Market Reaction to the Adoption of IFRS in Europe
|Authors:||Christopher S. Armstrong, Mary E. Barth, Alan D. Jagolinzer, and Edward J. Riedl|
This study examines the European stock market reaction to sixteen events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find a more positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We also find that the reaction is less positive for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption. Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption.
Download the paper: http://www.hbs.edu/research/pdf/09-032.pdf
The Architecture of Platforms: A Unified View
|Authors:||Carliss Y. Baldwin and C. Jason Woodard|
The central role of "platform" products and services in mediating the activities of disaggregated "clusters" or "ecosystems" of firms has been widely recognized. But platforms and the systems in which they are embedded are very diverse. In particular, platforms may exist within firms as product lines, across firms as multi-product systems, and in the form of multi-sided markets. In this paper we argue that there is a fundamental unity in the architecture of platforms. Platform architectures are modularizations of complex systems in which certain components (the platform itself) remain stable, while others (the complements) are encouraged to vary in cross-section or over time. Among the most stable elements in a platform architecture are the modular interfaces that mediate between the platform and its complements. These interfaces are even more stable than the interior core of the platform, thus control over the interfaces amounts to control over the platform and its evolution. We describe three ways of representing platform architectures: network graphs, design structure matrices, and layer maps. We conclude by addressing a number of fundamental strategic questions suggested by a unified view of platforms.
Download the paper: http://www.hbs.edu/research/pdf/09-034.pdf
Making the Gambler's Fallacy Disappear: The Role of Experience
|Authors:||Gregory M. Barron and Stephen Leider|
Recent papers have demonstrated that the way people acquire information about a decision problem, by experience or by abstract description, can affect their behavior. We examine the role of experience over time in the emergence of the Gambler's Fallacy in binary prediction tasks. Theories of the Gambler's Fallacy and models of binary prediction suggest that recency bias, elicited by experience over time, may be necessary for the fallacy to emerge. Experiment 1 compares a condition where participants sequentially predict the colored outcomes of a roulette wheel with a condition where the wheel's past outcomes are presented all at once. Subjects are yoked so that the same history of outcomes is observed in both conditions. The results reveal a tendency towards negative recency when outcomes are experienced that disappears when the same outcomes are presented all at once. Experiment 2 examines a boundary condition where outcomes are presented sequentially in an automatic fashion without intervening predictions. Here too, the Gambler's Fallacy emerges suggesting that it is the mere presentation of information over time that gives rise to the bias. Implications are discussed.
Download the paper: http://www.hbs.edu/research/pdf/09-029.pdf
Opening Platforms: How, When and Why?
|Authors:||Thomas R. Eisenmann, Geoffrey Parker, and Marshall Van Alstyne|
Platform-mediated networks encompass several distinct types of participants, including end users, complementors, platform providers who facilitate users' access to complements, and sponsors who develop platform technologies. Each of these roles can be opened—that is, structured to encourage participation—or closed. This paper reviews factors that motivate decisions to open or close mature platforms. At the platform provider and sponsor levels, these decisions entail 1) interoperating with established rival platforms; 2) licensing additional platform providers; or 3) broadening sponsorship. With respect to end users and complementors, decisions to open or close a mature platform involve 1) backward compatibility with prior platform generations; 2) securing exclusive rights to certain complements; or 3) absorbing complements into the core platform. Over time, forces tend to push both proprietary and shared platforms toward hybrid governance models characterized by centralized control over platform technology (i.e., closed sponsorship) and shared responsibility for serving users (i.e., an open provider role).
Download the paper: http://www.hbs.edu/research/pdf/09-030.pdf
|Authors:||Thomas R. Eisenmann, Geoffrey Parker, and Marshall Van Alstyne|
Due to network effects and switching costs, platform providers often become entrenched. To dislodge them, entrants generally must offer revolutionary products. We explore a second path to platform leadership change that does not rely on Schumpeterian creative destruction: platform envelopment. By leveraging common components and shared user relationships, one platform provider can move into another's market, combining its own functionality with the target's in a multi-platform bundle. Dominant firms otherwise sheltered from entry by standalone rivals may be vulnerable to an adjacent platform provider's envelopment attack. We analyze conditions under which envelopment strategies are likely to succeed.
Download the paper: http://www.hbs.edu/research/pdf/07-104.pdf
Social Categories and Minimizing Joint Gains: An Ethical Dilemma?
|Authors:||Stephen M. Garcia, Max H. Bazerman, and Dale T. Miller|
People prefer maximizing joint gains (e.g., self gets $600 / counterpart gets $800) instead of receiving lower amounts (e.g., self and other each get $500) in their transactions (Bazerman, Loewenstein & White, 1992). The present analysis, however, shows that the perceived value of such tradeoffs—the transaction utility (Thaler, 1985; 1999)-depends on whether the allocation occurs within a particular social category line (e.g., recipients are all Americans) or across social category lines (e.g., recipients are American and French). Studies 1 - 2 predicted and found that individuals tended to maximize such joint gains only when the allocation was within social category lines but not across them. Study 3 further showed that even outside observers, who were not members of the focal social categories, also had greater difficulty maximizing profit across social category lines. Finally, Study 4 showed that the transaction utility of maximizing joint gains required additional compensation across social category lines than it did within them. The results thus broach an ethical dilemma for managers: Is it appropriate to let mere social category lines interfere with profit maximization?
Download the paper: http://www.hbs.edu/research/pdf/06-033.pdf
Performance Persistence in Entrepreneurship
|Authors:||Paul A. Gompers, Anna Kovner, Josh Lerner, and David S. Scharfstein|
This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.
Download the paper: http://www.hbs.edu/research/pdf/09-028.pdf
The Litigation of Financial Innovations
This paper examines the litigation of patents relating to financial products and services. I show that these grants are being litigated at a rate 27 to 39 times greater than that of patents as a whole. The patents being litigated are disproportionately those issued to individuals and to smaller, private entities, as well as those whose features may proxy for higher quality. Larger entities are disproportionately targeted in litigation. I discuss how the findings are in large part consistent with the theoretical literature on the economics of litigation.
Download the paper: http://www.hbs.edu/research/pdf/09-027.pdf
Highbrow Films Gather Dust: Time-inconsistent Preferences and Online DVD Rentals (revised)
|Authors:||Katherine L. Milkman, Todd Rogers, and Max H. Bazerman|
We report on a field study demonstrating systematic differences between the preferences people anticipate they will have over a series of options in the future and their subsequent revealed preferences over those options. Using a novel panel data set, we analyze the film rental and return patterns of a sample of online DVD rental customers over a period of four months. We predict and find that should DVDs (e.g., documentaries) are held significantly longer than want DVDs (e.g., action films) within-customer. Similarly, we also predict and find that people are more likely to rent DVDs in one order and return them in the reverse order when should DVDs are rented before want DVDs. Specifically, a 2% increase in the probability of a reversal in preferences (from a baseline rate of 12%) ensues if the first of two sequentially rented movies has more should and fewer want characteristics than the second film. Finally, we find that as the same customers gain more experience with online DVD rentals, the extent to which they hold should films longer than want films decreases. Our results suggest that myopia has a meaningful impact on choice in the field and that people may learn about their myopia with experience and, as a result, gain the capacity to curb its influence.
Download the paper: http://www.hbs.edu/research/pdf/07-099.pdf
Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry
|Authors:||Karl A. Muller, III, Edward J. Riedl, and Thorsten Sellhorn|
We examine the causes and consequences of European real estate firms' decisions to provide investment property fair values prior to the required disclosure of this information under International Financial Reporting Standards (IFRS). We find evidence that investor demand for fair value information—reflected in more dispersed ownership—and a firm's commitment to transparency increase the likelihood of providing fair values prior to their required provision under International Accounting Standard 40 - Investment Property. We also find that firms not providing these fair values face higher information asymmetry. However, we fail to find that the relatively higher information asymmetry was reduced following mandatory adoption of IFRS. Rather, we find that differences in information asymmetry largely remain. Taken together, this evidence suggests that common adoption of fair value accounting due to the mandatory adoption of IFRS does not necessarily level the informational playing field.
Download the paper: http://www.hbs.edu/research/pdf/09-033.pdf
Signaling Firm Performance through Financial Statement Presentation: An Analysis Using Special Items
|Authors:||Edward J. Riedl and Suraj Srinivasan|
This paper investigates whether presentation of special items within the financial statements reflects the firm's underlying economic performance or opportunism. We examine the presentation of recognized special items either as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Using different constructs of persistence to capture the economics of reported special items, we find evidence consistent across a range of specifications that special items highlighted on the income statement are more transitory than those revealed only in the footnotes. For most special items, these results are consistent with this presentation decision reflecting underlying firm performance. For subset observations—namely, those likely to reflect "big bath" reporting incentives— we provide limited evidence suggestive of opportunism in this presentation decision.
Download the paper: http://www.hbs.edu/research/pdf/09-031.pdf
Extending Producer Responsibility: An Evaluation Framework for Product Take-Back Policies
|Authors:||Michael W. Toffel, Antoinette Stein, and Katharine L. Lee|
Manufacturers are increasingly being required to adhere to product take-back regulations that require them to manage their products at the end of life. Such regulations seek to internalize products' entire life cycle costs into market prices, with the ultimate objective of reducing their environmental burden. This article provides a framework to evaluate the potential for take-back regulations to actually lead to reduced environmental impacts and to stimulate product design changes. It describes trade-offs associated with several major policy decisions, including whether to hold firms physically or financially responsible for the recovery of their products, when to impose recycling fees, whether to include disposal and hazardous substance bans, and whether to mandate product design features to foster reuse and recycling of components and materials. The framework also addresses policy elements that can significantly affect the cost efficiency and occupational safety hazards of end-of-life product recovery operations. The evaluation framework is illustrated with examples drawn from take-back regulations promulgated in Europe, Japan, and the United States governing waste electrical and electronic equipment (WEEE).
Download the paper: http://www.hbs.edu/research/pdf/09-026.pdf
Cases & Course Materials
Arcelik Home Appliances: International Expansion Strategy
Harvard Business School Case 705-477
The Turkish home appliances firm Arcelik is revisiting its growth strategy. Options for growth include continuing to promote currently owned brands in international markets, acquiring new brands, expanding OEM or private-label contracts, and/or diversifying into other businesses within Turkey. Details Arcelik's position within various markets and relevant features of the home appliances industry.
Harvard Business School Case 807-057
Describes a set of financing issues confronting a rapidly growing company that uses "Word-of-Mouth" marketing techniques in promoting research, new products, or services. The company proposes to set the terms for a new round of venture capital it needs and to have venture capitalists bid for the right to invest on those terms by proving that they can add value to BzzAgent, Inc.
Corning: 156 Years of Innovation
Harvard Business School Case 608-108
The executive team at Corning has committed to double the rate of new business creation per decade, while at the same time growing the company's current businesses, including glass substrates for LCD displays. Their strategy, built on more than 150 years of successful innovation, is to invent "keystone components" which uniquely enable other companies' products and earn high margins from its proprietary technology. As part of the company's mission to be around for another 150 years, the executive team is also committed to devote considerable resources to basic research "in faith" that it will create new, high-margin businesses that will drive corporate growth in 10-20 years and enable the company to "reinvent" itself, even though they will not be around to reap the benefits of this investment. The executive team must choose how to allocate finite RD&E resources between (1) "pushing" one, or more, of four brand new businesses with considerable potential in the development pipeline to the market sooner; (2) allocating more resources to six new products being launched from existing businesses; or (3) spending more on exploratory research. In making these decisions, the executive team must consider the impact of their decision on not only near-term earnings, but on how it will enable Corning to diversify over the medium- to long-term in terms of the quality and quantity of its portfolio of new technologies in the development pipeline and new businesses being launched, especially so that it is not overly dependent on sales of a particular business like LCD glass.
ghSMART & Co., 2006: Pioneering in Professional Services
Harvard Business School Case 809-024
Geoff Smart, founder and CEO of ghSMART & Co., wanted to build ghSMART into the #1 management-assessment firm for CEOs and investors. However, he had just received two pieces of very bad news: the demise of an existing project and the loss of a $1 million engagement he thought was already sold. The news raised difficult questions about how Geoff had structured his firm and had designed its governance and incentive systems.
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Mattel's Long Hot Summer
Harvard Business School Case 308-129
In the summer of 2007, Mattel performed three major recalls of toys, mostly due to lead paint and other manufacturing issues in China. This case examines specifically how those recalls were perceived by consumers and responded to by Mattel, as well as what effect they had on the toy industry, consumer safety, and manufacturing in China in general.
Microsoft's Unlimited Potential (B)
Harvard Business School Supplement 509-009
This short (B) case provides an update of how Microsoft organized its unlimited potential initiative.
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Note on Comparative Treatment of Business Method and Software Patents in the United States and European Union
Harvard Business School Note 309-023
This note analyses and compares the legal definitions and practical applications of Business Method and Software Patents in the United States and European Union.
Note on Trade Secrets and Covenants Not to Compete: Comparison of Law in the United States and the European Union
Harvard Business School Note 309-024
This note details the use and treatment of Covenants not to Compete in the United States, United Kingdom and France to compete or trade secrets versus patents as alternative ways to protect a businesses' intellectual property.
The Redgrove Axial Workshop
Harvard Business School Case 409-034
Marc Fontaine, a new manager at a global manufacturing concern, is on a fast-track to a senior managerial position. One morning, in a storage room, he discovers some ornamental artifacts made with the same materials used for official production. He suspects workers have been making these items with company materials. At that moment, a worker enters the room to fetch a tool. Fontaine asks him what is going on with these items, but the worker claims ignorance and quickly leaves. Fontaine is meeting his boss and the plant director that afternoon. What should he do? Say something? Pretend nothing happened? This case deals with group dynamics, informal behaviors, and ethics at work.
Repositioning CARE USA
Harvard Business School Case 509-005
CARE USA, a large ($600 million) international nonprofit/NGO, had recently revamped its external branding and positioning in support of its international development work. The case lays out the challenges facing its new CEO, Helene Gayle, as she manages through the organization's transition.
Sloan & Harrison: The Associate Challenge
Harvard Business School Case 409-032
TThe law firm, Sloan & Harrison, was confronting issues pertaining to morale and turnover among its associate ranks. Annual surveys of associates revealed increasing dissatisfaction, particularly with respect to partner communication, work-life balance, and mentorship. The firm's leadership wondered: How legitimate were the associates' concerns? What could and should be done to resolve them?
Sloan & Harrison: Non-Equity Partner Discontent
Harvard Business School Case 409-033
The law firm, Sloan & Harrison, was dealing with some discontent among its junior non-equity partners. These partners were concerned with the transparency of the advancement process, their ability to position themselves as both leaders within the firm and rainmakers, and the politics of promotion within the firm. The firm must find solutions to these challenges. Senior partners wondered: Was the path to partnership structured in the best interests of the firm? What could and should be done to address the non-equity partners' concerns? What were the ultimate effects of discontent within the NEP ranks upon the firm's functioning overall?
Taxing the Bandit Kings
|Authors:||Mihir Desai and Dhammika Dharmapala|
|Publication:||Yale Law Journal Pocket Part (forthcoming)|
The rise of significant inbound capital flows originating from sovereign wealth funds (SWFs) has occasioned a debate over the appropriate regulatory and tax treatment of these funds. In particular, it has been argued that the tax exemption currently enjoyed by SWFs confers an advantage on these entities as providers of capital to U.S. firms relative to private foreign investors, and that a tax should be imposed on SWFs to restore fairness. This brief essay argues that the distinctive nature of the portfolio choices facing SWFs negates this fairness argument. Indeed, changing the tax treatment of SWFs as has been proposed would distort choices that are otherwise efficient and would handicap U.S. firms and workers.
Becoming a New Manager
|Author:||Linda A. Hill|
|Publication:||Boston, Mass.: Harvard Business School Press, 2008|
You've just been promoted to a managerial position for the first time—congratulations! But beware: the managerial role differs markedly from the individual contributor role. Go into the job with mistaken assumptions about what to expect, and you just may be blindsided by surprising realities. This book helps you lay the foundation for succeeding in your new role, explaining how to (1) discard the "doer" role of the individual contributor for the orchestrating role of the manager; (2) adjust your leadership style to maximize your team's performance; (3) balance conflicting expectations from your boss, peers, and direct reports; and (4) deal productively with the stresses and new emotions that come with being a manager.
China and the World: Internationalization, Internalization, Externalization (Zhongguo yu shijie: guojihua, neihua yu waihua)
|Editors:||William C. Kirby and Dayong Niu|
|Publication:||Beijing: Hebei People's Press, 2007|
No abstract is available at this time.
Buyer-Initiated vs. Seller-Initiated Information Revelation
|Authors:||Pradeep Bhardwaj, Yuxin Chen, and David Godes|
|Publication:||Management Science 54 (June 2008): 2007-2008|
Sales presentations are the core of the selling process where salespeople provide information to prospects. One challenge is that the amount of information available to be potentially communicated may exceed salespeople's ability to communicate or customers' ability to process: there is limited "bandwidth" between the firm and customers. One important decision, then, is which information should customers see? What the firm chooses to tell customers may be informative in itself. When constrained to a "seller-initiated information revelation" format, where the firm chooses which feature to show, the firm never finds it optimal to offer more features than it is able to inform customers about. Consequently, customers never find credible a claim that the product has all features. The important implication is that price alone cannot serve as a signal of quality in this setting. In contrast, a "buyer-initiated information revelation" format, where customers decide which information to receive, increases the probability of a sale and also results in the production of higher quality products.
In a competitive setting, by adopting buyer-initiated information revelation, firms are able to attain positive profits. This is due to the fact that customers infer the product's quality from the price along with the information revelation format. Customers know that at some prices, firms find it profitable to produce high-quality products and at other, lower, prices, this is not the case. Thus, customer empowerment leads to higher profits.
Organizational Responses to Environmental Demands: Opening the Black Box
|Authors:||Magali Delmas and Michael W. Toffel|
|Publication:||Strategic Management Journal 29, no. 10 (October 2008)|
This paper combines new and old institutionalism to explain differences in organizational strategies. We propose that differences in the influence of corporate departments lead their facilities to prioritize different external pressures and thus adopt different management practices. Specifically, we argue that external constituents—including customers, regulators, legislators, local communities, and environmental activist organizations—who interact with influential corporate departments are more likely to affect facility managers' decisions. As a result, managers of facilities that are subjected to comparable institutional pressures adopt distinct sets of management practices that appease different external constituents. We test our framework in the context of the adoption of environmental management practices using an original survey and archival data obtained for nearly 500 facilities. We find support for these hypotheses.
The Causes and Consequences of Industry Self-Policing
|Authors:||Jodi L. Short and Michael W. Toffel|
|Publication:||Yale Economic Review (summer 2008)|
Innovative regulatory programs are encouraging firms to police their own regulatory compliance and voluntarily disclose, or "confess" the violations they find. Despite the "win-win" rhetoric surrounding these government voluntary programs, it is not clear why companies would participate and whether the programs themselves do anything to enhance regulatory effectiveness. Tasked with monitoring the legality of its own operations, why would a firm that identifies violations turn itself in to regulators rather than quietly fix the problem? And why would regulators entrust regulated entities to monitor their own compliance and enforce the law against themselves? This paper addresses these questions by investigating the factors that lead organizations to self-disclose violations, the effects of self-policing on regulatory compliance, and the effects of self-disclosing on the relationship between regulators and regulated firms. We investigate these research questions in the context of the U.S. Environmental Protection Agency's Audit Policy.