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.

September 24

From CFO to president—the hard way

Imagine that on your first day as CFO it becomes clear your employer is cooking the books. What do you do? If you are Ken Traub, you resign—then consider rejoining the company as its president. "Should he take the job or is the company a sinking ship?" asks the case study, "Ken Traub at American Bank Note Holographics," by Suraj Srinivasan and Michael Norris.

Communicating sustainability values with investors

Neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into communications with investors, according to the authors of "A Tale of Two Stories: Sustainability and the Quarterly Earnings Call." The paper, written by Robert G. Eccles and George Serafeim and published in Journal of Applied Corporate Finance, looks at the dynamics of just such an call conducted by SAP and joined mainly by buy-side investors and analysts.

A development in West Bengal

Harvard Business School continues to expand its case offerings exploring business issues around the world. In "Bardhaman (A) & (B)," John D. Macomber follows a real estate developer hoping to develop on farmland in West Bengal, India. Issues include whether the developer should sell raw lots or build a planned development, and whether to enter into a public-private partnership with the state.

 

Publications

  • August 2013
  • Financial Analysts Journal

The Low Beta Anomaly: A Decomposition into Micro and Macro Effects

By: Baker, Malcolm, Brendan Bradley, and Ryan Taliaferro

Abstract—Low beta stocks have offered a combination of low risk and high returns. We decompose the anomaly into micro and macro components. The micro component comes from the selection of low beta stocks. The macro component comes from the selection of low beta countries or industries. The two parts both contribute to the low beta anomaly, with important implications for the construction of managed volatility portfolios.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45597

  • August 2013
  • Social Psychological & Personality Science

I'm Sorry About the Rain! Superfluous Apologies Demonstrate Empathic Concern and Increase Trust

By: Brooks, Alison Wood, Hengchen Dai, and Maurice E. Schweitzer

Abstract—Existing apology research has conceptualized apologies as a device to rebuild relationships following a transgression. As a result, apology research has failed to investigate the use of apologies for outcomes for which individuals are obviously not culpable (e.g., apologies for heavy traffic or bad weather). In this paper, we define superfluous apologies as expressions of regret for an undesirable circumstance for which the apologizer is clearly not responsible. Across four studies, we find that issuing a superfluous apology demonstrates empathic concern, which motivates an increase in trust and liking.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45471

  • August 2013
  • Journal of Economics & Management Strategy

Investment Incentives in Open-Source and Proprietary Two-Sided Platforms

By: Casadesus-Masanell, Ramon, and Gaston Llanes

Abstract—We study incentives to invest in platform quality in open-source and proprietary two-sided platforms. Open platforms have open access, and developers invest to improve the platform. Proprietary platforms have closed access, and investment is done by the platform owner. We present five main results. First, open platforms may benefit from limited developer access. Second, an open platform may lead to higher investment than a proprietary platform. Third, opening one side of a proprietary platform may lower incentives to invest in platform quality. Fourth, the structure of access prices of the proprietary platform depends on (i) how changes in the number of developers affect the incentives to invest in the open platform, and (ii) how investment in the open platform affects the revenues of the proprietary platform. Finally, a proprietary platform may benefit from higher investment in the open platform. This result helps explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45560

  • August 2013
  • Journal of Applied Corporate Finance

A Tale of Two Stories: Sustainability and the Quarterly Earnings Call

By: Eccles, Robert G., and George Serafeim

Abstract—One of the challenges companies claim to face in making sustainability a core part of their strategy and operations is that the market does not care about sustainability, either in general or because the time frames in which it matters are too long. The response of investors who say they care about sustainability-and their numbers are large and growing-is that companies do a poor job in providing them with the information they need to take sustainability into account in their investment decisions. Whatever the merits of each view, the fact remains that an effective conversation about sustainability requires the participation of both sides of the market. There are two main mechanisms for companies to communicate to the market as a way of starting this conversation: mandated reporting and quarterly conference calls. In this paper, the authors argue that neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into the quarterly earnings call. Until that happens, the core business and sustainability are two separate worlds, each of which has its own narrator telling a different story to a different audience. The authors illustrate their argument using the case of SAP, the German software company. SAP was the first company to host an "ESG Briefing," a conference call for analysts and investors held on July 30, 2013 in which the company discussed both its sustainability performance and how its sustainability initiatives were contributing to its financial performance. The narrative of this call was very similar to the narrative of the company's first "integrated report," which was issued in 2012 and presented the company's sustainability initiatives in the context of its operating and financial performance. However, the contents of the "ESG Briefing" and those of its traditional quarterly earnings conference calls were very different-and so were the audiences. Whereas the quarterly call was attended mainly by sell side analysts-and the words "sustainability" or "sustainable" failed to receive a single mention-the ESG briefing was delivered to an investor audience made up exclusively of the "buy side."

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45583

  • August 2013
  • Journal of Monetary Economics

Cyclicality of Credit Supply: Firm-Level Evidence

By: Ivashina, Victoria, and Bo Becker

Abstract—Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We address this question by studying firms' substitution between bank debt and non-bank debt (public bonds) using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on issuance of new debt, we interpret firms' switching from loans to bonds as a contraction in bank credit supply. We find strong evidence of substitution from loans to bonds at times characterized by tight lending standards, high levels of non-performing loans and loan allowances, low bank share prices, and tight monetary policy. The bank-to-bond substitution can only be measured for firms with access to bond markets. However, we show that this substitution behavior has strong predictive power for bank borrowing and investments by small, out-of-sample firms. We consider and reject several alternative explanations of our findings.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45581

  • August 2013
  • Journal of Finance

Reaching for Yield in the Bond Market

By: Ivashina, Victoria, and Bo Becker

Abstract—Reaching for yield-the propensity to buy riskier assets in order to achieve higher yields-is believed to be an important factor contributing to the credit cycle. This paper analyses this phenomenon in the corporate bond market. Specifically, we show evidence for reaching for yield among insurance companies, the largest institutional holders of corporate bonds. Insurance companies have capital requirements tied to the credit ratings of their investments. Conditional on ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. This behavior appears to be related to the business cycle, being most pronounced during economic expansions. It is also more pronounced for the insurance firms for which regulatory capital requirements are more binding. The results hold both at issuance and for trading in the secondary market and are robust to a series of bond and issuer controls, including issuer fixed effects as well as liquidity and duration. Comparison of the ex-post performance of bonds acquired by insurance companies does not show outperformance but higher volatility of realized returns.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45580

  • August 2013
  • Forbes.com

Detroit Has Filed for Bankruptcy. Now What? Taking the Long View

By: Werker, Eric D., and Benjamin Kennedy

Abstract—No abstract available.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45603

 

Working Papers

Abstract—We argue that a design commons can be an advantageous organizational form under two salient conditions: 1) high "subtractability" because different claimants have mutually exclusive beliefs or preferences with respect to the design form and 2) low "excludability" in the sense that the designed artifact must be shared. Our paper is based on an empirical study of a commons organization created to design new school buildings. We argue that the design commons organization induced teachers to volunteer their knowledge and preferences, which otherwise would have been difficult to elicit. Although governance was a struggle, none of the cases in our sample suffered a "tragedy of the commons" in terms of budget overruns, bogged-down processes, or free riding. Using the principles of Ostrom's commons theory, we show that the design commons organization was robust, although it displayed some areas of fragility. We conclude with the rudiments of a contingency theory describing when and why a commons organization can be advantageous for design production. We also discuss design flexibility as an intervening variable that is critical in intermediating conflicts that commons organizations cannot resolve.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=45552

Abstract—This working paper reports on a major Harvard Business School project designed to enhance MBA and practicing executives in case learning. The work is built on the foundation of HBS field cases employing the monomyth "hero's journey" classic story structure along with the creation of associated fictional case characters designed to engage readers in the dimensions of human behavior, decision making, and judgments in carrying out the work of the modern corporation. A most fortuitous event in starting the project was the engagement of our research assistant who has a theater academic background and experience as a scriptwriter and director at a repertory theater. Shannon O'Connell noted that our collection of field cases on learning to become a successful functional manager had the potential to be organized into an executive's "hero's journey." This set off a process: (1) completing our field cases to encompass the issue domain of an IT functional manager, (2) recrafting the cases from multiple industries to include one industry, (3) integrating the key characters of monomyth hero's journey, and (4) writing the case dialogue for the protagonist, Jim Barton, hero's journey. The result was our novel-based Harvard Business Press book: Adventures of an IT Leader (2009). In our Adventures book, we experimented with mechanisms to facilitate active learning such as Jim Barton's "living whiteboard," whereby Barton kept a running list of ideas associated with a set of evolving principles of IT management. Another mechanism we used to facilitate reader/student introspection was end-of-chapter/cases Reflections. Also, we experimented with audio versions of book chapters in the classroom. We went on to continue Jim Barton's hero's journey in a second Harvard Business Press book using the same novel format but a different industry and executive context: Harder Than I Thought: Adventures of a Twenty-First Century Leader (2013). The book focuses on CEO leadership in the global economy and the fast-changing IT-enabled pace of business. We extended the mechanism of Barton's living white board to interludes in the book of simulations and avatars to explore CEO decision making.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=45582

Abstract—We investigate whether government green procurement policies stimulate private-sector demand for similar products and the supply of complementary inputs. Specifically, we measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and supplier investments in green building expertise. Our findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopters.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=43017

 

Cases & Course Materials

  • Harvard Business School Case 814-018

Keurig and Green Mountain Coffee Roasters

No abstract available.

Purchase this case:
http://hbr.org/search/814018

  • Harvard Business School Case 613-051

Beijing's Terminal 3: Building a New Gateway to China."

No abstract available.

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http://hbr.org/search/613051

  • Harvard Business School Case 313-080

The Facebook IPO Litigation

Despite its success in the social-networking space, Facebook Inc.'s May 2012 IPO was largely considered a failure. Facebook faced multiple lawsuits and its share price had dropped significantly. Adversaries contended that Facebook had misled investors and violated securities laws. Were the allegations legitimate, and did the litigation pose a serious threat to Facebook's share price?

Purchase this case:
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  • Harvard Business School Case 314-019

Gary Hirshberg and Stonyfield Farm

Gary Hirshberg and Stonyfield Farm is the story of one entrepreneur's vision and journey to create a market-leading, environmentally responsible business founded on the principles of product quality, organizational alignment, and sustainability. A former environmental activist, Hirshberg built Stonyfield Farm, (an organic yogurt maker based in New Hampshire), up from a seven-cow operation into a business that in 2010 had $360 million in annual revenues. The narrative pays particular attention to the early, turbulent years of the yogurt company and the excitement and uncertainty of entrepreneurial life. The case also details the innovative marketing the company created to expand its customer base, the means it devised to cultivate and maintain customer loyalty, and the strategies it employed to penetrate the highly competitive yogurt and dairy categories nationwide. Throughout, readers will encounter the challenges that Hirshberg, his colleagues, and his family confronted as they (all) worked to create a business with a firm commitment to both sustainability and high quality-a commitment rooted in Hirshberg's dedication to spreading the "gospel" of organic production to consumers.

Purchase this case:
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  • Harvard Business School Case 214-025

Bardhaman (A) & (B)

A real estate developer decides whether to enter into a public-private partnership with the government of West Bengal to develop a township on farmland. The decisions include whether to expand operations from the company's base in Kolkata to Bardhaman, 100 km away; whether to subdivide and sell raw land lots or follow the developer's vision and build a planned township; whether to enter into a public-private partnership with the government of West Bengal, led by the Left Front and the Communist Party of India as equity partners; or whether to also accept a private equity firm into the project; and lastly, what to build and in what sequence.

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http://hbr.org/search/214025

  • Harvard Business School Case 114-021

Strategy and Governance at Yahoo! Inc.

Yahoo! faces a number of governance and strategic challenges in late 2011 as it tries to compete with rivals such as Google and find ways to monetize its shareholding and business links with Alibaba Group in China and Yahoo! Japan. The company is now valued at almost half the offer that Microsoft had made in its acquisition offer in 2008. The depth of the challenge is underscored by the frequent CEO changes the company has had, culminating in the recent firing of the latest CEO, Carol Bartz. The case examines the successes and failures at Yahoo! and the decisions now facing its board as it encounters investor pressure to improve performance.

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http://hbr.org/search/114021

  • Harvard Business School Case 614-009

VF Brands: Global Supply Chain Strategy

No abstract available.

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http://hbr.org/search/614009

  • Harvard Business School Case 113-073

Ken Traub at American Bank Note Holographics

Ken Traub is hired as CFO for American Bank Note Holographics, the market-leading security holograph company, in January 1999, but discovers on his first day that the company has misstated its financials and resigns. After consulting with the company for the next several weeks as it announces its misstatements to the public, he is asked to become president of the company. Should he take the job or is the company a sinking ship?

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  • Harvard Business School Case 113-073

Novozymes: Establishing the Cellulosic Ethanol Value Chain

As the world's largest producer of industrial enzymes, Novozymes had invested heavily for many years to bio-engineer enzymes that could break down cellulose into fermentable sugar. In 2010, the company had launched what it thought would become a breakthrough product for the conversion of crop residues from corn into fermentable sugars for the production of motor fuels. But the problem was that the company only controlled one piece of the value chain. To succeed in this nascent sector, should the company insert itself into an existing ecosystem? If so, how much coordination effort would be required to integrate the many pieces, including equipment and yeast suppliers? Or should Novozymes build its own ecosystem? And if so, how much control should it retain at each level of the value chain? The case seeks to expose students to the challenges of putting together value chain participation strategies in a setting where they can also learn about industrial biotechnology, including some cutting edge methods in directed evolution.

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  • Harvard Business School Case 914-006

"Remicade/Simponi

This exercise models a negotiation between two pharmaceutical companies-Johnson & Johnson and Merck-concerning the international distribution rights for Remicade, a blockbuster anti-arthritis drug. At odds over the original distribution contract, the two companies enter a final negotiation session before they must take their case to arbitration. This exercise gives students the opportunity to experiment with creative deal structures as a response to a narrow legal dispute.

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