First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

Jan. 22

Peers may lead us to lower-paying jobs

While job hunting, many of us form expectations about possible wages and job availability by asking peers. Depending on their replies, new research explains, we may sell ourselves short on the job market. Researcher Julio J. Rotemberg's new model shows that job seekers whose peers have low wages and short unemployment spells "come to expect that all jobs have relatively low wages so they accept low-wage jobs relatively quickly. People with peers that have higher wages are, instead, more choosy and wait for better jobs." One possible winner of this effect are firms that pay low wages. These companies "should be particularly eager to enroll their employees in the recruitment of others, and this might reinforce the phenomenon discussed here." The paper Prominent Job Advertisements, Group Learning and Wage Dispersion explains the details.

Foreign influence on Mexico's banks

In 1991 only 1 percent of bank assets in Mexico were foreign owned; today they control 74 percent, notes a new working paper by Stephen Haber and Aldo Musacchio. Thanks to the Mexican government's regulatory actions, "In no other country in the world has the penetration of foreign banks been as rapid or as far-reaching as in Mexico." The research explores how the arrival of foreign banks has affected both the country's banking system and its social welfare. Read the paper, These Are the Good Old Days: Foreign Entry and the Mexican Banking System."

Confronting the paradox of Japanese capitalism

The "paradox of Japanese capitalism" is this: Japanese companies generally provide little transparency into their operations, a fact that some believe allows corporate leaders to invest more in the future and provide stability. Yet this opacity also encourages corruption, which in turn discourages investors and blankets risk-taking. The new case study "A Politician in a Leather Suit and the Paradox of Japanese Capitalism" follows flamboyant politician Kotaro Tamura as he delivers this message and potential consequences to conservative—and non-receptive—leadership. The case was written by Karthik Ramanna and Matthew Shaffer.

 

Publications

The Burden of Guilt: Heavy Backpacks, Light Snacks, and Enhanced Morality

Abstract

Drawing on the embodied simulation account of emotional information processing, we argue that the physical experience of weight is associated with the emotional experience of guilt and thus that weight intensifies the experience of guilt. Across four studies, we found that participants who wore a heavy backpack experienced higher levels of guilt as compared to those who wore a light backpack. Additionally, wearing a heavy backpack affected participants' behavior. Specifically, it led them to be more likely to choose healthy snacks over guilt-inducing ones and boring tasks over fun ones. It also led participants to cheat less. Importantly, self-reported guilt mediated the effect of wearing a heavy backpack on these behaviors. Our studies also examined the mechanism behind these effects and demonstrated that participants processed guilty stimuli more fluently when experiencing physical weight.

Imprinting: Toward A Multilevel Theory

Abstract

The concept of imprinting has attracted considerable interest in numerous fields-including organizational ecology, institutional theory, network analysis, and career research-and has been applied at several levels of analysis, from the industry to the individual. This article offers a critical review of this rich yet disparate literature and guides research toward a multilevel theory of imprinting. We start with a definition that captures the general features of imprinting across levels of analysis but is precise enough to remain distinct from seemingly similar concepts, such as path dependence and cohort effects. We then provide a framework to order and unite the splintered field of imprinting research at different levels of analysis. In doing so, we identify economic, technological, institutional, and individual influences that lead to imprints at the level of (a) organizational collectives, (b) single organizations, (c) organizational building blocks, and (d) individuals. Building on this framework, we develop a general model that points to major avenues for future research and charts new directions toward a multilevel theory of imprinting. This theory provides a distinct lens for organizational research that takes history seriously.

Rituals Alleviate Grieving for Loved Ones, Lovers, and Lotteries

Abstract

Three experiments explored the impact of mourning rituals after losses-of loved ones, lovers, and lotteries-on mitigating grief. Participants who were directed to reflect on past rituals or who were assigned to complete novel rituals after experiencing losses reported lower levels of grief. Increased feelings of control after rituals mediated the link between use of rituals and reduced grief after losses, and the benefits of rituals accrued not only to individuals who professed a belief in rituals' effectiveness but also those who did not. Although the specific rituals in which people engage after losses vary widely by culture and religion-and among our participants-our results suggest a common psychological mechanism underlying their effectiveness: regained feelings of control.

Paper: http://www.people.hbs.edu/mnorton/norton%20gino.pdf

Rituals Enhance Consumption

Abstract

Four experiments tested the novel hypothesis that ritualistic behavior potentiates and enhances the enjoyment of ensuing consumption-an effect found for chocolates, lemonade, and even carrots. Experiment 1 showed that ritual behaviors compared to a no-ritual condition, made chocolate more flavorful, valuable, and deserving of behavioral savoring. Experiment 2 demonstrated that random gestures do not boost consumption like ritualistic gestures do. It further showed that a delay between a ritual and the opportunity to consume heightens enjoyment, which attests to the idea that ritual behavior stimulates goal-directed action (to consume). Experiment 3 found that performing rituals oneself enhanced consumption more than merely watching someone else perform the same ritual, suggesting that personal involvement is crucial for the benefits of rituals to emerge. Last, Experiment 4 provided direct evidence of the underlying process: Rituals enhance consumption enjoyment due to the greater involvement they prompt in the experience.

Paper: http://www.people.hbs.edu/mnorton/vohs%20wang%20gino%20norton.pdf

 

Working Papers

Fostering Translational Research: Using Public-Private Partnerships to Improve Firm Survival, Employment Growth, and Innovative Performance

Abstract

Scientific research and its translation into commercialized technology is a driver of wealth creation and economic growth. Partnerships between public research organizations, such as universities and hospitals, and private firms are an established policy tool around the world for the delivery of social or public services, and their use as a tool to foster the translation of basic science into commercial applications that spur economic growth and increased employment has attracted increased interest. Yet questions about efficacy and the efficiency with which funds are used is a subject of frequent debate. This paper examines empirical data from the Danish National Advanced Technology Foundation (DNATF or Højteknologifonden in Danish), an agency that funds partnerships between universities and private companies to develop technologies important to Danish industry. We assess the effect of a particular "mediated funding" scheme that combines project grants with active facilitation and conflict management on firm performance-survival, employment, and growth-and firm innovative performance-quantity, quality, and nature of patents and papers-by comparing funded and unfunded firms. To address endogeneity around selection bias, we use a qualitatively similar subsample of small and medium enterprises just above and just below the funding cutoff threshold and find convincing evidence that DNATF's mediated funding model has a compelling effect on firm performance and overall innovative performance three to four years after receipt of funds. Selection of a firm to participate helps it to stay financially viable and significantly decreases the likelihood of bankruptcy by up to 2.7 times (270%) four years after funding application. Selection also increases the average level of employment by 9.8 to 14.2 more employees for chosen firms, respectively two and three years after application. For innovative performance, selection of a firm for participation meant an increase in filed patents by up to 520%, granted patents by up to 430% and peer-reviewed publications 370%, but the effect of selection was mainly felt in quality of the innovations. Peer-reviewed citations for selected firms were 1,370% greater than those firms that did not make the cut-off. Finally, this public-private partnership model increased the level of collaboration among academic research scientists and those in private firms-participating firms collaborated 3.1 times more with colleagues in academia. This is a dramatic increase in collaboration and co-authoring across institutions, providing strong evidence for the benefits of breaking down the boundaries between institutions and enabling teams of individuals from both sides in public-private partnerships to work together alongside one another.

Download the paper: http://ssrn.com/abstract=2197876

Expectations of Returns and Expected Returns

Abstract

We analyze time-series of investor expectations of future stock market returns from five data sources between 1963 and 2011. All five measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient.

Download the paper: http://papers.nber.org/papers/w18686

These Are the Good Old Days: Foreign Entry and the Mexican Banking System

Abstract

In 1997, the Mexican government reversed long-standing policies and allowed foreign banks to purchase Mexico's largest commercial banks and relaxed restrictions on the founding of new, foreign-owned banks. The result has been a dramatic shift in the ownership structure of Mexico's banks. For instance, while in 1991 only 1% of bank assets in Mexico were foreign owned, today they control 74% of assets. In no other country in the world has the penetration of foreign banks been as rapid or as far-reaching as in Mexico. In this work we examine some of the important implications of foreign bank entry for social welfare in Mexico. Did liberalization lead to an increase (or decrease) in the supply of credit? Did liberalization lead to an increase (or decrease) in the cost of credit? Did liberalization lead to an increase (or decrease) in the stability of the banking system? In order to answer these questions, we must first ask, "increase (or decrease), measured on what basis?" There are, in fact, two distinct conceptual frameworks through which one can assess the impact of foreign bank entry. One is concerned with measuring the short-run impacts of foreign entry on credit abundance, pricing, and observable stability using reduced form regressions. The other is an institutional economics conception of how to measure performance. It is focused on understanding whether foreign entry gave rise to difficult-to-reverse changes in the political economy of bank regulation, which will affect competition and stability in the long-term, outside the period that may be observed empirically. We employ both conceptions in this paper.

Download the paper: http://ssrn.com/abstract=2199055

Prominent Job Advertisements, Group Learning and Wage Dispersion

Abstract

A model is presented in which people base their labor search strategy on the average wage and the average unemployment duration of people who belong to their peer group. It is shown that, if the distribution of wage offers is not stationary so lower wage offers tend to arrive before higher wage ones, such learning can induce a great deal of wage inequality. An equilibrium model is developed in which firms can choose either to advertise their job openings prominently or not. Prominent ads are assumed to have more influence on more inexperienced job searchers who are less able to identify a multiplicity of viable jobs. Equilibria can then feature groups that learn naively from the experience of their members and accept low wage offers from prominent ads while other groups do not find these offers acceptable. A new test statistic is proposed that measures whether, as predicted by the model, the gains from increasing one's reservation wage are larger than either those that people expect or those predicted by models in which job offers are stationary.

Download the paper: http://papers.nber.org/papers/w18638

Punctuated Generosity: How Mega-events and Natural Disasters Affect Corporate Philanthropy in U.S. Communities

Abstract

This article focuses on geographic communities as fields in which human-made and natural events occasionally disrupt the lives of organizations. We develop an institutional perspective to unpack how and why major events within communities affect organizations in the context of corporate philanthropy. To test this framework, we examine how different types of mega-events (the Olympics, the Super Bowl, political conventions) and natural disasters (such as floods and hurricanes) affected the philanthropic spending of locally headquartered Fortune 1000 firms between 1980 and 2006. Results show that philanthropic spending fluctuated dramatically as mega-events generally led to a punctuated increase in otherwise relatively stable patterns of giving by local corporations. The impact of natural disasters depended on the severity of damage: while major disasters had a negative effect, smaller-scale disasters had a positive impact. Firms' philanthropic history and communities' intercorporate network cohesion moderated some of these effects. This study extends the institutional and community literatures by illuminating the geographic distribution of punctuating events as a central mechanism for community influences on organizations, shedding new light on the temporal dynamics of both endogenous and exogenous punctuating events and providing a more nuanced understanding of corporate-community relations.

Download the paper: http://ssrn.com/abstract=2028982

 

Cases & Course Materials

New Balance Athletic Shoe, Inc. (Abridged)

Bowen, H. Kent, Robert S. Huckman, Carin-Isabel Knoop, and Matthew Preble
Harvard Business School Case 613-006

No abstract available.

Purchase this case:
http://hbr.org/search/613006-PDF-ENG

Harrah's Entertainment

Gompers, Paul A., Kristin Mugford, and J. Daniel Kim
Harvard Business School Case 213-054

This case examines the issues of establishing a capital structure for the leveraged buyout of Harrah's Casino.

Purchase this case:
http://hbr.org/search/213054-PDF-ENG

The Universalization of L'Oréal

Lal, Rajiv, and Carin-Isabel Knoop
Harvard Business School Case 513-001

In 2010, half of the world's cosmetics sales came from the so-called emerging markets for the first time; L'Oréal opened three new subsidiaries, in Egypt, Pakistan, and Kazakhstan; and the Paris, France-based cosmetics and personal care powerhouse declared its intention to double its consumer base to two billion and increase its share of sales from emerging markets. CEO Jean-Paul Agon made it his number one goal to "prepare the company to keep its global leadership in this new era."

Purchase this case:
http://hbr.org/search/513001-PDF-ENG

Building a Community at Semiconductor Manufacturing International Corporation

Marquis, Christopher, Zucheng Zhou, Mo Chen, and Heng Fan
Harvard Business School Case 413-083

Over the past decade, Semiconductor Manufacturing International Corporation (SMIC) had developed a unique set of benefits and cultural amenities for its employees, including a beautiful residential campus, known as the Living Quarters (LQ), and an award winning international school from pre-kindergarten through twelfth grade that by 2012 enrolled over 2,000 students. These amenities allowed the company to attract and retain high-quality employees at modest pay; however, the company had recently experienced some financial difficulties, a shrinking number of new available living spaces, and questions about how relevant it was for a semiconductor firm to be operating a school. Thus, these benefits now presented significant dilemmas for the SMIC management team, including how the company can justify the costs of these benefits to investors in the face of the company's other financial challenges.

Purchase this case:
http://hbr.org/search/413083-PDF-ENG

A Politician in a Leather Suit and the Paradox of Japanese Capitalism

Ramanna, Karthik, and Matthew Shaffer
Harvard Business School Case 113-026

Two lost decades later, capitalism in Japan embodies peculiar contradictions-preserving wealth and social stability in the face of declining economic power. Scant transparency in Japanese corporate practices plays an important role in this phenomenon. Sometimes justified as an embodiment of Japanese culture, the opacity of Japanese corporations is credited with empowering managers to make long-term business decisions that preserve employment and business relationships and maintain social harmony. But opacity also facilitates fraud and corruption, which erode investor confidence and stifle risk-taking. A flamboyant politician Kotaro Tamura attempts to raise public awareness around these tensions, but his provocative style earns him few friends in Japan's conservative political establishment.

Purchase this case:
http://hbr.org/search/113026-PDF-ENG

Ahold versus Tesco-Analyzing Performance

Srinivasan, Suraj, and Penelope Rossano
Harvard Business School Case 113-040

The case relates to understanding and comparing the performance of two leading retail companies-Ahold and Tesco. The case introduces the tools of Dupont and Modified Dupont Decomposition. While performance as measured by return on equity has been similar for the two companies, Ahold has had significantly better stock market performance compared to Tesco. Ahold also has a significant amount of cash on its balance sheet leading to low levels of net debt. The case requires students to analyze performance using Modified Dupont Decomposition techniques to assess if firm performance is resulting from operating profitability or from financial leverage and then suggest strategies to improve performance. To perform the modified Dupont Decomposition, students learn how to reformat and condense the balance sheet and income statement to separately measure profitability arising from operating activities and financing activities. Students also see how excess cash holdings can depress profitability and what factors should drive the appropriate level of leverage for a company.

Purchase this case:
http://hbr.org/search/113040-PDF-ENG