they come. This dynamic occurs because an organization's problem solving routines and normal patterns of communication tend to constrain the space of designs within which it searches for new solutions. Such a link, if confirmed empirically, would be important, given that product architecture has been shown to be an important predictor of product performance, product variety, process flexibility and industry evolution.
We explore this relationship in the software industry by use of a technique called Design Structure Matrices (DSMs), which allows us to visualize the architectures of different software products and to calculate metrics to compare their levels of modularity. Our research takes advantage of a natural experiment in this industry, where products exist that fulfill the same function, but that have been developed using very different organizational modes — specifically, open source versus closed source development. We use DSMs to analyze a sample of matched-pair products — products that perform the same function but that have been developed via these contrasting modes of organization.
Our results reveal significant differences in modularity, consistent with a view that larger, more distributed teams tend to develop products with more modular architectures. Furthermore, the differences between systems are substantial — the pairs we examine vary by a factor of eight, in terms of the potential for a design change to propagate to other system components. We conclude by highlighting some implications of this result for both innovating managers, as well as researchers in the field. We also assess how future work in this area might proceed, based upon these first steps in measuring "design."
33 pages
No. 08-016
John W. Pratt
September 2007
Complete Text (Acrobat PDF Version)
Drawbacks of existing procedures are illustrated and a method of efficient fair division is proposed that avoids them. Given additive participants' utilities, each item is priced at the geometric mean (or some other function) of its two highest valuations. The utilities are scaled so that the market clears with the participants' purchases proportional to their entitlements. The method is generalized to arbitrary bargaining sets and existence is proved. For two or three participants, the expected utilities are unique. For more, under additivity, the geometric mean separates the prices where uniqueness holds and where it fails; it holds for the geometric mean except in one case where refinement is needed.
28 pages
No. 08-029
Michael I. Norton and Leonard Lee
Marketing
November 2007
Complete Text (Acrobat PDF Version)
Many consumers have had the experience of entering discount membership clubs to make a few purchases, only to leave with enough pasta to outlast a nuclear winter. We suggest that the presence of membership fees can lead consumers to infer a "fees → savings" link, spurring them to increase their spending independent of the actual savings afforded by such clubs. Using both field data and studies in which we created our own "membership clubs," we show that 1) fees serve as a signal of price discounts, such that stores that charge fees are perceived as offering better deals for identical items; 2) the presence of fees can increase consumer spending and overall store profitability; and 3) the presence of fees can drive choice of retail outlets, such that stores with membership fees are more popular even when they offer the same goods at the same prices as stores without fees.
32 pages
No. 08-065
Nava Ashraf, Xavier Giné, and Dean Karlan
Negotiation, Organizations & Markets
February 2008
Complete Text (Acrobat PDF Version)
In much of the developing world, many farmers grow crops for local or personal consumption despite export options which appear to be more profitable. Thus many conjecture that one or several markets are missing. We report here on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted.
40 pages
No. 08-015
Anita L. Tucker, Sara J. Singer, Jennifer E. Hayes, and Alyson Falwell
Technology and Operations Management
September 2007
Complete Text (HBS access only, Acrobat PDF Version)
Objective. To link safety related concerns raised by frontline staff about hospital work systems (operational failures) to the safety and efficiency of hospitals, and to contrast these concerns with national patient safety initiatives.
Data Sources. Primary data include semi structured interviews with frontline staff and 1732 staff identified operational failures at 20 U.S. hospitals from 2004-2006.
Study Design. Senior level managers observed frontline staff work with particular attention to patient safety issues and facilitated open discussion meetings with employees about their safety related concerns.
Data Collection. Hospitals submitted data on the operational failures they identified through their interactions with frontline workers. Data were analyzed for type of failure and frequency of occurrence. Interviews were conducted with frontline staff.
Principal Findings. The two most frequent categories of operational failures, equipment/supplies and facility issues, posed safety risks and diminished staff efficiency, but have not been priorities in national initiatives.
Conclusions. Our study suggests an underutilized strategy for improving patient safety and staff efficiency: leveraging frontline staff experiences with work systems to identify and remove operational failures. In contrast to the perceived tradeoff between safety and efficiency, fixing operational failures can yield benefits for both. Thus, prioritizing improvement of work systems in general, rather than focusing more narrowly on specific clinical conditions, can increase safety and efficiency of hospitals.
30 pages
No. 08-103
V. Kasturi Rangan, Herman B. Leonard, and Susan McDonald
Marketing, General Management
June 2008
Complete Text (Acrobat PDF Version)
The Future of Social Enterprise considers the confluence of forces that is shaping the field of social enterprise, changing the way that funders, practitioners, scholars, and organizations measure performance. We trace a growing pool of potential funding sources to solve social problems, much of it stemming from an intergenerational transfer of wealth and new wealth from financial and high-tech entrepreneurs. We examine how these organizations can best access the untapped resources by demonstrating mission performance and then propose three potential scenarios for how this sector might evolve:
Consolidation: In this scenario, funding will keep growing in a gradual, linear fashion and organizations will compete for resources by demonstrating performance. The sector will consolidate, with some efficient organizations gaining scale, some merging and then growing, and some failing to achieve either scale or efficiency and eventually shutting down.
Entrepreneurial: In a more optimistic future, existing and new enterprises will apply strategies to achieve and demonstrate performance, improving efficiency and effectiveness and attracting new funding sources. More organizations will enter a reformed, competitive field of social change with new entrepreneurial models, established traditional organizations, and innovative funding strategies fueling widespread success.
Expressive: Rather than focusing exclusively on performance, funders and organizations may view their investment as an expressive civic activity. As much value is placed on participating in a cause as on employing concrete measures of impact or efficiency. In this scenario, funding will flow as social entrepreneurs experiment with new models based on a range of individual priorities and relationships.
10 pages
No. 08-095
Hannah Riley Bowles and Kathleen L. McGinn
Negotiation, Organizations & Markets
May 2008
Complete Text (Acrobat PDF Version)
We propose a two-level-game (Putnam, 1988) perspective on gender in job negotiations. At Level 1, candidates negotiate with the employers. At Level 2, candidates negotiate with domestic partners. In order to illuminate the interplay between these two levels, we review literature from two separate bodies of literature. Research in psychology and organizational behavior on candidate-employer negotiations sheds light on the effects of gender on Level 1 negotiations. Research from economics and sociology on intra-household bargaining elucidates how negotiations over the allocation of domestic labor at Level 2 influence labor force participation at Level 1. In conclusion, we integrate practical implications from these two bodies of literature to propose a set of prescriptive suggestions for candidates to approach job negotiations as a two-level game and to minimize disadvantageous effects of gender on job negotiation outcomes.
31 pages
No. 08-020
Katherine L. Milkman, Todd Rogers, and Max H. Bazerman
Negotiation, Organizations & Markets
September 2007
Complete Text (Acrobat PDF Version)
Although observers of human behavior have long been aware that people
regularly struggle with internal conflict when deciding whether to behave
responsibly or indulge in impulsivity, psychologists and economists did
not begin to empirically investigate this type of want/should conflict until
recently. In this paper, we review and synthesize the latest research on
want/should conflict, focusing our attention on the findings from an
empirical literature on the topic that has blossomed over the last 15 years.
We then turn to a discussion of how individuals and policy makers can use
what has been learned about want/should conflict to help decision makers
select far-sighted options.
50 pages
No. 08-004
Robin Greenwood and Michael Schor
Finance
July 2007
Complete Text (Acrobat PDF Version)
We examine long-horizon stock returns around hedge fund activism in a comprehensive sample
of 13D filings by portfolio investors between 1993 and 2006. Abnormal returns surrounding
investor activism are high for the subset of targets that are acquired ex-post, but not detectably
different from zero for targets that remain independent a year after the initial activist request.
Announcement returns show a similar pattern. Firms that are targeted by activists are more likely
to get acquired than those in a control sample. We argue that the combination of hedge funds'
short investment horizons and their large positions in target firms makes M&A the only
attractive exit option. The results also suggest that hedge funds may be better suited to
identifying undervalued targets and prompting a takeover, than at engaging in long-term
corporate governance or operating issues.
50 pages
No. 08-023
Gary P. Pisano and David J. Teece
Technology and Operations Management
September 2007
Complete Text (HBS access only, Acrobat PDF Version)
In making strategic decisions about how to capture value from innovation, managers often look at two critical domains-the intellectual property environment and the architecture of the industry-as beyond their control. Yet, the intellectual property environment and the architecture of the industry can have profound influences on who wins (and who does not) from innovation. In this paper, we argue that under the right circumstances, these two domains can be shaped by managers in ways that favor one firm over another. By understanding these forces, managers will be in a better position to utilize the full tool kit of available mechanisms (and strategies) to capture value from innovation. Perhaps somewhat surprisingly, we show that more IP protection and building stronger barriers around innovation are not always the best path to capturing value. Paradoxically, innovators can sometimes benefit by weakening the intellectual property environment and opening the architecture of the industry. In this article we explain why and how. We also show how management can shape the architecture of the industry in ways that have consequences for the distribution of profits amongst firms in an industry.
38 pages
No. 08-088
Mikolaj Jan Piskorski
Strategy
April 2008
Sociologists have extensively documented that networks influence market exchange through improved matching and vouching. In this paper, I propose that networks can also blunt the signal of market participation, as actors who are on the market surrounded by their network are pooled together with those who use their networks for other reasons. To control the clarity of that signal, actors would like to choose strategically whether to appear with their networks on the market. However, reality puts restrictions on their ability to do so. On-line social networks, where actors can always appear with their networks, alleviate these restrictions and make the pooling effect stronger. The consequences of greater pooling on-line differ by exchange type. For example, they are positive for actors who are looking for a job, but are already employed, and so cannot be seen as looking. By pooling themselves with actors who are using on-line networks to utilize their social capital better, the employed job seekers can be on the market, while claiming that they are not. However, the greater pooling has negative consequences for actors who are single and earnestly looking for a spouse. In this market, it is important to signal capacity for commitment, so greater pooling of those who are there only for their friends with those who are ready to commit works against the latter. Data used to derive these arguments come from an extensive qualitative research project with various on-line social networks, recruiters, employees, as well as those who are looking for a job or for a relationship.
45 pages
No. 08-038
Alan MacCormack, John Rusnak and Carliss Y. Baldwin
Technology and Operations Management, Finance
December 2007
Complete Text (Acrobat PDF Version)
Much academic work asserts a relationship between the design of a complex system and the manner in which this system evolves over time. In particular, designs which are modular in nature are argued to be more "evolvable," in that these designs facilitate making future adaptations, the nature of which do not have to be specified in advance. In essence, modularity creates "option value" with respect to new and improved designs, which is particularly important when a system must meet uncertain future demands.
Despite the conceptual appeal of this research, empirical work exploring the relationship between modularity and evolution has had limited success. Three major challenges persist: first, it is difficult to measure modularity in a robust and repeatable fashion; second, modularity is a property of individual components, not systems as a whole, hence we must examine these dynamics at the microstructure level; and third, evolution is a temporal phenomenon, in that the conditions at time t affect the nature of the design at time t+1, hence exploring this phenomenon requires longitudinal data.
In this paper, we tackle these challenges by analyzing the evolution of a successful commercial software product over its entire lifetime, comprising six major "releases." In particular, we develop measures of modularity at the component level, and use these to predict patterns of evolution between successive versions of the design. We find that modularity has a strong and unambiguous impact on design evolution. Specifically, we show that i) tightly-coupled components are "harder to kill," in that they have a greater likelihood of survival in subsequent versions of a design; ii) tightly-coupled components are "harder to maintain," in that they experience more surprise changes to their dependency relationships that are not associated with new functionality; and iii) tightly-coupled components are "harder to augment," in that the mix of new components added in each version is significantly more modular than the legacy design.
36 pages
No. 08-022
Fabrizio Ferri and Tatiana Sandino
Accounting and Management
September 2007
Complete Text (HBS access only, Acrobat PDF Version)
In this paper we examine the economic consequences of over 150 shareholder proposals to expense employee stock options (ESO) submitted during the proxy seasons of 2003 and 2004 - the first case where the SEC has allowed an accounting matter to be subject to an advisory vote at an annual meeting. We find evidence suggesting that ESO expensing shareholder proposals affected accounting and compensation choices. With respect to accounting choices, we find that: (i) targeted firms were more likely to adopt ESO expensing relative to a control sample of S&P 500 firms, (ii) within targeted firms, the likelihood of adoption increases in the degree of voting support for the proposal; (iii) non-targeted firms were more likely to adopt ESO expensing when a peer firm was targeted by a proposal. With respect to the effect on compensation practices, we find that: (i) targeted firms where the proposal was approved experienced a decrease in the level of CEO compensation relative to the control sample of S&P 500 firms; (ii) within targeted firms, the degree of voting support for the proposal was associated with a decrease in the level of CEO compensation and a decrease in the use of ESO in CEO compensation.
50 pages
No. 08-002
Ingrid M. Nembhard, Anita L. Tucker, Richard M.J. Bohmer, Joseph H. Carpenter, and Jeffrey D. Horbar
Technology and Operations Management
July 2007, revised July 2008, February 2009
Complete Text (Acrobat PDF Version)
Organizational learning, a prerequisite for high performance in dynamic environments, is a challenge for many organizations. One set of activities shown to improve organizational learning of new work practices is learn-how. Learn-how refers to learning activities that combine experimentation, adaptation-in-use, and staff participation (e.g. dry runs). This paper proposes that organizations that use learn-how not only experience project-level success with the implementation of new work practices, but also organizational-level success as indicated by overall measures of performance. We tested our hypotheses in a longitudinal study of 23 hospital neonatal intensive care units (NICUs) involved in a quality improvement collaborative. The results support our hypothesis that learn-how is positively related to organizational performance, as measured by NICUs' risk-adjusted mortality rates for 1061 infant-patients. Moreover, our data reveal that interdisciplinary collaboration mediates this relationship and has a more positive relationship to performance for organizations that perform more complex tasks. The theoretical and practical implications of these findings are discussed.
Keywords:
organizational learning, learn-how, interdisciplinary collaboration, project teams, task complexity, healthcare, hospitals
38 pages
No. 08-044
Corinne Bendersky and Kathleen L. McGinn
Negotiation, Organizations & Markets
December 2007
Complete Text (Acrobat PDF Version)
Co-locating knowledge workers from different disciplines may be a necessary but insufficient step to generating multidisciplinary knowledge. We explore the role of assumptions underlying knowledge creation within the field of organizational studies, and investigate how incompatible assumptions across subgroups may inhibit the generation of multidisciplinary knowledge. While organizational studies research commonly assumes dynamic open systems with recursive influence between environments and interactions, studies of micro-processes in organizations often assume implicitly that interactions among organizational members are closed systems. We suggest that this incompatibility between assumptions may inhibit knowledge sharing in organizational studies research. We empirically assess this assertion by analyzing studies of negotiation published in top peer-reviewed management, psychology, sociology, and industrial relations journals from 1990 to 2005. Our findings illuminate a continuum of open-systems to closed-systems assumptions underlying this micro-process research. Analysis of the rate of citation of the articles in our data set by non-negotiation organizational studies research reveals that open systems assumptions increase the likelihood that a negotiation article will be cited in organizational studies, after controlling for other known effects on citation rate, such as outlet, discipline, length, number of citations and methodology. Our findings suggest that multidisciplinary fields can enhance their knowledge sharing by attending to the compatibility of assumptions held by sub-groups within the field.
37 pages
No. 08-050
Victoria Ivashina and Zheng Sun
Finance
January 2008
Complete Text (HBS access only, Acrobat PDF Version)
Over the past decade, one of the most important developments in the corporate loan market has been the increasing participation of institutional investors in lending syndicates. As lenders, institutional investors routinely receive private information about borrowers. However, most of these investors also trade in public securities. This leads to a controversial question: do institutional investors use private information received in the loan market to trade in public securities? In this paper, we examine the stock trading of institutional investors that also hold loans in their portfolio. Specifically, we look at the abnormal returns on stock trades following loan renegotiations. By collecting SEC filings of loan amendments, we are able to identify institutional investors that had access to private information disclosed by the borrower during loan renegotiations. Our results indicate that institutional managers that participate in loan renegotiations consequently trade in stock of the same company and outperform other managers by approximately 8.8% in annualized terms in the month following loan renegotiation.
46 pages
No. 08-033
Ruth Klendauer, Richard Gelvin, and Daniel J. Isenberg
Entrepreneurial Management
November 2007
For a complete text of the paper, please contact by email to Daniel J. Isenberg or Ruth Klendauer
In recent studies, the success rate of software development
projects has been found to be low (about 29%). The
majority of the challenges can be traced back to the
requirements engineering workflow (RE). Although it is
widely acknowledged that the difficulties faced in RE are
multifarious, recent research has primarily focused on
limited factors. This ongoing research project addresses this
limitation by integrating the fields of social and
organizational psychology, organizational behavior, and
software engineering. The primary goals are to (a) develop
and validate an interdisciplinary multidimensional model,
which focuses on the complex interrelationships among
requirements workflow related risk factors, individual,
team and organizational competencies, software processes,
techniques, tools, and requirements workflow success and
(b) develop a set of instruments to assess RE risk factors
and to design, evaluate, and apply effective measures to
mitigate those risks. The data collection consists of
interviews with RE experts and other experienced
practitioners (e.g., managers, business and technical
people) in eight major North American and European
financial services companies as well as an international
internet survey in collaboration with journals and
organizations. The present paper gives an overview of the
initial findings of 61 interviews and highlights some of the
key factors.
12 pages
No. 08-018
Laura Alfaro and Andrew Charlton
Business, Government and the International Economy
September 2007
Complete Text (Acrobat PDF Version)
We use a new firm level data set that establishes the location, ownership, and activity of 650,000 multinational subsidiaries-close to a comprehensive picture of global multinational activity. A number of patterns emerge from the data. Most foreign direct investment (FDI) occurs between rich countries. The share of vertical FDI (subsidiaries which provide inputs to their parent firms) is larger than commonly thought, even within developed countries. More than half of all vertical subsidiaries are only observable at the four-digit level because the inputs they are supplying are so proximate to their parent firms' final good that they appear identical at the two-digit level. We call these proximate subsidiaries 'intra-industry' vertical FDI and find that their location and activity are significantly different to the inter-industry vertical FDI visible at the two-digit level. These subsidiaries are not readily explained by the comparative advantage considerations in traditional models, where firms locate their low skill production stages abroad in low skill countries to take advantage of factor cost differences. We find that overwhelmingly, multinationals tend to own the stages of production proximate to their final production giving rise to a class of high-skill intra-industry vertical FDI.
33 pages
No. 08-073
Craig J. Chapman and Thomas J. Steenburgh
Marketing
February 2008, revised February 2009
Complete Text (Acrobat PDF Version)
Prior research hypothesizes managers use 'real actions,' including the reduction of discretionary expenditures, to manage earnings to meet or beat key benchmarks. This paper examines this hypothesis by testing how different types of marketing expenditures are used to boost earnings for a durable commodity consumer product which can be easily stockpiled by end-consumers as well as who, within the firm, is responsible for these actions.
Combining supermarket scanner data with firm-level financial data, we find evidence that differs from prior literature. Instead of reducing expenditures to boost earnings, soup manufacturers roughly double the frequency of marketing promotions (price discounts, feature advertisements and aisle displays) at the fiscal year-end. Firms also engage in similar behavior following periods of poor financial performance.
Furthermore, our results confirm managers' stated willingness to sacrifice long-term value in order to smooth earnings (Graham, Harvey and Rajgopal, 2005) and use real actions to boost earnings to meet earnings benchmarks. We estimate that marketing actions can be used to boost quarterly net income by up to 5% depending on the depth and duration of promotion. However, there is a price to pay, with the cost in the following period being approximately 7.5% of quarterly net income.
Finally, a unique aspect of the research setting allows tests of who is responsible for the earnings management. While firms appear unable to increase the frequency of aisle display promotions in the short run, they can reallocate these promotions within their portfolio of brands. Results show firms shifting display promotions away from smaller revenue brands toward larger ones following periods of poor financial performance. This indicates the behavior is determined by parties above brand managers in the firm.
These findings are consistent with firms engaging in real earnings management and suggest the effects on subsequent reporting periods and competitor behavior are greater than previously documented.
54 pages
No. 08-037
Walter A. Friedman
Entrepreneurial Management
November 2007
Complete Text (HBS only, Acrobat PDF Version)
A premier economist of the twentieth century and a founder of neoclassical thought, Irving Fisher was also an active participant in the field of economic forecasting. Fisher made theoretical contributions to the understanding of economic fluctuations, popularized the use of index numbers, and wrote frequently on the importance of future expectations to businesspeople. He also published forecasts through syndicated newspaper columns and made public pronouncements on the future of the economy-including a notorious statement on the eve of the October 1929 stock-market crash that optimistically predicted that a new high "plateau" for stock prices had been reached. Despite Fisher's poor prediction on that occasion, he played a neglected, but significant role in the growth of the forecasting industry and in the rise of a class of early business analysts.
55 pages
No. 08-053
Aldo Musacchio
Business, Government and the International Economy
January 2008
Complete Text (Acrobat PDF Version)
The early development of large multidivisional corporations in Latin America required much more than capable managers, new technologies, and large markets. Behind such corporations was a market for capital in which entrepreneurs had to attract investors to buy either debt or equity. This paper examines the investor protections included in corporate bylaws that enabled corporations in Brazil to attract investors in large numbers, thus generating a relatively low concentration of ownership and control in large firms before 1910. Archival evidence such as company statutes and shareholder lists document that in many Brazilian corporations voting rights provisions, in particular, maximum vote provisions and graduated voting scales (that provided for less than proportional votes as shareholdings increase), balanced the relative voting power of small and large investors. In companies with such provisions the concentration of ownership and control is shown to have been significantly lower than in the average company. Overall, from the sample of Brazilian companies studied it seems like the concentration of control was significantly lower before 1910 than what it is today.
39 pages
No. 08-071
Alnoor S. Ebrahim
General Management
February 2008
Complete Text (HBS access only, Acrobat PDF Version)
This paper explores how "learning" occurs in the context of environmental policy formulation and implementation. Rather than viewing policy learning as a rational and technocratic process, the emphasis here is on the political and institutional contexts within which opportunities for policy learning emerge. In particular, opportunities for policy learning are examined with respect to: a) agenda or priority-setting on environmental issues; b) stakeholder access and representation in policy formulation; and c) accountability in implementation. Examples are drawn from the experiences of South Africa and Brazil. Several preliminary factors are identified that may enhance policy learning, while acknowledging the constraints of bounded rationality and relationships of power.
39 pages
No. 08-060
Christopher J. Malloy, Tobias J. Moskowitz, and Annette Vissing-Jørgensen
Finance
January 2008
Complete Text (Acrobat PDF Version)
We provide new evidence on the success of long-run risks in asset pricing by focusing on the risks borne by stockholders. Exploiting micro-level household consumption data, we show that long-run stockholder consumption risk better captures cross-sectional variation in average asset returns than aggregate or non-stockholder consumption risk, and provides more plausible economic magnitudes. We find that risk aversion estimates around 10 can match observed risk premia for the wealthiest stockholders across sets of test assets that include the 25 Fama and French size and value portfolios, the market portfolio, bond portfolios, and the entire cross-section of stocks
71 pages
No. 08-024
Katherine L. Milkman, John Beshears
Negotiation, Organizations & Markets
September 2007, revised March 2008, September 2008
Complete Text (Acrobat PDF Version)
We study the effect of small windfalls on consumer spending decisions by comparing the purchases online grocery customers make when redeeming $10-off coupons with the purchases they make without coupons. Controlling for customer fixed effects and other variables, we find that grocery spending increases by $1.59 when a $10-off coupon is redeemed. The extra spending associated with coupon redemption is focused on groceries that a customer does not typically buy. These results are consistent with the theory of mental accounting but are not consistent with the standard permanent income or lifecycle theory of consumption. While the hypotheses we test are motivated by mental accounting, we also discuss some alternative psychological explanations for our findings.
33 pages
No. 08-082
Jolie Mae Martin, John Leonard Beshears, Katherine Lyford Milkman, Max H. Bazerman, and Lisa Sutherland
Negotiation, Organizations & Markets
March 2008, revised March 2008
Complete Text (Acrobat PDF Version)
Background
Research over the last several decades indicates the failure of existing nutritional labels to substantially improve the healthiness of consumers' food and beverage choices. The obstacle for policy-makers is to encapsulate a wide body of scientific knowledge into a labeling scheme that is also comprehensible to the average shopper. Here, we describe our method of developing a nutrition metric to fill this void.
Methods
We asked leading nutrition experts to rate the healthiness of 205 sample foods and beverages, and after verifying the similarity of their responses, generated a model that calculates the expected average healthiness rating that experts would give to any other product based on its nutrient content.
Results
The form of the model is a linear regression that places weights on 12 nutritional components (total fat, saturated fat, cholesterol, sodium, total carbohydrate, dietary fiber, sugars, protein, vitamin A, vitamin C, calcium, and iron) to predict the average healthiness rating that experts would give to any food or beverage. We provide sample predictions for other items in our database.
Conclusions
Major benefits of the model include its basis in expert judgment, its straightforward application, the flexibility of transforming its output ratings to any linear scale, and its ease of interpretation. This metric serves the purpose of distilling expert knowledge into a form usable by consumers so that they are empowered to make healthier decisions.
27 pages
No. 08-013
Carliss Y. Baldwin
Finance
September 2007
Complete Text (Acrobat PDF Version)
This paper constructs a unified theory of the location of transactions and the boundaries of firms. It proposes that systems of production can be viewed as networks of tasks. Transactions, defined as mutually agreed-upon transfers with compensation, are located within the task network and serve to separate one set of tasks from another. Placing a transaction in a particular location in turn requires work to define, count (or measure), and pay for the transacted objects. The costs of this work (labeled mundane transaction costs) are generally low at module boundaries and high in their interiors.
Several novel implications arise from this work. Among these: Modularizations create new module boundaries, hence new transaction locations where entry and competition can arise. Areas in the task network where transfers are dense and complex should not be modularized. Instead these areas should be located in transaction-free zones so that the costs of transacting do not overburden the system. The boundaries of transaction-free zones constitute breakpoints where firms and industries may split apart.
58 pages
No. 08-080
Francesca Gino, Don A. Moore, and Max H. Bazerman
Negotiation, Organizations & Markets
February 2008, revised July 2008, April 2009
Complete Text (Acrobat PDF Version)
We present six studies demonstrating that outcome information biases ethical judgments of others' ethically-questionable behaviors. In particular, we show that the same behaviors produce more ethical condemnation when they happen to produce bad rather than good outcomes, even if the outcomes are determined by chance. Our studies show that individuals judge behaviors as less ethical, more blameworthy, and punish them more harshly, when such behaviors led to undesirable consequences, even if they saw those behaviors as acceptable before they knew its consequences. Furthermore, our results demonstrate that a rational, analytic mindset can override the effects of one's intuitions in ethical judgments. Implications for both research and practice are discussed.
Keywords: outcome bias, unethical behavior, judgment, ethical decision making
52 pages
No. 08-056
Matthew Cary, Aparna Das, Benjamin G. Edelman, Ioannis Giotis, Kurtis Heimerl, Anna R. Karlin, Claire Mathieu, and Michael Schwarz
Negotiation, Organizations & Markets
January 2008
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How should players bid in keyword auctions such as those used by Google, Yahoo! and MSN? We model ad auctions as a dynamic game of incomplete information, so we can study the convergence and robustness properties of various strategies. In particular, we consider best-response bidding strategies for a repeated auction on a single keyword, where in each round, each player chooses some optimal bid for the next round, assuming that the other players merely repeat their previous bids. We focus on a strategy we call Balanced Bidding (BB). If all players use the BB strategy, we show that bids converge to a bid vector that obtains in a complete information static model proposed by Edelman, Ostrovsky, and Schwarz. We prove that convergence occurs with probability 1, and we compute the expected time until convergence.
19 pages
No. 08-072
Benjamin G. Edelman
Negotiation, Organizations & Markets
February 2008, revised August 2008, October 2008, February 2009
Complete Text (Acrobat PDF Version)
Online advertisers face substantial difficulty in selecting and supervising small advertising partners: Fraud can be well-hidden, and limited reputation systems reduce accountability. But partners are not paid until after their work is complete, and advertisers can extend this delay both to improve detection of improper partner practices and to punish partners who turn out to be rule-breakers. I capture these relationships in a screening model with delayed payments and probabilistic delayed observation of agents' types. I derive conditions in which an advertising principal can set its payment delay to deter rogue agents and to attract solely or primarily good-type agents. Through the savings from excluding rogue agents, the principal can increase its profits while offering increased payments to good-type agents. I estimate that a leading affiliate network could have invoked an optimal payment delay to eliminate 71% of fraud without decreasing profit.
Keywords:
Online advertising, screening, signaling, contracts, fraud
16 pages
No. 08-091
Dennis Campbell, Srikant M. Datar, and Tatiana Sandino
Accounting and Management
April 2008
Complete Text (Acrobat PDF Version)
Many companies operate units which are dispersed across different types of markets, and thus serve significantly diverging customer bases. Such market-type dispersion is likely to compromise the headquarters' ability to control its local managers' behavior and satisfy the divergent needs of different types of customers. In this paper we find evidence that market-type dispersion is an important determinant of delegation and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is related to the degree of franchising at the chain level as well as the probability of franchising a given store within a chain. Our results are robust to alternative definitions of market-type dispersion and to other determinants of franchising such as the stores' geographic distance from headquarters and geographic dispersion. Additional analyses also suggest that chains that do not franchise at all, may cope with market-type dispersion by decentralizing operations from headquarters to their stores, and, to a weaker extent, by providing higher variable pay to their store managers.
44 pages
No. 08-051
Ramana Nanda and Jesper B. Sørensen
Entrepreneurial Management
January 2008, revised January 2009
Complete Text (Acrobat PDF Version)
We examine whether the likelihood of entrepreneurial activity depends on the prior career experiences of an individual's co-workers. We argue that peers may increase an individual's likelihood of becoming an entrepreneur through two channels: by increasing the likelihood that an individual will perceive entrepreneurial opportunities, and by increasing his or her motivation to pursue those opportunities. Our analysis uses a unique panel dataset that allows us to track the career histories of individuals across firms. We find that an individual is more likely to become an entrepreneur if his or her co-workers have been entrepreneurs before, or if the co-workers' careers involved frequent movement between firms. Peer influences appear to be substitutes for other sources of entrepreneurial influence: the effects are strongest for those without exposure to entrepreneurship in their family of origin. These effects are robust to attempts to address concerns about unobserved heterogeneity bias.
47 pages
No. 08-040
Charles Cohen and Eric D. Werker
Business, Government and the International Economy
December 2007, revised November 2008
Complete Text (Acrobat PDF Version)
Natural disasters occur in a political space. Although events beyond our control may trigger a disaster, the level of government preparedness and response greatly determines the extent of suffering incurred by the affected population. We use a political economy model of disaster prevention, supported by case studies and preliminary empirics to explain why some governments prepare well for disasters and others do not. We show how the presence of international aid distorts this choice and increases the chance that governments will under-invest. Policy suggestions that may alleviate this problem are discussed.
47 pages
No. 08-092
Aldo Musacchio, Aurora Gómez-Galvarriato, and Rodrigo Parral
Business, Government and the International Economy
April 2008
Complete Text (Acrobat PDF Version)
No abstract available at this time
24 pages
No. 08-068
Mikolaj Jan Piskorski
Strategy
February 2008
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This paper proposes a straightforward way of differentiating between central network positions that confer power and those that confer status. I argue that actors achieve high status by receiving numerous exchanges from actors who in turn receive numerous exchanges from others. In contrast, power is obtained by engaging in exchanges with numerous alternative exchange partners, whose exchange opportunities are limited. These distinctions yield powerful insights into dynamics and consequences of power and status. Specifically, I show that possession of status brings higher benefits than possession of power. However, status puts greater constraints on mobility than power does, as it is harder for a high status actor than for a high power actor to acquire the high power, high status position. Empirical test in the American VC industry confirms these dynamics.
37 pages
No. 08-049
Victoria Ivashina and Anna Kovner
Finance
January 2008
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This paper examines the impact of leveraged buyout firms' bank relationships on the terms of their syndicated loans. Using a DealScan sample of 1,582 loans financing private equity sponsored leveraged buyouts between 1993 and 2005, we find that bank relationships explain cross-sectional variation in the loan interest rate and covenant structure. Our results indicate that two channels allow leveraged buyouts sponsored by private equity firms to receive favorable loan terms. First, bank relationships formed through repeated transactions reduce inefficiencies from information asymmetry between the lender and the leveraged buyout firm. Second, banks price loans to cross-sell other fee business. These effects are additive. A one standard deviation increase in both bank relationship strength and cross-selling potential is associated with a 16 basis point (5%) decrease in spread and a 0.4 point (7%) increase in the Maximum debt to EBITDA covenant. This translates approximately to a 4 percentage point increase in equity return to the leveraged buyout firm. To the best of our knowledge, this is the first paper to analyze the importance of leveraged buyout firms' bank relationships and provide evidence for leveraged buyout firms' favorable leverage terms.
55 pages
No. 08-046
Amy C. Edmondson, and Ingrid M. Nembhard
Technology and Operations Management
January 2008
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The value of teams in new product development (NPD) is undeniable. Both the interdisciplinary
nature of the work and industry trends necessitate that professionals from different functions
work together on development projects to create the highest quality product in the shortest time.
Understanding the conditions that facilitate teamwork has been a pursuit of researchers for nearly
a half-century. We review existing literature on teams and team learning in organizational
behavior and technology and innovation to offer insights for research on new product
development teams. Building on prior work, we summarize the organizational benefits of NPD
teams, and identify five attributes of these teams that hinder attainment of their potential: (1)
project complexity, (2) cross-functionality, (3) temporary membership, (4) fluid team boundaries
and (5) embeddedness in organizational structures. We argue that effective management of these
five attributes allows not only organization-level benefits, but also team-level benefits in the
form of new capabilities and team member resilience. We then highlight the critical roles of
leadership and of communication and conflict management training as strategies for overcoming
the challenges to team effectiveness in NPD, as well as for realizing five team benefits: (1)
project management skills, (2) broad perspective, (3) teaming skills, (4) expanded social
network, and (5) boundary spanning skills. We conclude with a discussion of the implications of
our ideas for conducting future team research.
41 pages
No. 08-058
Deepak Malhotra and Max H. Bazerman
Negotiation, Organizations & Markets
January 2008
Complete Text (Acrobat PDF Version)
This paper discusses the causes and consequences of the (surprisingly) limited extent to which social influence research has penetrated the field of negotiation, and then presents a framework for bridging the gap between these two literatures. The paper notes that one of the reasons for its limited impact on negotiation research is that extant research on social influence focuses almost exclusively on economic or structural levers of influence. With this in mind, the paper seeks to achieve five objectives: (1) Define the domain of psychological influence as consisting of those tactics which do not require the influencer to change the economic or structural aspects of the bargaining situation in order to persuade the target; (2) Review prior research on behavioral decision making to identify ideas that may be relevant to the domain of psychological influence; (3) Provide a series of examples of how behavioral decision research can be leveraged to create psychological influence tactics for use in negotiation; (4) Consider the other side of influence, i.e., how targets of influence might defend against the tactics herein considered; and (5) Consider some of the ethical issues surrounding the use of psychological influence in negotiation.
48 pages
No. 08-028
Giovanni M. Gavetti and Massimo Warglien
Strategy
October 2007
Complete Text (Acrobat PDF Version)
In novel environments, strategic decision-making is often premised on analogy, and recognition lies at its heart. Recognition refers to a class of cognitive processes through which a problem is interpreted associatively in terms of something that has been experienced in the past. Despite recognition's centrality to strategic choice, we have limited knowledge of its nature and its influence on strategic decision-making in individuals, much less in the multi-agent settings in which these decisions typically occur. In this paper, we develop a model that extends neural nets techniques to capture recognition processes in groups of decision-makers. We use the model to derive some fundamental properties of collective recognition. These properties help us understand how the intensity of communication among group-members and some select structural characteristics of the group affect recognition outcomes in novel and structurally ambiguous worlds. In particular, we demonstrate that communication pressure can lead agents to converge to shared interpretations or recognitions that are new to each of them, thereby helping them recognize problems that are genuinely new. We also show that when communication is too intense, its beneficial aspects give way to the pathologies of "groupthink." We conclude by discussing how our results are relevant to strategic choice, as well as how our model complements both other theories of choice that view the role of experience as central and recent work in population ecology that emphasizes cognitive processes.
50 pages
No. 08-104
Troy Smith and Jan W. Rivkin
Strategy
June 2008
Complete Text (Acrobat PDF Version)
In a 2007 working paper, Alan Blinder assessed the "offshorability" of hundreds of U.S. occupations and estimated that between 22% and 29% of all U.S. jobs were potentially offshorable. This note reports the results of an exercise in which members of Harvard Business School's MBA Class of 2009 collectively attempted to replicate Blinder's study. Overall, the MBA students' assessments of offshorability matched Blinder's well. Across occupations, the correlation between Blinder's offshorability rating and the students' was 0.60. The students estimated that between 21% and 42% of U.S. jobs are potentially offshorable. Echoing Blinder, the student data suggested a positive correlation between offshorability and education. The student data also revealed a positive or inverted-U relationship between offshorability and wage level, where Blinder found no correlation. While Blinder found a slight wage penalty for the most offshorable jobs, the student data exhibited no evidence of wage depreciation from job contestability due to offshoring.
30 pages
No. 08-035
Rafael M. Di Tella, Juan Dubra, and Robert MacCulloch
Business, Government and the International Economy
November 2007
Complete Text (Acrobat PDF Version)
We study the correlation between a belief concerning individualism and a measure of luck in the US during the period 1983-2004. The measure of beliefs is the answer to a question related to whether the poor should be helped by the government or if they should help themselves, while the measure of luck is the share of the oil industry in the state's economy multiplied by the price of oil. The correlation is negative, suggesting that more reliance on luck is correlated with less individualism. We provide three short models that help interpret this correlation. One implication of this finding is that societies that depend heavily on oil, and perhaps natural resources more generally, will experience a heavier demand for government intervention. We argue that this is one aspect that the good design of policies on the extraction of oil and mineral resources should take into account.
33 pages
No. 08-059
Alexander Ljungqvist, Christopher J. Malloy, and Felicia Marston
Finance
January 2008
Complete Text (HBS access only, Acrobat PDF Version)
Comparing two snapshots of the historical I/B/E/S database of research analyst stock recommendations, taken in 2002 and 2004 but each covering the same time period 1993-2002, we identify 54,729 ex post changes (out of 280,463 observations), including alterations of recommendation levels, additions and deletions of records, and removal of analyst names. The changes appear non-random across brokerage firms, analysts, and tickers, and have a significant impact on the overall distribution of recommendations across stocks and within individual stocks and brokerage firms. They also affect trading signal classifications, back-testing inferences, track records of individual analysts, and models of analysts' career outcomes in the three years following the changes.
52 pages
No. 08-045
Francesca Gino, Don A. Moore, and Max H. Bazerman
Negotiation, Organizations & Markets
January 2008
Complete Text (Acrobat PDF Version)
It is common for people to be more critical of others' ethical choices than of their own. This chapter explores those remarkable circumstances in which people see no evil in others' unethical behavior. Specifically, we explore 1) the motivated tendency to overlook the unethical behavior of others when we recognize the unethical behavior would harm us, 2) the tendency to ignore unethical behavior unless it is clear, immediate, and direct, 3) the tendency to ignore unethical behavior when ethicality erodes slowly over time, and 4) the tendency to assess unethical behaviors only after the unethical behavior has resulted in a bad outcome, but not during the decision process.
29 pages
No. 08-036
Walter A. Friedman
Entrepreneurial Management
November 2007
Complete Text (HBS only, Acrobat PDF Version)
Roger Babson was a pioneer of the business-forecasting industry in the United States in the early twentieth century. He built the largest private economic forecasting agency in the period and published a great range of economic statistics in his weekly newsletters. As a forecaster, he was best known for advising investors in the month prior to October 1929 that a "crash" was coming that "may be terrific." Most academics, and many businessmen, ridiculed Babson's forecasting methods, which were informed by his belief, based on his reading of Isaac Newton, that economic "actions and reactions" (or depressions and expansions) would always be equal. But Babson was able to gain a following among investors who thought he was either wise or lucky. His blend of new statistical methods and old common-sense reasoning helped him profit as the forecasting industry first developed.
63 pages
No. 08-074
Lauren H. Cohen, Andrea Frazzini, and Christopher J. Malloy
Finance
February 2008
Complete Text (Acrobat PDF Version)
We study the impact of social networks on agents' ability to gather superior information about firms. Exploiting novel data on the educational backgrounds of sell-side equity analysts and senior officers of firms, we test the hypothesis that analysts' school ties to senior officers impart comparative information advantages in the production of analyst research. We find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 5.40% per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 8.16% per year, while post-Reg FD the return premium is nearly zero and insignificant.
46 pages
No. 08-025
Aaron K. Chatterji and Michael W. Toffel
Technology and Operations Management
October 2007, revised May 2008, August 2008, November 2008, April 2009, June 2009
Complete Text (Acrobat PDF Version)
While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower-cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select "socially responsible," and avoid "socially irresponsible," companies. We examine how several hundred firms respond to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory.
Keywords: information disclosure, environmental performance, corporate social responsibility, industry self-regulation, ratings
57 pages
No. 08-055
Lauren H. Cohen, Andrea Frazzini, and Christopher Malloy
Finance
January 2008
Complete Text (Acrobat PDF Version)
This paper uses social networks to identify information transfer in security markets. We focus on connections between mutual fund managers and corporate board members via shared education networks. We find that portfolio managers place larger bets on firms they are connected to through their network, and perform significantly better on these holdings relative to their non-connected holdings. A replicating portfolio of connected stocks outperforms a replicating portfolio of non-connected stocks by up to 8.4% per year. Returns are concentrated around corporate news announcements, consistent with mutual fund managers gaining an informational advantage through the education networks. Our results suggest that social networks may be an important mechanism for information flow into asset prices.
56 pages
No. 08-094
John W. Pratt
May 2008
Complete Text (Acrobat PDF Version)
Conditions one might impose on fair allocation procedures are introduced. Nondiscrimination requires that agents share an item in proportion to their entitlements if they receive nothing else. The "price" procedures of Pratt (2007), including the Nash bargaining procedure, satisfy this. Other prominent efficient procedures do not. In two-agent problems, reducing the feasible set between the solution and one agent's maximum point increases the utility cost to that agent of providing any given utility gain to the other and is equivalent to decreasing the dispersion of the latter's values for the items he does not receive without changing their total. One-agent monotonicity requires that such a change should not hurt the first agent, limited monotonicity that the solution should not change. For prices, the former implies convexity in the smaller of the two valuations, the latter linearity. In either case, the price is at least their average and hence spiteful.
9 pages
No. 08-011
Emmanuel Farhi and Andrei Hagiu
Strategy
August 2007, revised February 2009
Complete Text (Acrobat PDF Version)
Strategic interactions between two-sided platforms depend not only on whether their decision variables are strategic complements or substitutes as for one-sided firms, but also -and crucially so- on whether or not the platforms subsidize one side of the market in equilibrium. For example, with prices being strategic complements across platforms, we show that a cost-reducing investment by one firm may have a positive effect on its rival's profits and a negative effect on its own profits when one side is subsidized in equilibrium. By contrast, if platforms make positive margins on both sides, the same investment has the regular, expected effects. Our analysis implies that the strategy space and the logic of competitive advantage are fundamentally different in two-sided markets relative to one-sided markets.
Keywords:
Two-Sided Markets, Two-Sided Platforms, Strategic Complements, Strategic Substitutes, Competitive Advantage.
26 pages
No. 08-067
Mikolaj Jan Piskorski and Bharat N. Anand
Strategy
February 2008
Complete Text (HBS access only, Acrobat PDF Version)
This paper examines conditions under which high-status firms can retain their positions, even if they lose resources. Firms are considered high status when they obtain ties from other high-status firms. Among high-status firms, we distinguish between those that also receive ties from peripheral low status firms and those that do not. Though the peripheral ties contribute little to firms' status, we hypothesize that they play a critical role in maintaining it in the event of resource loss. Specifically, following resource loss, high-status firms with peripheral ties will retain their status, but those without such ties will lose it. Results of an empirical examination of venture capital syndicate formation in the United States support for these predictions.
43 pages
No. 08-086
Mikolaj Jan Piskorski
Strategy
April 2008
Positional advantages arise when actors obtain rewards attached to positions they occupy, but these rewards are not merited by their performance. Existing theory suggests that in competitive markets there should be no positional advantages. This paper proposes a model of allocation of actors to positions to question this claim. The key result of this model indicates that for positions comprising assets that are costly to separate from each other, actors will be able to maintain their positions despite poor performance, leading to positional advantages. The model is tested by examining the allocation of top-level managers to firms in the American market for corporate control in the 1980s. Using a measure of separation costs derived from Burt's constraint theory, I find support for the hypothesis. The theory and results suggest that markets will not be able to eradicate positional advantages for positions that comprise two or more assets that are costly to separate from each other. For these positions, social mechanisms of aligning performance with rewards will be more useful.
45 pages
No. 08-087
Mikolaj Jan Piskorski and Nitin Nohria
Strategy
April 2008
This paper develops an exchange-network perspective on corporate diversification and proposes two measures of corporate scope: structural closure and structural exposure. Structural closure focuses on exchanges of goods and services inside the firm and proxies for the potential costs of undertaking them through the market instead. By considering exchange relations inside the firm, this measure complements the existing indices that focus on asset relatedness. Structural exposure focuses on exchanges of goods and services across the firm boundary and proxies for the current market-exchange costs as compared to undertaking them inside the firm instead. By focusing on exchanges across the firm boundary, the measure extends the existing approaches in that it captures what the firm could integrate, but decided not to. We posit that higher structural closure will increase firm value, while higher structural exposure will reduce it. We test these hypotheses using stock market reactions to acquisitions and divestitures undertaken by Fortune 100 firms between 1979 and 1992. We find that acquisitions that increase firm structural closure increase firm value, but those that increase structural exposure diminish it. We find equivalent results for divestitures.
51 pages
No. 08-008
Anita Elberse
Marketing
August 2007
The idea that online channels facilitate the distribution of a vast assortment of products is undisputed, but what consequence the increased supply will have on consumer demand is heavily debated. Proponents of the "long tail" principle argue that lower transaction and search costs will lead to a shift away from hit content and cause more fragmentation in consumers' choices. This perspective is in sharp contrast with the more established theory of superstars, which predicts that those forces will in fact homogenize consumption patterns, and a few superstar products will emerge as winners in the market place. In this study, using two large customer transactions data sets obtained from an online music service and an online DVD rental business, which together cover over a million products and over 20 million individual transactions, I examine consumption patterns for obscure and hit products. Specifically, I study whether the interest in popular "hit" and unpopular "niche" titles is equally distributed among the customer base, investigate how customers' choice for popular or unpopular titles relates to their appreciation of those titles, and assess the characteristics of customers in the "head" and "tail" of the distribution of choices across titles. I find that a large share of consumers, particularly those who consume with a higher frequency and concentrate on a narrow selection of genres, regularly opt for obscure products likely not available in bricks-and-mortar stores. Casting doubt on the "democratizing" nature of online channels, however, I also show that even for consumers who regularly choose the most obscure products, hit products typically constitute the lion's share of their choices. Moreover, reminiscent of the "double jeopardy" concept, consumers of obscure products generally appreciate those products less than the more popular products. I discuss managerial implications.
44 pages
No. 08-019
Robert S. Huckman, Bradley R. Staats, and David M. Upton
Technology and Operations Management
September 2007, revised February 2008, July 2008
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Much of the literature on team learning views experience as a unidimensional concept captured by the cumulative production volume of, or the number of projects completed by, a team. Implicit in this approach is the assumption that teams are stable in their membership and internal organization. In practice, however, such stability is rare, as the composition and structure of teams often changes over time or between projects. In this paper, we use detailed data from an Indian software services firm to examine how such changes may affect the accumulation of experience within, and the performance of, teams. We find that the level of team familiarity (i.e., the average number of times that each member has worked with every other member of the team) has a significant positive effect on performance, but we observe that conventional measures of the experience of individual team members (e.g., years at the firm) are not consistently related to performance. We do find, however, that the role experience of individuals in a team (i.e., years in a given role within a team) is associated with better team performance. Our results offer an approach for capturing the experience held by fluid teams and highlight the need to study context-specific measures of experience, including role experience. In addition, our findings provide insight into how the interactions of team members may contribute to the development of broader firm capabilities.
34 pages
No. 08-064
Katherine L. Milkman, James Burns, David C. Parkes, Gregory M. Barron, and Kagan Tumer
Negotiation, Organizations & Markets
February 2008
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We describe an auction mechanism in the class of Groves mechanisms that has received attention in the computer science literature because of its theoretical property of being more "learnable" than the standard second price auction mechanism. We bring this mechanism, which we refer to as the "clamped second price auction mechanism," into the laboratory to determine whether it helps human subjects learn to play their optimal strategy faster than the standard second price auction mechanism. Contrary to earlier results within computer science using simulated reinforcement learning agents, we find that both in settings where subjects are given complete information about auction payoff rules and in settings where they are given no information about auction payoff rules, subjects converge on playing their optimal strategy significantly faster in sequential auctions conducted with a standard second price auction mechanism than with a clamped second price auction mechanism. We conclude that while it is important for mechanism designers to think more about creating learnable mechanisms, the clamped second price auction mechanism in fact produces slower learning in human subjects than the standard second price auction mechanism. Our results also serve to highlight differences in behavior between simulated agents and human bidders that mechanism designers should take into account before placing too much faith in simulations to test the performance of mechanisms intended for human use.
37 pages
No. 08-081
Dennis Campbell, Srikant M. Datar, Susan L. Kulp, and V.G. Narayanan
Accounting and Management
February 2008
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We analyze balanced scorecard data from a convenience store chain, Store24, during the implementation of an innovative, but ultimately unsuccessful strategy. Quarterly strategic reviews, based in part on the firm's balanced scorecard, led executives at Store24 to identify problems with, and eventually abandon, this strategy over a two year period. We find that formal statistical tests of the hypotheses underlying the firm's balanced scorecard and strategy map reveal problems with the strategy on a timelier basis. We also test alternative hypotheses to those underlying the firm's formal strategy map and scorecard that are consistent with concerns expressed by some of Store24's top executives during the initial stages of implementing the new strategy. Our analysis demonstrates that this firm's balanced scorecard contained useful and timely information for distinguishing between these alternatives. These results provide some of the first field-based evidence on the potential for a firm's balanced scorecard to provide useful information for detecting problems in its strategy.
41 pages
No. 08-057
Michael Pirson and Deepak Malhotra
Negotiation, Organizations & Markets
January 2008
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No abstract available
24 pages
No. 08-077
Gregory M. Barron, Giovanni Ursino, and Eldad Yechiam
Negotiation, Organizations & Markets
February 2008
Abstract is not available at this time
17 pages
No. 08-075
Peter Tufano and Daniel Schneider
Finance
April 2008
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We review a wide variety of programs that support savings by families, in particular by low- and moderate-income families. These programs range from ones that literally compel families to save, to those that make it hard not to save, make it easier to save, provide financial incentives to induce savings, leverage social networks to support savers, and finally, to programs that excite people to saving. These programs involve a number of different stakeholders, including governmental entities, social intermediaries, non-profit organizations, and for-profit firms including financial institutions. They embody a number of different assumptions about incentives, drawing from economics, psychology, and sociology. We describe examples of each program and provide some information on their economics and effectiveness. Our goal is not to identify the "best" program, but rather to lay out the range of innovations to meet the needs of heterogeneous potential savers.
59 pages
No. 08-070
Jolie Mae Martin, Gregory M. Barron, and Michael I. Norton
Negotiation, Organizations & Markets, Marketing
February 2008
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In contrast to research which has conflated losses with negative experiences and gains with positive experiences, we argue that because reference points are set by memories of extremely good and bad experiences, most outcomes are seen as losses in positive domains and as gains in negative domains. Utility is thus concave across outcomes in negative but convex in positive domains, inducing variance-aversion in negative and variance-seeking in positive domains. Prevention-focused and older individuals - who engage in processing that shifts reference points to less extreme instances - show a decreased sensitivity to variance. We discuss the marketing implications of preferences for variance.
34 pages
No. 08-041
Eric D. Werker and Faisal Z. Ahmed
Business, Government and the International Economy
December 2007
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39 pages
No. 08-083
Shawn A. Cole, John Thompson, and Peter Tufano
Finance
March 2008, revised April 2008
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In this paper, we analyze the spending decisions of over 1.5 million Americans who vary in their degree of revealed credit constraints. Specifically, we analyze how these Americans spend their income tax refunds, using transaction-level data from a stored-value card product. Card-holders may choose among several tax settlement and loan options, effectively receiving cash as much as 90 days earlier than would have been possible without a settlement product. Those selecting earlier settlement options pay higher fees and interest, therefore revealing the level of credit constraints or impatience. We find that more credit constrained or impatient individuals spend their monies more quickly. The mix of cash and merchant transactions is similar between more and less constrained groups. Finally, the primary merchant uses of refunds are to pay for necessities (grocery stores, gas stations, etc.), and the fraction of the refund spending devoted to these necessities is higher for those with greater revealed credit constraints.
40 pages
No. 08-012
Ann E. Tenbrunsel, Kristina A. Diekmann, Kimberly A. Wade-Benzoni, and Max H. Bazerman
Negotiation, Organizations & Markets
August 2007, revised January 2009
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This paper explores the biased perceptions that people hold of their own ethicality. We argue that the temporal trichotomy of prediction, action and recollection is central to these misperceptions: People predict that they will behave more ethically than they actually do, and when evaluating past (un)ethical behavior, they believe they behaved more ethically than they actually did. We use the "want/should" theoretical framework to explain the bounded ethicality that arises from these temporal inconsistencies, positing that the "should" self dominates during the prediction and recollection phases but that the "want" self is dominant during the critical action phase. We draw on the research on behavioral forecasting, ethical fading, and cognitive distortions to gain insight into the forces driving these faulty perceptions and, noting how these misperceptions can lead to continued unethical behavior, we provide recommendations for how to reduce them. We also include a call for future research to better understand this phenomenon.
64 pages