Working Papers
There are 289 working paper digests.
A large number of Harvard Business School faculty write working papers that summarize original research in a narrow segment of a field of study, and that are intended for publication within a period of one to three years. Descriptions and papers are posted on the HBS Faculty and Research Web site. Our archive focuses on those working papers that are publicly accessible for download. We add an executive summary to the author’s own abstract. For the most recent work, see our First Look section.
Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations
| Authors: | Diego A. Comin, Mark Gertler, and Ana Maria Santacreu |
|---|---|
| Published: | July 2, 2009 |
| Paper Release Date: | May 2009 |
| Feature: | Working Papers |
A central challenge to modern business cycle analysis is that standard macro models are unable to generate fluctuations in the stock market with the amplitude, persistence, and lead-lag pattern observed in the data. At the same time, standard macro models predict that good news about future, such as those received during 1994-1995 on the arrival of IT, lead to recessions rather than expansions. HBS professor Diego Comin and coauthors develop a model that overcomes these two problems by explicitly incorporating an endogenous speed of diffusion of technologies that is increasing in the resources spent in adoption. Revisions in beliefs about future profits generate fluctuations in the stock market with the amplitude and lead over output observed in the data. The firms' investment decisions in adoption leads to a shift in labor demand that increases hours worked and output.
File-Sharing and Copyright
| Authors: | Felix Oberholzer-Gee and Koleman Strumpf |
|---|---|
| Published: | July 1, 2009 |
| Paper Release Date: | May 2009 |
| Feature: | Working Papers |
The researchers argue that file-sharing technology has not undermined the incentives of artists and entertainment companies to create, market, and distribute new works. The advent of new technology has allowed consumers to copy music, books, video games, and other protected works on an unprecedented scale at minimal cost. Such technology has considerably weakened copyright protection, first of music and software and increasingly of movies, video games, and books. While policy discussion surrounding file-sharing has largely focused on the legality of the new technology and the question of whether declining sales in music are due to file-sharing, the debate has been overly narrow. Copyright protection exists to encourage innovation and the creation of new works—in other words, to promote social welfare. This essay analyzes the landscape and identifies areas for more research.
Why Do Countries Adopt International Financial Reporting Standards?
| Authors: | Karthik Ramanna and Ewa Sletten |
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| Published: | June 25, 2009 |
| Paper Release Date: | March 2009 |
| Feature: | Working Papers |
Why do some countries adopt the European Union (EU)-based International Financial Reporting Standards (IFRS) when others do not? To expand our understanding of the determinants and consequences of IFRS adoption on a global sample, HBS professor Karthik Ramanna and MIT Sloan School of Management coauthor Ewa Sletten studied variations over time in the decision to adopt these standards in more than a hundred non-EU countries. Understanding countries' adoption decisions can provide insights into the benefits and costs of IFRS adoption.
Don't Just Survive—Thrive: Leading Innovation in Good Times and Bad
| Authors: | Lynda M. Applegate and J. Bruce Harreld |
|---|---|
| Published: | June 24, 2009 |
| Paper Release Date: | April 2009, revised May 2009 |
| Feature: | Working Papers |
The financial crisis provides a sobering reminder of what happens when innovation fails to drive productive economic growth. For over a decade, money from around the world poured into the United States seeking innovation. Despite these massive investments, when adjusted for inflation, U.S. GDP grew slowly with much of the growth coming from government, professional, and business services, including real estate and outsourcing. What's more, inflation adjusted wages stalled for many, even as consumer spending increased. This paper argues that innovation is not a side business to a real business: rather, innovation is the foundation of a successful business.
Elections and Discretionary Accruals: Evidence from 2004
| Authors: | Karthik Ramanna and Sugata Roychowdhury |
|---|---|
| Published: | June 18, 2009 |
| Paper Release Date: | March 2009 |
| Feature: | Working Papers |
How does the political process affect accounting? During the 2004 U.S. congressional elections, outsourcing of American jobs was a major campaign issue. Because outsourcing is assumed to be net profitable, the use of income-decreasing accruals would enable donor firms to deflect public scrutiny of both the firm and the political candidate over outsourcing. HBS professor Karthik Ramanna and MIT Sloan School professor Sugata Roychowdhury examine the accrual choices made by outsourcing firms with links to U.S. congressional candidates during the 2004 elections, and specifically test for income-decreasing discretionary accruals. Evidence is consistent with firms using earnings management to reduce both direct political costs and the costs associated with causing embarrassment to affiliated political candidates.
Innovation Communication in Multicultural Networks: Deficits in Inter-cultural Capability and Affect-based Trust as Barriers to New Idea Sharing in Inter-Cultural Relationships
| Authors: | Roy Y.J. Chua and Michael W. Morris |
|---|---|
| Published: | June 17, 2009 |
| Paper Release Date: | May 2009 |
| Feature: | Working Papers |
What makes sharing new ideas across cultural lines so difficult? Given that disclosing new ideas makes one person vulnerable to the other, innovation communication requires trust. The literature on workplace relationships distinguishes affect-based trust—feelings of socio-emotional bond with the other—and cognition-based trust—judgments of the other's reliability and competence. Recent organizational psychology research on capabilities needed to work across cultures has also identified affect-relevant strengths such as confidence and nonverbal communication. HBS professor Roy Y.J. Chua and Columbia Business School professor Michael W. Morris survey a sample of business executives with diverse professional networks, assessing their inter-cultural capability and measuring both kinds of trust as well as idea sharing in their working relationships.
Social Influence Given (Partially) Deliberate Matching: Career Imprints in the Creation of Academic Entrepreneurs
| Authors: | Pierre Azoulay, Christopher C. Liu, and Toby E. Stuart |
|---|---|
| Published: | June 11, 2009 |
| Paper Release Date: | May 2009 |
| Feature: | Working Papers |
How do people select partners for relationships? Most relationships arise from a matching process in which individuals pair on a limited number of high-priority dimensions. Although people often match on just a few attributes, it may be that some set of additional characteristics, which was not considered when a choice was made to develop the relationship, results in the social transmission of attitudes and behaviors. For this reason, social matching is only "partially" deliberate. HBS professor Toby Stuart and coauthors observe this phenomenon in an analysis of the origins and consequences of the matching of postdoctoral biomedical scientists to their faculty advisers. This work shows the imprints of postdoctoral advisers on the subsequent choices of the scientists-in-training who travel through their laboratories. The researchers' findings contribute to a burgeoning literature on the interface between academic and commercial science.
Evidence from Goodwill Non-Impairments on the Effects of Using Unverifiable Estimates in Financial Reporting
| Authors: | Karthik Ramanna and Ross L. Watts |
|---|---|
| Published: | June 10, 2009 |
| Paper Release Date: | March 2009 |
| Feature: | Working Papers |
SFAS 142 is an accounting rule that requires managers to use estimates of their firms' discounted future values to determine goodwill write-offs. Such estimates are different from the discretion historically afforded in financial reporting in that they are ex post unverifiable. For example, under the standard, a manager of a single-reporting-unit firm can avoid a goodwill write-off despite market indications to the contrary by generating a hypothetical firm value that exceeds the firm's liquid market value. Ex post, if the firm value used to justify non-impairment is not realized, the manager can claim it was due to factors outside his control (e.g., macroeconomic conditions), which is difficult to verify or falsify in a court of law. By promulgating SFAS 142, standard setters must implicitly assume that managers will, on average, use unverifiable discretion to convey private information on future cash flows. In contrast, agency theory predicts managers will, on average, use unverifiable discretion opportunistically. HBS professor Karthik Ramanna and MIT Sloan School professor Ross L. Watts investigate managers' implementation of the goodwill impairment test in SFAS 142 in a sample of firms with market indications of goodwill impairment.
Can a Continuously-Liquidating Tontine (or Mutual Inheritance Fund) Succeed where Immediate Annuities Have Floundered?
| Author: | Julio J. Rotemberg |
|---|---|
| Published: | June 4, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
The changeover from defined benefit to defined contributions retirement plans in the United States has created a vast group of individuals that faces (or will face) the difficult problem of using a lump sum of assets to provide consumption for a relatively long but uncertain number of years. Up to this point, however, consumers appear not to have embraced annuitization. HBS professor Julio J. Rotemberg suggests an alternative instrument that, like immediate annuities, provides longevity insurance and postpones income until old age. In the proposed Mutual Inheritance Fund (MIF), a pool is formed by having individuals of a particular age buy shares in a mutual fund. The income from the underlying assets in the mutual fund is reinvested in the fund so that the value of the shares in an individual's name (and possibly also the number of these shares) grows over time. The basic idea behind the MIF is that the shares of pool members who die are liquidated, and the proceeds are then distributed in cash to the remaining members in proportion to the number of mutual fund shares that are currently in their name.
It Is Okay for Artists to Make Money…No, Really, It's Okay
| Authors: | Robert D. Austin and Lee Devin |
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| Published: | June 3, 2009 |
| Paper Release Date: | May 2009 |
| Feature: | Working Papers |
When art and commerce are mentioned in the same sentence, many people become bad tempered or think something needs fixing. This paper argues that more artists ought to make more money more often. HBS professor Robert Austin and theater dramaturg Lee Devin identify and undermine three fallacies about art and commerce, and suggest that it is necessary to carry on a more careful and less emotional conversation about the tensions between art and business and to overcome a general aversion to business common among artists and their patrons. They also stress the need to develop better theories about how art and commerce can achieve integration helpful to both.
Crafting Integrated Multichannel Retailing Strategies
| Authors: | Jie Zhang, Paul Farris, Tarun Kushwaha, John Irvin, Thomas J. Steenburgh, and Barton Weitz |
|---|---|
| Published: | May 29, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
The past fifteen years has been a period of rapid growth in the practice of multichannel retailing, mirroring the rise of the Internet as a nearly ubiquitous tool that firms use to interact with customers. More than 80 percent of a broad cross-section of U.S. retailers now report that they sell merchandise through multiple channels. This practice seems to be on the cusp of a new era in which firms start demanding even more from their investments, with particular emphasis being given to financial performance in light of the current economic crisis. These circumstances present a great opportunity both to firms that are looking to gain a competitive advantage through multichannel retailing and to researchers who are interested in helping them make more informed decisions. This article provides a broad discussion of these issues, synthesizes current knowledge, and suggests directions for future research.
Monopolistic Competition Between Differentiated Products With Demand For More Than One Variety
| Author: | Andrei Hagiu |
|---|---|
| Published: | May 28, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
How and when is price competition most significant among firms? This paper develops a theoretical framework for studying price competition between multiple firms. Two examples of markets that fit the description for study are software applications and videogames: There are thousands of software applications as well as games, and different users are interested in different applications and/or games. A given software or game user's tastes may overlap with another's, yet they may have nothing in common with a third's. Thus, although there is a sense in which competition is localized (any given firm competes only with firms whose brands are similar to its own), it is not clear how the fact that consumers are generally interested in purchasing multiple products affects the type of competition waged among firms.
Do Friends Influence Purchases in a Social Network?
| Authors: | Raghuram Iyengar, Sangman Han, and Sunil Gupta |
|---|---|
| Published: | May 21, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
In spite of the cultural and social revolution in the rise of social networking sites such as Facebook and MySpace (and in South Korea, Cyworld), the business viability of these sites remains in question. While many sites are attempting to follow Google and generate revenues from advertising, will advertising be effective? If friends influence the purchases of a user in a social network, it could potentially be a significant source of revenue for the sites and their corporate sponsors. Using a unique data set from Cyworld, this study empirically assesses if friends indeed influence purchases. The answer: It depends. Findings are relevant for social networking sites and large advertisers.
On Good Scholarship, Goal Setting, and Scholars Gone Wild
| Authors: | Lisa D. Ordóñez, Maurice E. Schweitzer, Adam D. Galinsky, and Max H. Bazerman |
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| Published: | May 20, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
When confronted by anecdotal evidence and some causal evidence, how should scholars—and indeed businesses and society—react? In this response to a critique in the journal Academy of Management Perspectives, the authors articulate the aims of their article "Goals Gone Wild: How Goals Systematically Harm Individuals and Organizations," describe points of disagreement with the critics, offer a definition of good scholarship, and suggest a program of research for future studies of goal setting.
Barriers to Household Risk Management: Evidence from India
| Authors: | Shawn Cole, Xavier Giné, Jeremy Tobacman, Petia Topalova, Robert Townsend, and James Vickery |
|---|---|
| Published: | May 15, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
Insurance markets are growing rapidly in developing countries. Despite the promise of these markets, however, adoption to date has been relatively slow. Yet households often remain exposed to movements in local weather; regional house prices; prices of commodities like rice, heating oil, and gasoline; and local, regional, and national income fluctuations. In many cases, financial contracts simply do not exist to hedge these exposures, and when contracts do exist their use is not widespread. Why don't financial markets develop to help households hedge these risks? Why don't more households participate when formal markets are available? HBS professor Shawn Cole and coauthors attempt to shed light on these questions by studying participation in rural India in a rainfall risk-management product that provides a payoff based on monsoon rainfall. The results suggest that it may take a significant amount of time—and substantial marketing efforts—to increase adoption of risk-management tools at the household level.
Financial Literacy, Financial Decisions, and the Demand for Financial Services: Evidence from India and Indonesia
| Authors: | Shawn Cole, Thomas Sampson, and Bilal Zia |
|---|---|
| Published: | May 15, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
Why is there apparently limited demand for financial services in emerging markets? On the one hand, low-income individuals may not want formal services when informal savings, credit, and insurance markets function reasonably well, and the benefits of formal financial market participation may not exceed the costs. On the other hand, limited financial literacy could be the barrier: If people are not familiar or comfortable with products, they will not demand them. These two views carry significantly different implications for the development of financial markets around the world, and would suggest quite different policy decisions by governments and international organizations seeking to promote "financial deepening." HBS professor Shawn Cole and coauthors found that financial literacy education has no effect on the probability of opening a bank savings account for the full population, although it does significantly increase the probability among those with low initial levels of financial literacy and low levels of education. In contrast, modest financial subsidies significantly increase the share of households that open a bank savings account within the subsequent two months.
Quantity vs. Quality and Exclusion by Two-Sided Platforms
| Author: | Andrei Hagiu |
|---|---|
| Published: | May 14, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
It is common for two-sided platforms to deny participation to some potential customers, who would otherwise be willing to pay the platforms' access and/or transaction fees. Videogame console manufacturers such as Microsoft, Sony, and Nintendo, for example, restrict access to a select set of game developers and exclude many others by including security chips in their consoles, even though the latter would also be willing to pay the per-game royalties levied by the manufacturers. Apple routinely excludes certain application developers from its highly popular iPhone store. Professor Andrei Hagiu builds a simple model formalizing profit-maximizing two-sided platforms' choice of exclusion policies, which is fundamentally determined by a tradeoff between quality and quantity.
Capitalizing On Innovation: The Case of Japan
| Authors: | Robert Dujarric and Andrei Hagiu |
|---|---|
| Published: | May 8, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
How can Japan create a better business environment for innovation? Japan presents a unique case of industrial structures that have produced remarkable developments in certain sectors but seem increasingly inadequate to do the same in modern technology industries, which rely on ecosystems of firms producing complementary products. Robert Dujarric and HBS professor Andrei Hagiu present three case studies of software, animation, and mobile telephony to illustrate potential sources of inefficiencies. Like all advanced economies, Japan faces two interconnected challenges. The first challenge is rising competition from lower-cost countries with the capacity to manufacture midrange and in some cases advanced industrial products. At the same time, Japan confronts changes in the relative weights of manufacturing and services, including soft goods, which go against the country's long-standing competitive advantage and emphasis on manufacturing. If Japan is to continue to prosper in a world where its ability to rely principally on manufacturing will diminish, its policymakers will need to capitalize on its untapped innovative power.
Broadening Focus: Spillovers and the Benefits of Specialization in the Hospital Industry
| Authors: | Jonathan R. Clark and Robert S. Huckman |
|---|---|
| Published: | May 7, 2009 |
| Paper Release Date: | April 2009 |
| Feature: | Working Papers |
What is the optimal scope of operations for firms? This question has particular relevance for the U.S. hospital industry, because understanding the effects of focus and spillovers might help hospitals determine how they should balance focusing in a single clinical area with building expertise in related areas. While some scholars argue that narrowing an organization's set of activities improves its operational efficiency, others have noted that seemingly unfocused operations perform at a high level and that a broader range of activities may in fact increase firm value. This study by HBS doctoral student Jonathan Clark and professor Robert Huckman highlights the potential role of spillovers—specifically complementary spillovers—in generating benefits from focus at the operating unit level.
An Ounce of Prevention: The Power of Public Risk Management in Stabilizing the Financial System
| Author: | David A. Moss |
|---|---|
| Published: | May 4, 2009 |
| Paper Release Date: | January 2009 |
| Feature: | Working Papers |
The present financial crisis should remind us that private financial institutions and markets cannot always be counted upon to manage risk optimally on their own. Almost everyone now recognizes that the government has a critical role to play—as the lender, insurer, and spender of last resort—in times of crisis. But effective public risk management is also needed in normal times to protect consumers and investors and to help prevent financial crises from starting in the first place. According to HBS professor David Moss, the biggest threat to our financial system today is posed not by commercial banks (as in 1933), but rather by systemically significant institutions (outside of commercial banking) that have the potential to trigger financial avalanches. The threat posed by these financial institutions is only compounded by the unprecedented federal guarantees introduced in response to the current crisis and the pervasive moral hazard they spawn. Under the system that Moss proposes, no financial institution would be too big to fail.
