- 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
- First Look
First Look: October 13, 2010
Paul Bremer's leadership in rebuilding Iraq ... Unbundling of ad agency services ... The amazing connection between portfolio managers and their universities. 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.
- 12 Oct 2010
- Working Paper Summaries
Crashes and Collateralized Lending
This paper presents a framework for understanding the contribution of systematic crash risk to the cost of capital for a variety of different types of securities. The framework isolates the systematic crash risk exposure of different collateral types (equities, corporate bonds, and CDO tranches), and provides a simple mechanism for allocating the cost of bearing this risk between a financing intermediary and investor. Research was conducted by Jakub W. Jurek (Bendheim Center for Finance, Princeton University) and Erik Stafford (Harvard Business School). Key concepts include: A typical loan extended by a broker to an investor for a purchase on margin is collateralized by the underlying security and protected by the investor's capital contribution (the collateral, margin, or "haircut"). The haircut protects the intermediary from changes in the liquidation value of the collateral. The researchers' focus is looking at haircuts as an effective protection against large market declines. They derive a schedule of haircuts and financing rates (spreads above the risk-free rate), which represents the intermediary's fair charge for providing leverage to the investor. The framework also can be used to stress test different types of collateral by examining the predicted financing terms as market conditions change. This systematic credit risk channel has not been explored in the banking literature, despite the growing role of collateralized borrowing in the economy (e.g. repo market) and the seeming relevance of ensuring collateral robustness in adverse economic states. Closed for comment; 0 Comments.
- 11 Oct 2010
- Research & Ideas
It Pays to Hire Women in Countries That Won’t
South Korean companies don't hire many women, no matter how qualified. So multinationals are moving in to take advantage of this rich hiring opportunity, according to new research by professor Jordan Siegel. Key concepts include: Employing women who are excluded by their own countries' labor markets is a growing trend for international affiliates of global multinational companies. Using data from South Korea, researchers showed that a 10 percent nominal increase in the percentage of female managers (at the level of the then-prevailing glass ceiling) was associated with a 1 percent nominal increase in ROA. Multinational firms that recruit females into management roles at their local affiliates face the possibility of upsetting local male employees, partners, and customers who don't approve of women in executive roles. In many instances, multinational firms hired and promoted female managers in a discriminatory host market at a far higher rate than they employed female managers in their own home markets. 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.
- 07 Oct 2010
- Working Paper Summaries
The Profits of Power: Commercial Realpolitik in Eurasia
The concept of good old-fashioned realpolitik-politics primarily shaped by practicality and power-has returned to Europe, clashing with the traditional ideologies of the European Union, says Harvard Business School professor Rawi Abdelal. Citing supporting evidence from the Russian gas giant Gazprom, he argues that scholars need to pay better attention to the role of large corporations in international relations. Key concepts include: Corporate firms, not states, are responsible for the return of realpolitik in Europe. The international political economy needs a better understanding of the role that these firms play in world politics. Closed for comment; 0 Comments.
- 06 Oct 2010
- Working Paper Summaries
Using What We Know: Turning Organizational Knowledge into Team Performance
An organization's captured (and codified) knowledge--white papers, case studies, documented processes--should help project teams perform better, but does it? Existing research has not answered the question, even as U.S. companies alone spend billions annually on knowledge management programs. Looking at large-scale, objective data from Indian software developer Wipro, researchers Bradley R. Staats, Melissa A. Valentine, and Amy C. Edmondson found that team use of an organization's captured knowledge enhanced productivity, especially for teams that were geographically diverse, relatively low in experience, or performing complex work. The study did not find effects of knowledge use on the quality of the team's work, except for dispersed teams. Key concepts include: Using captured knowledge had a positive effect on the team's project efficiency (delivering on budget) but not on project quality (number of defects in the code). When use of knowledge was concentrated in a small number of team members, efficiency improved but quality declined. Knowledge use improved project efficiency but not quality for teams with less experience. For more dispersed teams, knowledge use was related to improved quality but not efficiency. Team knowledge use was related to improved efficiency and quality for teams completing more complex work. Closed for comment; 0 Comments.
- 06 Oct 2010
- Research & Ideas
John Kotter: Four Ways to Kill a Good Idea
Every visionary knows the frustration of pitching a great idea, only to see it killed by naysayers, say HBS professor emeritus John P. Kotter and University of British Columbia professor Lorne A. Whitehead. In an excerpt from their new book, Buy-IN: Saving Your Good Idea from Getting Shot Down, the authors reveal strategies used by your critics—and how to defend against them. Key concepts include: Fear mongering involves creating infectious anxiety, scaring others into believing that a good idea is far too risky to pursue. Death by delay entails stalling an idea with never-ending questions, straw polls, and meetings—until the idea eventually loses momentum and peters out. Confusion consists of peppering a conversation with a stream of irrelevant facts and convoluted questions, making it nearly impossible for the innovator to keep the discussion on track. Ridicule is a direct attack on the character of the person who proposed the idea, creating indirect doubts about the idea itself. Closed for comment; 0 Comments.
- 05 Oct 2010
- Working Paper Summaries
A Positive Approach to Studying Diversity in Organizations
Considering that the topic of workplace diversity often garners unhappy discussions of prejudice, isolation, and conflict, it's not surprising that many researchers avoid the topic altogether. Only 5 percent of articles published in management journals from 2000-2008 included race or gender in their keywords. In this paper, Harvard Business School professors Lakshmi Ramarajan and David Thomas propose a positive approach to studying diversity, with hopes that this will lead managers to feel more positive about adopting diversity policies in the workplace. Key concepts include: Most workplace policies governing issues of race, gender, and sexual orientation come out of traditional studies that focus on discrimination. Because these policies are borne of these traditional studies, they often yield negative consequences--such as a manager refraining from honest discourse for fear of a discrimination lawsuit. A positive approach to diversity research could lead to policies that feel more organically productive and less threatening to managers. Closed for comment; 0 Comments.
- 05 Oct 2010
- First Look
First Look: October 5, 2010
The NFL's record on minority hiring ... Ed Haldeman takes over Freddie Mac ... Does increased competition improve credit ratings quality? Closed for comment; 0 Comments.
- 04 Oct 2010
- Research & Ideas
Introverts: The Best Leaders for Proactive Employees
Think effective leadership requires gregariousness and charisma? Think again. Introverts can actually be better leaders than extraverts, especially when their employees are naturally proactive, according to Francesca Gino. Closed for comment; 0 Comments.
- 30 Sep 2010
- Working Paper Summaries
Does Mandatory IFRS Adoption Improve the Information Environment?
Created by the International Accounting Standards Board, the International Financial Reporting Standards (IFRS) comprise several principles designed to help public companies increase transparency in their financial reports. But are they worth the hefty compliance costs associated with them? This paper investigates whether adopting the IFRS improves the information environment for firms in which the standards are legally required. Research was conducted by Joanne Horton at the London School of Economics, George Serafeim at Harvard Business School, and Ioanna Serafeim at the Greek Capital Market Commission. Key concepts include: Consensus forecast errors decrease significantly after mandatory IFRS adoption at firms that mandatorily adopt the International Financial Reporting Standards, relative to early voluntary IFRS adopters and firms that continue to report under local GAAP. The extent of the error decrease is associated with the differences between the IFRS and the firm's existing generally-accepted accounting principles. The decrease in forecast errors is driven both by improved comparability across companies and better information being communicated in the reports. 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.
- 28 Sep 2010
- First Look
First Look: September 28, 2010
Using what we know ... Platform envelopment as strategy ... How technology advances impact the music industry. Closed for comment; 0 Comments.
- 27 Sep 2010
- Research & Ideas
Customer Experts Lose Influence When Teams are Pressured
Group dynamics can take a bad turn when a team feels heightened pressure from stakeholders. In this Q&A, HBS professor Heidi K. Gardner explains why performance pressure makes team members do what seems irrational: defer to high-status "generalist" experts while ignoring colleagues close to the client. Key concepts include: Despite mutual respect initially, team dynamics can take a counterproductive turn when the group feels heightened pressure from external and internal stakeholders. When teams experience performance pressure, they usually listen more to high-status "generalist" experts in the group and unintentionally ignore members who know the client organization best. As team members privilege general expertise over customer-specific expertise, they miss out on key information that would improve how they customize and adapt the work for clients—a significant aspect of maintaining ongoing client relationships. Although it is tempting to blame certain individuals when this happens, Gardner's evidence shows that these processes are the responsibility of every team member. Managers can recognize the problem and take concrete steps to avoid it. Ultimately, soliciting everyone's contribution means little unless it is incorporated into the final deliverable for clients. Closed for comment; 0 Comments.
- 22 Sep 2010
- Working Paper Summaries
The Task and Temporal Microstructure of Productivity: Evidence from Japanese Financial Services
Boredom and fatigue often hamper the productivity of workers whose jobs consist of repeating the same tasks. This paper explores ways in which companies can combat this problem, introducing the idea of the "restart effect" - a deliberate disruption that kindles productivity. Research, which focused on a loan-application processing line at a Japanese bank, was conducted by HBS professor Francesca Gino and Kenan-Flagler Business School assistant professor Bradley R. Staats. Key concepts include: Even taking acclimation into account, a worker's productivity will improve immediately after switching from one task to another, so it behooves managers to introduce a variety of tasks into the workday. All else being equal, workers perform better during the first half of the day than the second half. Productivity improves markedly when workers are given the incentive of leaving as soon as the day's tasks are completed. (The researchers found that workers performed 13.1% better on Saturdays, when they had the option of leaving early, than on Mondays, when they were required to work a nine-hour day.) Closed for comment; 0 Comments.
Venture Capital’s Disconnect with Clean Tech
Clean-tech start-ups depend on patience and public policy to thrive—the Internet models for VC funding don't apply. That's why Harvard Business School professor Joseph Lassiter is making an unusual recommendation to his entrepreneurship students: Spend a few years serving time in a government job. Key concepts include: MBA students and young venture capitalists often assume that all promising start-ups can grow and exit as fast as Internet start-ups, but they're mistaken. Clean-tech start-ups are often stymied by a "valley of death"—that precarious stage between researching and developing a product and going to market. The success of clean-tech companies often is dependent on public policy, so it behooves budding VCs and entrepreneurs to spend a few years learning the ropes in a government or corporate job. Closed for comment; 0 Comments.