- 16 Oct 2010
- Working Paper Summaries
A Comparative-Advantage Approach to Government Debt Maturity
Can the government do anything to discourage short-term borrowing by the private sector? HBS Professor Robin Greenwood, Harvard University and Harvard Business School PhD candidate Samuel Hanson, and Harvard University Professor Jeremy C. Stein suggest the government could actively influence the corporate sector's borrowing decisions by shifting its own financing between T-bills and bonds. Key concepts include: Historically, there is a strong correlation between the maturity of government debt and the ratio of debt-to-GDP. There is effectively a regulatory dimension to the government's debt-maturity choice. The title of the paper refers to the idea that, in choosing the optimal maturity structure of its debt, the government balances the costs of rollover risk with the system-wide benefits of crowding out private sector money creation. In other words, the government should keep issuing short-term bills as long as it has a comparative advantage over the private sector in the production of riskless money-like securities. Treasury could both create valuable incremental monetary services, as well as have a potentially powerful crowding-out effect on the private sector, by issuing more in the way of, say, two and four-week bills. A simple calculation shows that this may be done without much of an increase in rollover risk. Closed for comment; 0 Comments.
- 14 Oct 2010
- Working Paper Summaries
Reversing the Queue: Performance, Legitimacy, and Minority Hiring
While there has been a steady rise in the number of black executives in corporate America, the fact remains that white males have a persistent advantage in terms of access to managerial positions. This paper sets out to find out how a company's performance influences the hiring of minorities into management positions, and whether the presence of minorities in senior management positions affects the racial composition of the subordinate management team. Research, which focused on the corporate structure of the National Football League, was conducted by Harvard Business School doctoral candidate Andrew Hill and professor David Thomas. Key concepts include: The higher a team's winning percentage prior to the hire, the more likely the team is to hire an African-American head coach. The lower a team's winning percentage in the prior season, the more African-American subordinate coaches are likely to be hired. A team with a black head coach hires about twenty-five percent more black subordinates than a team with a white head coach. Closed for comment; 0 Comments.
- 13 Oct 2010
- Working Paper Summaries
Employee Selection as a Control System
One of the most powerful tools that an organization has to achieve its goals is the ability to hire employees with complementary values and capabilities. Reviewing personnel and lending data from a financial services organization undergoing a major decentralization process, Dennis Campbell offers the first direct empirical evidence establishing a link between employee selection and better alignment with organizational performance goals. Key concepts include: Employee selection as an important, but understudied, element of organizational control systems. The research provides the first direct empirical evidence of a link between employee selection and better management control outcomes. Employees chosen by the organization to function well in a decentralized environment were more likely to use decision-making authority in the granting and structuring of consumer loans than those who were not, and made less risky choices. The results provide evidence of longstanding models of management control, which posit that control on organizations can be obtained by managing "inputs" (e.g. employee selection) rather than "outputs" (e.g., explicit incentive contracting on financial performance). Closed for comment; 0 Comments.
- 13 Oct 2010
- Research & Ideas
How Government can Discourage Private Sector Reliance on Short-Term Debt
Financial institutions have relied increasingly and excessively on short-term financing--putting the overall system at risk. Should government step in? Harvard researchers Robin Greenwood, Samuel Hanson, and Jeremy C. Stein propose a "comparative advantage approach" that allows government to actively influence the corporate sector's borrowing decisions. Key concepts include: There is general agreement that the financing of large financial intermediaries puts the larger financial system at risk. The government can dissuade firms from issuing short-term debt by simply making it less attractive to do so. The government could actively influence the corporate sector's borrowing decisions by shifting its own financing between T-bills and bonds. Closed for comment; 0 Comments.
- 08 Oct 2010
- What Do You Think?
Will Transparency in CEO Compensation Have Unintended Consequences?
Summing Up: The Dodd-Frank legislation requiring companies to compare CEO compensation with rank-and-file pay will have little or no impact on executive compensation levels, say Jim Heskett's readers. (Online forum has closed; next forum opens November 4.) Closed for comment; 0 Comments.
- 29 Sep 2010
- Working Paper Summaries
Medium Term Business Cycles in Developing Countries
Business cycle fluctuations in developed economies tend to have very strong effects on developing countries, says a new study by Harvard Business School professor Diego Comin, Norman Loayza and Luis Serven of the World Bank, and Farooq Pasha of Boston College. The researchers have developed a quantitative model capable of explaining the amplitude and persistence of the effect that U.S. shocks have on Mexico's macroeconomic variables. The model is then used to provide an account of the drivers of business fluctuations in developing economies. Key concepts include: U.S. shocks have a larger effect on Mexico than on the U.S. in terms of GDP. The slow diffusion of technologies to Mexico generates a hump-shaped response in Mexican output to U.S. shocks. Mexico's consumption is more volatile than its output. The model can be a useful starting point for obtaining a better understanding of business cycle fluctuations in developing countries in general, and may be helpful for researchers wishing to introduce other relevant linkages, such as remittances or international capital flows other than FDI. Closed for comment; 0 Comments.
- 13 Sep 2010
- Research & Ideas
The Consumer Appeal of Underdog Branding
Research by HBS professor Anat Keinan and colleagues explains how and why a "brand biography" about hard luck and fierce determination can boost the power of products in industries as diverse as food and beverages, technology, airlines, and automobiles. Key concepts include: Underdog brand biographies feature two intertwined narrative threads: a seemingly disadvantaged position in the marketplace, coupled with the passion and determination to succeed. Examples of "brands" that emphasize their underdog roots include Apple, Hewlett-Packard, Oprah Winfrey; candidates in the 2008 U.S. presidential election, Nantucket Nectars, and Clif Bar. Underdog brand biographies resonate with consumers during tough economic times like those we live in. Popular stories about underdogs were prevalent during the Great Depression, too, and have been powerful around the world and throughout history. Use brand biographies carefully. Not all products and services are appropriate for underdog narratives. Closed for comment; 0 Comments.
- 30 Aug 2010
- Research & Ideas
Turning Employees Into Problem Solvers
To improve patient safety, hospitals hope their staff will use error-reporting systems. Question is, how can managers encourage employees to take the next step and ensure their constructive use? New research by Julia Adler-Milstein, Sara J. Singer, and HBS professor Michael W. Toffel. Key concepts include: Patient-safety information campaigns can help hospital staff do more than just report problems when they occur. Thanks to information campaigns, frontline workers increased the rate of suggesting constructive solutions to problems by 74 percent. The frequency increased even more when unit managers joined in problem solving. By serving as role models, managers who actively engage in problem solving can lead their frontline workers to create and share solutions. Closed for comment; 0 Comments.
- 11 Aug 2010
- Working Paper Summaries
The Influence of Prior Industry Affiliation on Framing in Nascent Industries: The Evolution of Digital Cameras
Firms entering a new product market face tremendous ambiguity and competitive uncertainty, particularly when the new market is sparked by radical technological change. Potential customers have little or no experience with products, and during this period of turbulence, firms experiment with alternative product configurations, functions, and technologies. By studying the emergence of the consumer mass market for digital cameras, Carlson School of Management professor Mary J. Benner and HBS professor Mary Tripsas explore what factors influence a firm's initial introduction of product features during the nascent stage of a product market, and how the process of convergence on a standard set of features unfolds. In particular, they assess how a firm's prior industry affiliation influences its conceptualization of the product. Key concepts include: The authors used a dataset that includes the entry date and features of almost every camera in the history of the U.S. consumer digital camera industry from its inception in 1991 through 2006. Results suggest that firms from the same prior industry shared similar beliefs about what features (such as optical zoom) would be valued, as reflected in their concurrent introduction of features. Firms were likely to imitate the behavior of firms from the same prior industry, as opposed to that of firms from different prior industries, in introducing some but not all features. Finally, as a firm's experience with a particular feature increased, the influence of prior industry decreased. Closed for comment; 0 Comments.
- 09 Aug 2010
- Research & Ideas
How to Speed Up Energy Innovation
We know the grand challenge posed by shifting away from dirty energy sources. The good news, says Harvard Business School professor Rebecca Henderson, is that we have seen such change before in fields including agriculture and biotech, giving us a clearer pathway to what it will take. Key concepts include: The research brings attention to industries that experienced radical transformation at great speed: agriculture, chemicals, life sciences, and information technology. The problem: Energy is a commodity product that can't be differentiated, the sector already exists, and the change needs to happen at enormous scale. Trying to speed innovation without simultaneously creating demand for low-carbon energy is unlikely to have much of an effect. History shows it's unlikely we can pick the winning technology in advance. Closed for comment; 0 Comments.
- 21 Jul 2010
- Research & Ideas
HBS Faculty Debate Financial Reform Legislation
Harvard Business School professors Robert Steven Kaplan, David A. Moss, Robert C. Pozen, Clayton S. Rose and Luis M. Viceira share their perspectives on the Dodd-Frank Wall Street Reform and Consumer Protection Act, slated to be signed this week by U.S. President Barack Obama. Key concepts include: Overall, faculty see reasons for optimism as well as concern and caution. We need appropriate risk-taking and credit extension to fuel economic growth, says Robert Steven Kaplan. While the Dodd-Frank bill creates safeguards, will it discourage and impede these activities? According to David A. Moss, an open question is how the regulators will use the new authority granted to them. The Dodd-Frank bill fails to reform large mortgage finance institutions such as Fannie Mae, Freddie Mac, and the housing agencies, says Robert C. Pozen. While the bill does tackle some causes of the crisis, says Clayton S. Rose, it may increase risk to the U.S. financial system by skirting the issues of firms "too big to fail" and the excessive use of market-based short-term funding by financial firms. At first sight, Dodd-Frank has elements that indicate we are moving in the right direction, while other parts of the bill leave us uncertain about its future success, says Luis M. Viceira. Closed for comment; 0 Comments.
- 06 Jul 2010
- Research & Ideas
Renewable Energy: Winds at Our Back?
It certainly stirred up controversy in 2001 when an entrepreneur proposed erecting 130 wind turbines off the coast of Massachusetts' Cape Cod. After nine years of struggle over regulatory, environmental, safety, and social issues, the plan appears closer to becoming a reality. HBS professor Richard Vietor reflects on wind energy and innovations in the renewable energy industry. Key concepts include: The Cape Wind project has sparked controversy in the eastern United States related to regulatory, political, environmental, and social concerns. Wind power is important for the near term, but in the longer term solar and nuclear power may gain ground. The United States is rapidly falling behind other developed countries in its approach to renewable energy sources. Nevertheless, President Obama's stimulus package provides significant incentives and subsidies for green energy projects. More than 30 states have renewable production standards that require utilities to purchase or develop from 15 percent to 30 percent of their power from renewables over the next 10 to 15 years. Closed for comment; 0 Comments.
- 24 May 2010
- Research & Ideas
Stimulus Surprise: Companies Retrench When Government Spends
Research from Harvard Business School suggests that federal spending in states appears to cause local businesses to cut back rather than grow. A conversation with Joshua Coval. Closed for comment; 0 Comments.
- 13 May 2010
- Working Paper Summaries
Just Say No to Wall Street: Putting A Stop to the Earnings Game
Over the last decade, companies have struggled to meet analysts' expectations. Analysts have challenged the companies they covered to reach for unprecedented earnings growth, and executives have often acquiesced to analysts' increasingly unrealistic projections, adopting them as a basis for setting goals for their organizations. As Monitor Group cofounder Joseph Fuller and HBS professor emeritus Michael C. Jensen write, improving future relations between Main Street and Wall Street and putting an end to the destructive "earnings game" between analysts and executives will require a new approach to disclosure based on a few simple rules of engagement. (This article originally appeared in the Journal of Applied Corporate Finance in the Winter 2002 issue.) Key concepts include: Managers must confront the capital markets with courage and conviction. Managers must be forthright and promise only those results they have a legitimate prospect of delivering, and they must be clear about the risks and uncertainties involved. Managers must recognize that an overvalued stock can be damaging to the long-run health of the company, particularly when it serves as a pretext for overpriced acquisitions. Managers must work to make their organizations more transparent to investors and to the markets. To limit wishful thinking, managers must reconcile their own company's projections to those of the industry and their rivals. While recent history may have obscured the analyst role, managers should not simply presume that analysts are wrong when disagreement occurs. In fact, analysts have a vital monitoring role to play in a market economy. Closed for comment; 0 Comments.
- 28 Apr 2010
- Working Paper Summaries
Environmental Federalism in the European Union and the United States
Under what circumstances will individual states take the lead in passing the most stringent environmental regulations, and when will the federal government take the lead? When a state takes a leadership role, will other states follow? HBS professor Michael Toffel and coauthors describe the development of environmental regulations in the U.S. and EU that address automobile emissions, packaging waste, and global climate change. They use these three topics to illustrate different patterns of environmental policymaking, describe the changing dynamics between state and centralized regulation in the United States and the EU. Key concepts include: State governments have been an important source of policy innovation and diffusion for automobile emissions in the EU and the U.S., and packaging waste policies in the EU. In these cases, state authorities were the first to regulate, and their regulations resulted in the adoption of more stringent regulatory standards by the central government. With climate change policies, the EU and its member states have developed regulations in tandem, reinforcing each other. In the U.S., state governments developed more innovate regulations than the federal government for both climate change and packaging waste, but these policies have not substantially diffused to other states. Closed for comment; 0 Comments.
- 19 Apr 2010
- Research & Ideas
The History of Beauty
Fragrance, eyeliner, toothpaste—the beauty business has permeated our lives like few other industries. But surprisingly little is known about its history, which over time has been shrouded in competitive secrecy. HBS history professor Geoffrey Jones offers one of the first authoritative accounts in Beauty Imagined: A History of the Global Beauty Industry. Closed for comment; 0 Comments.
- 14 Apr 2010
- Working Paper Summaries
The Economic Crisis and Medical Care Usage
The global economic crisis has taken a historic toll on national economies and household finances around the world. What is the impact of such large shocks on individuals and their behavior, especially on their willingness to seek routine medical care? In this research, Annamaria Lusardi of Dartmouth College, Daniel Schneider of Princeton University, and Peter Tufano of Harvard Business School find strong evidence that the economic crisis—manifested in job and wealth losses—has led to large reductions in the use of routine medical care. Specifically, more than a quarter of Americans reported reducing their use of such care, as did between 5 and 12 percent of Canadian, French, German, and British respondents. Key concepts include: Large shares of Americans reduced their use of routine medical care since the economic crisis. These reductions were strongly related to economic distress brought on by the global financial crisis as measured by wealth loss and unemployment. The across-the-board reduction in medical care usage by Americans may speak to behavioral changes that reflect the national psyche broadly: The economic crisis in the United States—deeper and more widespread than elsewhere—may have touched the population at large, perhaps via negative expectations about the future. The cutbacks in health-care usage by people losing wealth or jobs, even in countries with "universal" systems, may reflect the fact that seeking care entails not only out-of-pocket expenses, but also costs of time away from work or job hunting. Reductions in routine care today might lead to undetected illness tomorrow and reduced individual health and well-being in the more distant future. Closed for comment; 0 Comments.
- 07 Apr 2010
- Working Paper Summaries
Location Strategies for Agglomeration Economies
Locations thick with similar economic activity expose firms to pools of skilled labor, specialized suppliers, and potential inter-firm knowledge spillovers that can provide firms with opportunities for competitive advantage. While certainly attractive, the lure of these agglomeration economies varies. Some firms should be wary of aiding their competitors by co-locating with them, for example, because each "agglomeration economy" differs in how readily competitors can leverage contributions made by others. HBS professor Juan Alcácer and Wilbur Chung of the University of Maryland develop a framework to better understand how firms respond to agglomeration economies. Key concepts include: Firms' location choices balance the perceived risk of aiding competitors with a recognition that some agglomeration economies will be of limited use to others. Firms, on average, place more value on pools of skilled labor and specialized suppliers than on potential knowledge inflows from competitors. The priority placed on labor and suppliers persists even for industries that are more R&D intensive. Economically larger firms are less attracted to industry employment, but more attracted to industry supplier activity. Closed for comment; 0 Comments.
- 02 Apr 2010
- What Do You Think?
Why Are Fewer and Fewer U.S. Employees Satisfied With Their Jobs?
This month's column yielded many hypotheses to explain why U.S. employees' job satisfaction is at a 23-year low, says HBS professor Jim Heskett. Readers also offered antidotes to job malaise. (Online forum now closed. New forum begins May 5.) Closed for comment; 0 Comments.
Tesco’s Stumble into the US Market
UK retailer Tesco was very successful penetrating foreign markets—until it set its sights on the United States. Its series of mistakes and some bad luck are captured in a new case by Harvard Business School marketing professor John A. Quelch. Key concepts include: Entering the US, Tesco deserves credit for creating a neighborhood market approach—emphasizing fresh produce and meats, and good quality but value-priced prepared meals. By not partnering or hiring local executives, Tesco missed the opportunity to learn more about the habits and needs of target customers. Tesco rightly aimed to scale the concept as soon as possible so that fixed overhead investments in its own distribution centers could be spread across a larger number of stores. Perhaps Tesco's original rollout plan was too ambitious, with executives assuming that the company would get everything right on the first try. Tesco has listened to its customers, learned from its mistakes, and made appropriate midcourse corrections. Closed for comment; 0 Comments.