Surviving the Global Financial Crisis: Foreign Direct Investment and Establishment Performance
|Authors:||Laura Alfaro and Maggie Chen|
We examine in this paper the differential response of establishments to the global financial crisis, with particular emphasis on the role of foreign direct investment (FDI) in determining micro economic performance. Using a new worldwide dataset that reports the activities of more than 12 million establishments before and after 2008, we investigate how multinationals around the world responded to the crisis relative to local firms. We explore three distinct channels through which FDI affects establishment performance: (i) production linkages, (ii) financial linkages, and (iii) multinational networks. Our analysis shows that while multinational-owned establishments performed, on average, better than their local competitors, there is considerable heterogeneity in the role of FDI. First, multinationals located in countries that experienced sharper declines in aggregate output, demand, and credit conditions displayed a greater advantage over local firms. Multinationals headquartered in countries with a greater incidence of the crisis, in contrast, fared less satisfactorily abroad. Second, multinationals that engaged in activities with vertical production linkages or stronger financial constraints exhibited particularly better responses compared to local firms. Finally, being part of a larger multinational network also led to superior economic performance.
Download the paper: http://www.hbs.edu/research/pdf/10-110.pdf
Trade Policy and Firm Boundaries
|Authors:||Laura Alfaro, Paola Conconi, Harald Fadinger, and Andrew F. Newman|
We study how trade policy affects firms' ownership structures. We embed an incomplete contracts model of vertical integration choices into a standard perfectly-competitive international trade framework. Integration decisions are driven by a trade-off between the pecuniary benefits of coordinating production decisions and the managers' private benefits of operating in preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits: higher prices lead to more integration. Because tariffs increase domestic product prices, this effect provides a novel theoretical channel through which trade policy can influence firm boundaries. We then examine the evidence, using a unique dataset to construct firm-level indexes of vertical integration for a large set of countries. In line with the predictions of our model, we obtain three main results. First, higher tariffs lead to higher levels of vertical integration. Second, differences in ownership structure across countries, measured by the difference in sectoral vertical integration indexes, are smaller in sectors with similar levels of protection. Finally, ownership structures are more alike among members of regional trade agreements.
Download the paper: http://www.hbs.edu/research/pdf/10-060.pdf
Manipulability in Matching Markets: Conflict and Coincidence of Interests
|Authors:||Itai Ashlagi and Flip Klijn|
We study comparative statics of manipulations by women in the men-proposing deferred acceptance mechanism in the two-sided one-to-one marriage market. We prove that if a group of women employs truncation strategies or weakly successfully manipulates, then all other women weakly benefit and all men are weakly harmed. We show that our results do not appropriately generalize to the many-to-one college admissions model.
Download the paper: http://www.hbs.edu/research/pdf/10-111.pdf
Evaluating the Effects of Large-Scale Health Interventions in Developing Countries: The Zambian Malaria Initiative
|Authors:||Nava Ashraf, Günther Fink, and David N. Weil|
Since 2003, Zambia has been engaged in a large-scale, centrally coordinated national anti-malaria campaign which has become a model in sub-Saharan Africa. This paper aims at quantifying the individual and macro level benefits of this campaign, which involved mass distribution of insecticide treated mosquito nets, intermittent preventive treatment for pregnant women, indoor residual spraying, rapid diagnostic tests, and artemisinin-based combination therapy. We discuss the timing and regional coverage of the program and critically review the available health and program rollout data. To estimate the health benefits associated with the program rollout, we use both population based morbidity measures from the Demographic and Health Surveys and health facility based mortality data as reported in the national Health Management Information System. While we find rather robust correlations between the rollout of bed nets and subsequent improvements in our health measures, the link between regional spraying and individual level health appears rather weak in the data.
Purchase the paper from SSRN ($5): http://papers.nber.org/papers/w16069
Financial Innovation and Financial Fragility
|Authors:||Nicola Gennaioli, Andrei Shleifer, and Robert W. Vishny|
We present a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions. First, investors (and possibly intermediaries) neglect certain unlikely risks. Second, investors demand securities with safe cash flows. Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks. Because the risks are neglected, security issuance is excessive. As investors eventually recognize these risks, they fly back to the safety of traditional securities and markets become fragile, even without leverage, precisely because the volume of new claims is excessive.
Purchase the paper from SSRN ($5): http://papers.nber.org/papers/W16068
Cases & Course Materials
Virginia Mason Medical Center (Abridged)
Harvard Business School Case 610-055
In 2000, Dr. Gary Kaplan became CEO of the Virginia Mason Medical Center in Seattle, Washington. The hospital was facing significant challenges: it was losing money for the first time in its history, staff morale had plummeted, and area hospitals presented ardent competition. Considerable change was imminent. Within his first few months, Kaplan had rallied the organization around a new strategic direction: to become the quality leader in health care. What Kaplan and his administrators lacked was an effective tool to execute their strategy. Soon thereafter, a series of serendipitous events led to the discovery of the Toyota production system, and the Virginia Mason Medical Center became entrenched in an overwhelming challenge: how to institute a production model in health care.
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Securities Trading: Front, Middle and Back Office
Francois Brochet and Rakeen Mabud
Harvard Business School Note 110-070
This note explains the basic structure of the trading floor in a typical financial institution and how the front, middle and back offices interact to ensure a functioning trading system.
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The Robin Hood Foundation
Alnoor S. Ebrahim and Cathy Ross
Harvard Business School Case 310-031
Created by hedge fund and financial managers, the Robin Hood Foundation fights poverty through grants to nonprofit organizations. As the global financial crisis continues to impact the poor disproportionately, the Foundation needs to ensure that its funds are being spent on the most effective poverty-fighting programs. The organization's senior vice president, Michael Weinstein, has developed a benefit-cost (BC) approach to analyze the performance of program grants. How effective is the method? Is funding programs with the highest BC ratios a good way to fight poverty? In three or five years' time, how will Robin Hood know if it is succeeding?
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Water Shortage and Property Investing in Mexico City
John D. Macomber, Regina Garcia-Cuellar, and Griffin H. James
Harvard Business School Case 210-085
A commercial property company evaluates water risks including the government's ability to remedy, the company's operating exposure and mitigation, and whether to relocate because of water risk. A real estate fund manager assesses investment prospects in Mexico City in the context of a major water supply and distribution crisis facing one of the world's largest cities. Can the investment manager understand the water problems so she can make a decision whether to invest in Mexico City? What will she learn about how water is sourced and distributed in Mexico City? And how might the potential public-private partnerships being discussed affect her investment prospects? The fund's investors are seeking real estate exposure in major world cities, particularly Mexico City. How can they assess and mitigate this exposure? How can they extend this thinking to other cities and countries?
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A Note on Real Estate Research
Arthur I Segel, Griffin H. James, and Ann Cullen
Harvard Business School Note 210-086
This note provides a comprehensive research guide for real estate students, professionals, and executives. It includes lists of real estate industry trade organizations, publicly available research resources, books, and journals relevant to a wide range of financial and operational careers in real estate.
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