What Should GAAP Look Like? A Survey and Economic Analysis
|Authors:||S.P. Kothari, Karthik Ramanna, and Douglas J. Skinner|
Based on extant literature, we articulate a positive theory of GAAP under the assumption that GAAP's objective is to facilitate the efficient allocation of capital within an economy. The theory predicts that GAAP's principal focus, as shaped by the demand for and supply of financial information, is on the use of the income statement and balance sheet for performance measurement and control (stewardship). This is consistent with efficient contracting considerations guiding financial reporting. Financial reports produced under the positive theory of GAAP would also generate information useful for equity valuation, but equity valuation is not predicted to be the primary objective underlying GAAP. Thus, artificially imposing equity valuation as the primary objective for financial reporting standards will result in a GAAP that is unlikely to adequately serve stakeholders' needs. The theory allows us to compare and contrast extant GAAP, as observed in a regulated setting, with GAAP that might arise endogenously as a result of market forces. Building on previous research, we argue that verifiability and conservatism, while detracting from accounting's role in equity valuation, are critical features of GAAP under efficient contracting. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to areas such as intangibles where they could be used opportunistically. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.
Download the paper from SSRN ($5): http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1413775
Repetition of Interaction and Learning: An Experimental Analysis
|Authors:||Bradley R. Staats, Francesca Gino, and Gary P. Pisano|
The learning curve is used to investigate how increasing cumulative experience yields improved performance. Experience, however, can take many forms. Building on recent studies on learning in operations, we distinguish between repetition of task (i.e., prior experience with the task) and repetition of interaction (i.e., prior experience with team members). Repetition of interaction may improve learning, since experience working together aids in the identification, transfer, and application of knowledge among members within a group. Additionally, experience need not be constrained to one task. Prior work examining the relationship of multiple tasks (i.e., varied experience) and learning by groups finds inconsistent results. We hypothesize that repetition of interaction may help explain this difference, as familiar teams may be able to use the knowledge gained from the concurrent completion of multiple tasks while unfamiliar teams may not. Using an experimental study we find that while repetition of interaction has no effect on initial performance, it has a persistent effect on learning. By separately examining the repetition of interaction and repetition of task, our work offers new insights and direction for the study of learning in operations.
Download the paper: http://www.hbs.edu/research/pdf/10-016.pdf
The Concept of Capitalism
|Author:||Bruce R. Scott|
This monograph on the concept of capitalism is the intellectual core of a larger work, entitled Capitalism, Its Origins and Evolution as a System of Governance, due for publication November 2009. The purpose of this monograph is to put forth an original concept of capitalism as a system of governance, including a theory of how it functions at any point in time and how it evolves through time.
Publisher's link: http://www.springerlink.com/content/978-3-642-03109-0
Sell Side School Ties
|Authors:||Lauren H. Cohen, Christopher J. Malloy, and Andrea Frazzini|
|Publication:||Journal of Finance (forthcoming)|
We study the impact of social networks on agents' ability to gather superior information about firms. Exploiting novel data on the educational backgrounds of sell side equity analysts and senior officers of firms, we test the hypothesis that analysts' school ties to senior officers impart comparative information advantages in the production of analyst research. We find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 6.60% per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 9.36% per year, while post-Reg FD the return premium was nearly zero and insignificant. In contrast, in an environment that did not change selective disclosure regulation (the U.K.), the analyst school-tie premium has remained large and significant over the entire sample period.
Specialization and Success: Evidence from Venture Capital
|Authors:||Paul A. Gompers, Anna Kovner, and Josh Lerner|
|Publication:||Journal of Economics and Management Strategy 18, no. 3 (fall 2009): 817-844|
This paper examines how organizational structure affects behavior and outcomes, studying the performance of different types of venture capital organizations. We find a strong positive relationship between the degree of specialization by individual venture capitalists at a firm and its success. When the individual investment professionals are highly specialized themselves, the marginal effect of increasing overall firm specialization is much weaker. The poorer performance by generalists appears to be due to both an inefficient allocation of funding across industries and poor selection of investments within industries. Venture capital organizations with more experience tend to outperform those with less experience.
Practicing Medicine in the Age of Facebook
|Author:||Sachin H. Jain|
|Publication:||New England Journal of Medicine 361, no. 7 (August 13, 2009): 649-651|
In my second week of medical internship, I received a "friend request" on Facebook, the popular social-networking Web site. The name of the requester was familiar: Erica Baxter. Three years earlier, as a medical student, I had participated in the delivery of Ms. Baxter's baby. Now, apparently, she wanted to be back in touch. Despite certain reservations, I clicked "confirm," and Ms. Baxter joined my list of Facebook "friends." I was curious to hear about the progress of her baby girl, but I wondered about the appropriateness of this interaction.
Download the paper: http://content.nejm.org/cgi/content/full/361/7/649
Cases & Course Materials
Harvard Business School Case 810-012
In 2009, the CEO of Alacra, a venture-backed information services firm that provides customized data primarily to financial services firms, must decide how to respond to the global economic crisis.
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Intel NBI: Handheld Graphics Organization
Harvard Business School Case 608-098
The Handheld Graphics Organization (HGO) was an internal start-up under Intel's New Business Incubator program. The unit designed a graphics co-processor for the handheld PDA market, to be sold with Intel's Xscale processor. Though NBI ventures were designed for a high degree of autonomy, some of the operating assumptions included explicit or implicit ties back to the rest of the corporation. While HGO met with some early market success, ultimately its fate would hinge on how other parts of the company viewed it and on how the rest of the company was performing financially.
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Intel NBI: MXP Digital Media Processor
Harvard Business School Case 608-100
"Gila" was a high-performance image processor project housed in Intel's New Business Initiatives (NBI) group. NBI was an incubator for corporate entrepreneurs, and it had an established methodology for ensuring a degree of autonomy while these ventures got started. But it faced many questions as the ventures grew and started to win their first customers. How should NBI handle the transition of the venture back to a mainstream division within Intel?
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Harvard Business School Case 810-018
This case study provides an overview of Intuit's growth and, in particular, the sales and service initiatives that historically fueled the company's growth from start-up to a corporation. It also outlines certain processes and cultural values, as well as specific employee and leadership behaviors, that provided the foundation for those initiatives.
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Harvard Business School Case 809-105
Presents the issues faced while building an innovative company in an emerging space with new intellectual property from the perspective of a venture capitalist. Beth Seidenberg, a partner at the venture capital firm Kleiner Perkins Caufield & Byers (KPCB), had helped create iZumi Bio, a company with ambitious prospects that she believed had the potential to become "the" definitive stem cell company. iZumi sought to bring under its banner key intellectual property (IP) from the nascent field of stem cell technology. As such, iZumi would need to acquire the rights to several groundbreaking scientific developments that had recently occurred in labs around the world. Seidenberg needed to decide whether to commit to the next major tranche of the investment. Charged with finalizing her decision in less than 24 hours, Seidenberg weighed the pros and cons of the next round of financing. Was it really possible to pull together such a broad range of IP under one umbrella? Was the international mix of IP going to be too difficult to manage? Was it too early for stem cell technology to be successfully commercialized?
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