If You Are So Smart, Why Aren't You Rich? The Effects of Education, Financial Literacy and Cognitive Ability on Financial Market Participation
|Authors:||Shawn A. Cole and Gauri Kartini Shastry|
Household financial market participation affects asset prices and household welfare. Yet, our understanding of this decision is limited. Using an instrumental variables strategy and dataset new to this literature, we provide the first precise, causal estimates of the effects of education on financial market participation. We find a large effect, even controlling for income. Examining mechanisms, we demonstrate that cognitive ability increases participation; however, and in contrast to previous research, financial literacy education does not affect decisions. We conclude by discussing how education may affect decision-making through personality, borrowing behavior, discount rates, risk-aversion, and the influence of employers and neighbors.
Download the working paper: http://www.hbs.edu/research/pdf/09-071.pdf
Happiness Adaptation to Income beyond 'Basic Needs'
|Authors:||Rafael Di Tella and Robert MacCulloch|
We test for whether, once "basic needs" are satisfied, there is happiness adaptation to further gains in income using three data sets. Individual German Panel Data from 1985 to 2000, and data on the well-being of over 600,000 people in a panel of European countries from 1975 to 2002, shows different patterns of adaptation to income across the rich and poor. We find evidence that for wealthy Germans, and for the rich half of European nations, higher levels of per capita income don't buy greater happiness. The reason appears to be adaptation. However even for the rich half of European nations such habituation may take more than five years so the happiness gains that they experience, whilst not permanent, can still be relatively long-lasting. Finally we study a cross section of nations in 2005 from the World Gallup Poll and find that the past 45 years of economic growth (from 1960 to 2005) in the rich half of nations has not brought happiness gains above those that were already in place once the 1960s' standard of living had been achieved. However in the poorest half of nations we cannot reject the null hypothesis that the happiness gains they have experienced from the past 45 years of growth have been the same as the gains that they experienced from growth prior to the 1960s.
Download the working paper from SSRN ($5): http://papers.nber.org/papers/w14539
The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention
|Authors:||William R. Kerr and William F. Lincoln|
This study evaluates the impact of high-skilled immigrants on U.S. technology formation. Specifically, we use reduced-form specifications that exploit large changes in the H-1B visa program. Fluctuations in H-1B admissions levels significantly influence the rate of Indian and Chinese patenting in cities and firms dependent upon the program relative to their peers. Most specifications find weak crowding-in effects or no effect at all for native patenting. Total invention increases with higher admission levels primarily through the direct contributions of ethnic inventors.
Download the working paper: http://www.hbs.edu/research/pdf/09-005.pdf
Cases & Course Materials
American Cancer Society: Access to Care
Harvard Business School Case 109-015
CEO John Seffrin decides to radically change the strategy of the American Cancer Society. The new Access to Care strategy relies on advocacy to change public policy and increase the number of Americans eligible for cancer prevention and treatment. The new strategy brings with it considerable political risk. Leveraging an organization with three million volunteers, this case describes how he skillfully transforms the organization (structure, control systems, staff, shared values, etc.) to implement the new strategy.
BMW's Project Switch (B): Importers vs. National Sales Companies
Harvard Business School Supplement 509-024
BMW is faced with potential channel conflicts across several EU country markets. The case concludes the (A) case's exploration of BMW's approach to redesigning the channel in Greece. The case provides details on both headquarter and country head perspective on BMW's channel strategy.
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Breaking through Action Plan
Harvard Business School Exercise 409-059
The "Breaking Through Action Plan" is a developmental tool based on the book, Breaking Through: The Making of Minority Executives in Corporate America by David A. Thomas and John J. Gabarro. The Action Plan was originally designed as part of a facilitated session but can also be used in conjunction with the book. The Action Plan guides individuals through an examination of the critical areas of competence, credibility, confidence, and relationships. Completing this Action Plan will allow individuals to reflect on these critical areas and help them determine appropriate and impactful steps to help further their development.
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The Chubb Corporation in China
Harvard Business School Case 209-021
The Chubb Corporation, headquartered in the U.S., was the holding company for a number of property and casualty insurance companies which operated in 29 countries. In 1979, the Chinese government, as part of its "reform and open" policy invited a delegation of Chubb executives to discuss insurance issues. In the mid-1990s, Chubb opened representative offices in Beijing, Shanghai, and Shenzhen to do market research and assess the potential of the Chinese insurance market. In 2000, China authorized Chubb (one of only three foreign insurers) to sell insurance in the country. During the next five years China's non-life insurance industry grew from $8.3 billion in 2001 to $15.9 billion in 2005. Yet in 2007, domestic insurers continued to dominate market share and, Chubb had not realized the profits it had anticipated. The case provides an overview of property and casualty insurance, the Chinese insurance market and the challenges that foreign-based insurers have in entering an emerging market. Students are asked to decide what Chubb's China strategy should be moving forward.
Clifford Chance: Repotting the Tree
Harvard Business School Case 207-073
Clifford Chance, LLP, a global law firm headquartered in London, needs to make a decision whether to stay in the central business district of London or move to a redeveloped business park at Canary Wharf, three miles outside of central London. Peter Charleton, head of the London Office, is proposing to move to Canary Wharf and building a single, landmark headquarters with all the necessary amenities and premium fit-outs that are appropriate for an elite law firm. The tension surrounding the case is the choice to move from the hub of commerce in central London to a relatively obscure site whose owners (Olympia & York) have a history of financial bankruptcy. What business elements (clients, operations, employees, etc.) should they consider if they move the firm and how much relative weight do they place on each element? How do they frame the advantages and disadvantages between central London and Canary Wharf? What type of items should they program into the new facility (cellular or open floor plans, ceiling heights, common space, dining facilities, gymnasiums, etc.)? How should they prioritize these items?
The Hong Kong & China Gas Company Ltd.: Negotiating Joint Ventures in China
Harvard Business School Case 909-028
To deliver 5-6 major new Chinese joint ventures annually, Hong Kong China Gas executives began extracting cross-border negotiating lessons from their 80 existing Chinese JVs. Chairman Alfred Chan and CEO Peter Wong knew that HKGC's growth strategy required significant mainland expansion through negotiating joint ventures to run gas and water distribution systems in diverse urban and rural locations throughout mainland China—often in the face of entrenched local interests who could have blocking power. Discussions with HKGC's negotiation teams revealed an increasingly sophisticated negotiating approach from target identification and party mapping, to "social mapping" and building guanxi, to creative deal design and tactics, in order to most effectively work out issues of equity, management control, territory, and exclusivity.
Harvard Business School Case 909-025
This case describes a compensation negotiation between a global HR director and a candidate for a high-level executive position. The situation becomes awkward when the candidate feels insulted because he is given a monetary incentive to join the company more quickly than originally planned. The case provides an opportunity to analyze negotiation strategy and the importance of emotional intelligence and effective interpersonal communication during a negotiation.
Malaysia Airlines (A)
Harvard Business School Case 209-024
In the first six weeks on the job, the new CEO of Malaysia Airlines (MAS) has developed an ambitious turnaround plan, including aggressive job cuts and route eliminations, but MAS's largest shareholder, Khazanah Nacional, the sovereign wealth fund, is tasked with helping to grow the Malaysian economy. Should Khazanah encourage job and route cuts at MAS, and how would the government react to them? Moreover, should MAS's new CEO pre-announce publicly his intentions?
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Nestlé in 2008
Harvard Business School Case 509-001
In April 2008, Paul Bulcke took over as CEO of the world's largest food and beverage company. His predecessor, Peter Brabeck, had delivered 12 years of outstanding results while moving the company toward a new vision of health, nutrition, and wellness. Bulcke's challenge was to swiftly execute the vision and deliver the organic growth and improved margins necessary to meet the "Nestlé model."
Note on Human Behavior: Differences at Work Part 2: The Leadership Challenge
Harvard Business School Note 609-056
This note reviews research findings on the leadership challenges of diversity, including the social psychology of similarity and difference, the value of multiple perspectives to problem-solving, the relationship between diversity and firm performance, and management paradigms for diversity.
Harvard Business School Case 809-052
In January 2001, Dick Burnham, CEO of Odyssey Healthcare, and Odyssey's Board of Directors were considering selling the hospice care company to a larger provider or making an initial public offering (IPO). With 38 hospice locations in 21 states, Odyssey had been providing care to the terminally ill since its first location opened in 1996. Since then, the company had grown rapidly through a series of acquisitions, development of new hospice locations, and organic growth. Odyssey had just realized its first profitable year in 2000—recording a net income of $3.1 million—and was still a relatively young company. In addition, the hospice industry was subject to extensive federal, state, and local regulations relating to payment for hospice services and conduct of operations. Burnham was unsure how the market would react to a company with such government-dependent revenue streams. Additionally, the recent collapse of the "dot-com" boom in 2000 might make it impossible to float an IPO at all given the prevailing market conditions. On a positive note, however, healthcare companies were commonly thought to be recession proof and thus might be a sound investment in the event of a down-turning economy. Burnham had to decide if this was the right time for an exit, and if so, what the best exit would be.
PepsiCo's Bid for Quaker Oats (B)
Harvard Business School Supplement 209-078
Second in a series on PepsiCo's bid for Quaker Oats. Describes the negotiations between PepsiCo and Quaker including due-diligence process, first bid, and counteroffer. Quaker's counteroffer included a collar on equity consideration, and thus the case offers an opportunity to discuss and value these contractual devices.
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The StarNight Hotel Construction Bid: Real Time Competition on Schedule, Scope, and Cost
Harvard Business School Case 209-067
The case is intended for use with the HBS Educational Technology Group "Construction Bidding Simulation." Material that can be taught includes quantity survey methodology (from the case); analyzing preliminary estimated costs per building trade (from the discussion questions); playing the multiparty real time competitive bid simulation to receive and process market costs; and debriefing on which bids should be accepted and why. Discussion points include what criteria to use in making the decision, how to process subcontractor bids, and how to award contracts. Many of the issues can be extended from construction into any bidding situation and any industry with multiple subconsultants or vendors.
Transformation: The Quiet Role of Coalitional Leadership
|Authors:||Stephen Friedman and James K. Sebenius|
|Publication:||Ivey Business Journal (forthcoming)|
The top management function that we call coalitional leadership involves the art and science of building a sufficient and sustainable "winning coalition" of support behind an organizational vision as well as dealing effectively with would-be "blocking coalitions." We illustrate the practice of coalitional leadership by critically examining three deep changes at Goldman Sachs & Co.—where one of the authors (Friedman) was Chairman—during the 1980s and early '90s: the firm's moves into junk bonds and private equity and its sustained efforts to become a truly global company. An effective coalitional leader 1) shores up his or her bases of support for change, including superiors, the board, and respected internal opinion leaders; 2) motivates others for change; 3) protects and nurtures the vital role of creative mavericks; 4) signals respect for and actively reinforces crucial core values; 5) constrains the power of obstructionist "grand dukes"; 6) initiates and sustains cross-cutting actions to break down the polarizing effect of "fiefdoms" and "stovepipes"; as well as 7) focuses attention on cultivating and managing key external stakeholders such as major customers, important shareholders, regulators, creditors, and alliance partners.
Chief Risk Officers at Crunch Time: Compliance Champions or Business Partners?
|Publication:||Journal of Risk Management in Financial Institutions 2, no. 1 (November-December 2008)|
Risk management departments in financial institutions have been undergoing major transformations. New regulatory requirements have raised the bar on compliance and expanded the remit of risk management significantly. The compliance imperative requires banks to implement a firm-wide risk management framework complete with analytical models for the measurement and control of quantifiable risks. In addition, recent corporate governance guidelines advocate the 'business partner' role of risk management. The COSO Enterprise Risk Management framework (2003) explicitly defines risk management as a high level, strategic activity contributing to board-level decision making, planning, and performance management. This role requires that senior risk officers possess an understanding of key strategic uncertainties, and that they communicate these to senior management and the business lines. But how do senior risk officers strike a balance between the twin roles of 'compliance champion' and 'business partner'? Too much reliance on the regulatory crutch may erode the credibility of the risk function as a business partner, while too much emphasis on the business advisory function might weaken its policing capability. In this paper I assess the roles that risk functions and, in particular, senior risk officers play in fifteen international banks. The research was carried out between June 2006 and June 2007, thus it offers a rare snapshot of the "calm before the storm"—the state of risk management at fifteen large players before the liquidity and credit crunch became apparent in the second half of 2007. The findings suggest that the role of chief risk officers (CROs) had expanded dramatically, with more than half of them frequently involved in firm-level strategic decisions. However, various compliance and risk modeling initiatives were still works-in-progress in the majority of these large international banks at the onset of the market turmoil. CROs voiced divergent views on the uses, benefits, and limitations of risk models, suggesting that they promoted different 'calculative cultures' ('quantitative enthusiasm' versus 'quantitative skepticism'). Fostering alternative calculative cultures, strategically involved CROs interpreted the 'business partner' role of their function in different ways. Some risk functions aspired for an influential expert voice in key business decisions (the risk function as 'Strategic Advisor'), while others strived for the formal integration of risk management with performance management (the risk function as 'Strategic Controller'). The achievement of the Strategic Advisor role in some banks and the Strategic Controller role in others, calls for a clarification of stakeholder expectations on risk management. This would reduce the danger of an expectations gap opening around particular risk management approaches that are adequate for certain banks but remain ill-suited for others.
Finance and Politics: A Review Essay Based on Kenneth Dam's Analysis of Legal Traditions in the Law-Growth Nexus
|Authors:||Mark J. Roe and Jordan I. Siegel|
|Publication:||Journal of Economic Literature (forthcoming)|
No abstract is available at this time.
Is There a Better Commitment Mechanism than Cross-Listings for Emerging Economy Firms? Evidence from Mexico
|Author:||Jordan I. Siegel|
|Publication:||Journal of International Business Studies (forthcoming)|
The last decade of work in corporate governance has shown that weak legal institutions at the country level hinder firms in emerging economies from accessing finance and technology affordably. To attract outside resources, these firms must often use external commitments for repayment. Research suggests that a common commitment mechanism is to borrow U.S. securities laws, which involves listing the emerging economy firm's shares on a U.S. exchange. This paper uses a quasi-natural experiment from Mexico to examine the conditions under which forming a strategic alliance with a foreign multinational firm is actually a superior mechanism for ensuring good corporate governance.