Spanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment
|Authors:||Juan Alcácer and Paul Ingram|
|Publication:||American Journal of Sociology (forthcoming).|
Global economic transactions such as foreign direct investment must extend over an institutional abyss between the jurisdiction, and therefore protection, of the states involved. Intergovernmental organizations (IGOs), whose members are states, represent an important attempt to span this abyss. IGOs are mandated variously to smooth economic transactions, facilitate global cooperation, and promote cultural contact and awareness. We use a network approach to demonstrate that the connections between two countries through joint-membership in the same IGOs are associated with a large positive influence on the foreign direct investment that flows between them. Moreover, we show that this effect occurs not only in the case of IGOs that focus on economic issues, but also on those with social and cultural mandates. This demonstrates that relational governance is important and feasible in the global context and for the most risky transactions. Finally we examine the interdependence between the IGO network and the domestic institutions of states. The interdependence between these global and domestic institutional forms is complex, with target-country democracy being a substitute for economic IGOs, but a complement for social and cultural IGOs.
Local R&D Strategies and Multi-location Firms: The Role of Internal Linkages
|Authors:||Juan Alcácer and Minyuan Zhao|
|Publication:||Management Science (forthcoming)|
This study looks at the role of firms' internal linkages in highly competitive technology clusters, where much of the world's R&D takes place. The leading players in these clusters are multilocation firms that organize and integrate knowledge across sites worldwide. Strong internal links across locations allow these firms to leverage knowledge for competitive advantage without risking critical knowledge outflow to competitors. We examine whether multi-location firms increase internal ties when they face appropriability risks from direct competitors. Our empirical analysis of the global semiconductor industry shows that when leading firms co-locate with direct market competitors, innovations tend to be quickly internalized and are more likely to involve collaboration across locations, particularly with inventors from the firm's primary R&D site. Our results suggest that R&D dynamics in clusters are heavily influenced by multi-location firms with innovative links across locations and that future research on technology innovation in clusters should account for these links.
Securitization without Adverse Selection: The Case of CLOs
|Authors:||Effi Benmelech, Jennifer Dlugosz, and Victoria Ivashina|
|Publication:||Journal of Financial Economics (forthcoming)|
In this paper, we investigate whether securitization was associated with risky lending in the corporate loan market by examining the performance of individual loans held by CLOs. We employ two different datasets that identify loan holdings for a large set of CLOs and find that adverse selection problems in corporate loan securitizations are less severe than commonly believed. Using a battery of performance tests, we find that loans securitized before 2005 performed no worse than comparable unsecuritized loans originated by the same bank. Even loans originated by the bank that acts as the CLO underwriter do not show underperformance relative to the rest of the CLO portfolio. While there is some evidence of underperformance for securitized loans originated between 2005 and 2007, it is not consistent across samples, performance measures, and horizons. Overall, we argue that the securitization of corporate loans is fundamentally different from securitization of other asset classes because securitized loans are fractions of syndicated loans. Therefore, mechanisms used to align incentives in a lending syndicate are likely to reduce adverse selection in the choice of CLO collateral.
Read the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1344068
The Pursuit of Power Corrupts: Investing in Outside Options Motivates Opportunism in Relationships
|Authors:||D. Malhotra and F. Gino|
|Publication:||Social Psychological Perspectives on Power and Hierarchy." Administrative Science Quarterly (forthcoming)|
This paper illustrates how a common strategic decision aimed at increasing one's own power, i.e., investing in outside options, can lead to opportunistic behavior in exchange relationships. Across three laboratory studies, we show that the extent to which individuals have invested in creating outside options increases the likelihood that they will exploit their current exchange partners, even after controlling for the leverage provided by the outside options. Our results demonstrate that previously sunken investments lead to a heightened sense of entitlement. In turn, feelings of entitlement result in higher aspirations for what is to be gained in the current relationship, and these aspirations fuel opportunism. Finally, we show that other parties may fail to anticipate these effects, leaving them vulnerable to exploitation.
State Activism and the Hidden Incentives Behind Bank Acquisitions
|Authors:||Christopher Marquis, Doug Guthrie, and Juan Almandoz|
|Publication:||Social Science Research (forthcoming)|
A number of studies have shown that, as a result of the ambiguity of U.S. legal mandates, organizations have considerable latitude in how they comply with regulations. In this paper, we address how the different agendas of the federal and state governments increase ambiguities in state-firm relations and how states are interested actors in creating opportunities for firms to navigate the federal legislation. We analyze the institutional forces behind bank acquisitions within and across state lines in order to illuminate the ways that U.S. states take advantage of federal ambiguity and are able to shape corporate practices to their benefit. We specifically examine how patterns of bank acquisitions are shaped by the crucial relationship between the federal Community Reinvestment Act (CRA) and a little understood provision in the federal tax code that is implemented at the state level, the Low-Income Housing Tax Credit (LIHTC). The relationship is complex because, while the federal government uses the CRA to control bank acquisition activity, states promote use of the LIHTC, through which banks can address federal CRA concerns, and thereby promote bank acquisitions in their jurisdictions. Thus, our findings suggest that the implementation of social legislation at one level in a federal regulatory system undermines the mechanisms of social legislation at another level. We use archival research and in-depth interviews to examine the interaction between these institutional processes and formulate hypotheses that predict the ways in which bank acquisitions are constrained by banks' CRA ratings and the way states in turn help banks overcome their CRA constraints. Quantitative analyses of all bank acquisitions in the U.S. from 1990 to 2000 largely support these hypotheses.
The IKEA Effect: When Labor Leads to Love
|Authors:||Michael I. Norton, Daniel Mochon, and Dan Ariely|
|Publication:||Journal of Consumer Psychology (forthcoming)|
In four studies in which consumers assembled IKEA boxes, folded origami, and built sets of Legos, we demonstrate and investigate boundary conditions for the IKEA effect-the increase in valuation of self-made products. Participants saw their amateurish creations as similar in value to experts' creations and expected others to share their opinions. We show that labor leads to love only when labor results in successful completion of tasks; when participants built and then destroyed their creations, or failed to complete them, the IKEA effect dissipated. Finally, we show that labor increases valuation for both "do-it-yourselfers" and novices.
Read the paper: http://www.people.hbs.edu/mnorton/norton%20mochon%20ariely.pdf
A Global Leader's Guide to Managing Business Conduct
|Authors:||Lynn S. Paine, Rohit Deshpandé, and Joshua D. Margolis|
|Publication:||Harvard Business Review 89, no. 9|
An abstract is unavailable at this time.
Dynamically Integrating Knowledge in Teams: Transforming Resources into Performance
|Authors:||Heidi K. Gardner, Francesca Gino, and Bradley R. Staats|
In knowledge-based environments, teams must develop a systematic approach to integrating knowledge resources throughout the course of projects in order to perform effectively. Yet, many teams fail to do so. Drawing on the resource-based view of the firm, we examine how teams can develop a knowledge-integration capability to dynamically integrate members' resources into higher performance. We distinguish among three sets of resources: relational, experiential, and structural and propose that they differentially influence a team's knowledge-integration capability. We test our theoretical framework using data on knowledge workers in professional services and discuss implications for research and practice.
Download the paper: http://www.hbs.edu/research/pdf/11-009.pdf
The Cost of Capital for Alternative Investments
|Authors:||Jakub W. Jurek and Erik Stafford|
This paper studies the cost of capital for alternative investments. We document that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy that offers monthly liquidity and complete transparency over its state-contingent payoffs. The contractual nature of the put options in the benchmark portfolio allows us to evaluate appropriate required rates of return as a function of investor risk preferences and the underlying distribution of market returns. This simple framework produces a number of distinct predictions about the cost of capital for alternatives relative to traditional mean-variance analysis.
Download the paper: http://www.hbs.edu/research/pdf/12-013.pdf
Testing Coleman's Social-Norm Enforcement Mechanism: Evidence from Wikipedia
|Authors:||Mikołaj Jan Piskorski and Andreea Gorbatai|
Since Durkheim, sociologists have believed that dense network structures lead to fewer norm violations. Coleman (1990) proposed one explanatory mechanism, arguing that dense networks provide an opportunity structure to reward those who punish norm violators, leading to more frequent punishment and in turn fewer norm violations. Despite ubiquitous scholarly references to Coleman's theory, little empirical work has directly tested it in large-scale natural settings with longitudinal data. We undertake such a test using records of norm violations during the editing process on Wikipedia, the largest user-generated on-line encyclopedia. These data allow us to track all three elements required to test Coleman's mechanism: norm violations, punishments for such violations, and rewards for those who punish violations. The results are broadly consistent with Coleman's mechanism.
Download the paper: http://www.hbs.edu/research/pdf/11-055.pdf
Cases & Course Materials
JetBlue Airways: Deicing at Logan Airport
Douglas Fearing and Robert S. Huckman
Harvard Business School Case 612-028
The case explores a deicing capacity expansion decision made by JetBlue at Boston Logan International Airport in the summer of 2010. The need for capacity expansion was driven by significant challenges faced during the previous winter combined with substantial scheduled growth for the upcoming winter.
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Ganging Up on Cancer: Integrative Research Centers at the Dana Farber Cancer Institute
Heidi K. Gardner, Edo Bedzra, and Shereef M. Elnahal
Harvard Business School Case 412-029
Dr. Barrett Rollins, chief scientific officer of the Dana Farber Cancer Institute, attempts to engender cross-scientist collaboration by applying project management principles to medical research. The resulting innovation, Integrative Research Centers, are novel in this field and present a substantial challenge to the Institute's culture, which had previously allowed faculty scientists complete autonomy over their research. Center leaders are required to develop a business plan, adhere to agreed-upon performance metrics, and undergo regular progress reviews conducted by a peer-led oversight committee. The Center for Nanotechnology in Cancer, a new but crucial center in the program, has failed to meet almost all of its objectives in the first year. Furthermore, a heated dispute between two faculty members in the center has complicated matters significantly. Rollins is flummoxed by these problems because he thought he had provided resources and clear objectives to all of the centers. He must urgently diagnose the main reason(s) for the center's shortcomings and develop a plan of action so that this center's problems do not undermine the whole initiative toward greater scientific collaboration.
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FIJI Water: Carbon Negative?
Francesca Gino, Michael W. Toffel, and Stephanie van Sice
Harvard Business School Case 611-049
Seeking to go beyond global best practices in reducing environmental impacts, FIJI Water, a premium artesian bottled water company in the United States, launched a Carbon Negative campaign that would offset more greenhouse gas emissions than were released by the company's operations and products. The case examines the controversies surrounding this program as well as the program's impacts on the environment and FIJI Water's brand image. The company also faced decisions regarding how to best manage its relationship with the Fijian government, which recently dramatically raised imposed export taxes and could limit FIJI Water's access to water, its primary raw material. The case enables students to better understand the challenges of implementing an environmental strategy and of negotiating with parties that control raw materials and invites discussion of the effectiveness of various approaches and the general lessons for the management of companies seeking to operate in an environmentally responsible manner.
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Enman Oil, Inc. (G)
David F. Hawkins
Harvard Business School Supplement 112-026
Oil and gas company Enman Oil attempts to lower its total leverage value by switching from the successful efforts method to the full costs method.
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Narayana Hrudayalaya Heart Hospital: Cardiac Care for the Poor (B)
Tarun Khanna and Tanya Bijlani
Harvard Business School Supplement 712-402
Narayana Hrudayalaya (NH) has expanded into a multi-specialty health city in Bangalore and has grown to twelve locations across India. The hospital plans to build 300-bed secondary-care hospitals in smaller cities across India, with a goal to operate 30,000 beds in seven years, which will make it comparable with the world's largest hospital chains. NH operates the world's largest tele-cardiology network, which provides consultations to people in 800 locations across the world, including 53 African countries. Management also plans to open a 2,000-bed hospital in the Cayman Islands to provide underinsured Americans with tertiary care procedures at 40% below U.S. prices, thereby bringing Dr. Shetty's model of compassionate care at affordable prices to the developed world.
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Language and Globalization: 'Englishnization' at Rakuten
Harvard Business School Case 412-002
Hiroshi Mikitani, the CEO of Rakuten (Japan's largest online retailer), is at the helm of an organization that is rapidly expanding into global markets. In a critical stride toward becoming the world's No. 1 Internet services company, Mikitani announces Englishnization-a highly publicized aggressive two-year English proficiency mandate for all 7,100 of Rakuten's Japanese employees. At the time, only an estimated 10% of the Japanese staff could function in English. The stakes are high: those who do not reach their target score by the deadline risk being demoted. As Englishnization progresses, loss of productivity, lack of time to study, and conflicted views among managers impede staff success. Some employees even question the relevance of Englishnization, particularly for staff working exclusively in Japan. Fifteen months since the announcement, the vast majority had not yet reached their target English proficiency scores. With the deadline rapidly approaching, Mikitani must decide how to proceed to ensure the success of Englishnization and the continued global rise of his organization.
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Note on Evaluating Empirical Research
Michael I. Norton
Harvard Business School Note 512-019
This note is intended to provide students with a basic understanding of how to evaluate empirical research papers. While reading both case studies and empirical research require close attention and scrutiny, evaluating empirical research requires a different "lens"-this note briefly outlines how to adopt this mindset. It includes a review of the major sections of an empirical research paper (introduction, method, results, and discussion), as well as guidelines on how to evaluate each section.
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Securities Lending after the Financial Crisis
Robert C. Pozen and Gayle Hameister
Harvard Business School Case 311-130
In April 2009, Wendy Jefferson had just returned to her office following a whirlwind day of meetings with her newest client, Star Advisor. Jefferson, a financial services consultant, was eager to dig into the information provided to her and her team about the Star mutual funds and the income the funds earned from securities lending. Securities lending involved temporarily transferring securities from mutual funds managed by Star Advisor to short sellers and other investors. Income from these loans had been a small but secure component of Star mutual fund returns for decades.
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Intraoperative Radiotherapy for Breast Cancer
Harvard Business School Case 612-003
"This trial is going to take longer." Those were words that Michael Kaschke, CEO of Carl Zeiss AG, was not surprised to hear as he nurtured the intraoperative radiotherapy business inside his company's microsurgery unit. But he also didn't expect it to take 13 years to get to the end of an all-important clinical trial that was a critical enabler to the granting of reimbursement codes. The technology was clearly disruptive to him, but as the business confronted the challenges of improving the standard of care for women with breast cancer, he couldn't help but wonder if the greater opportunity was in vastly underserved emerging markets. But for 13 years he had been telling the team the importance of focus, and as the advanced markets of Germany, the U.K., and the U.S. started to hit high growth rates, was he now telling them something different? Was this a focus question or a strategic sequencing question?
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