First Look

February 27, 2018

Of special interest among new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Are we overstating our progress on employment integration?

Researchers John-Paul Ferguson and Rembrand Koning examine the racial employment composition of every large private-sector workplace in the United States, determining that "Racial segregation between American workplaces is greater today than it was a generation ago." Firm Turnover and the Return of Racial Establishment Segregation.

Gender disparity in entrepreneur funding starts with the questions asked

Women entrepreneurs raise lower levels of funding than their male counterparts, and new research suggests why: gender bias in questions asked by investors. We Ask Men to Win & Women Not to Lose: Closing the Gender Gap in Startup Funding.

Why a new coffee shop in the neighborhood increases housing prices

Yelp data analyzed by Michael Luca and colleagues shows that "gentrifying neighborhoods tend to have growing numbers of local groceries, cafes, restaurants, and bars, with little evidence of crowd-out of other types of businesses." Nowcasting Gentrification: Using Yelp Data to Quantify Neighborhood Change.

A complete list of new research and publications from Harvard Business School faculty follows.

— Sean Silverthorne
 
  • December 2017
  • Journal of Creative Behavior

In Pursuit of Everyday Creativity

By: Amabile, Teresa M.

Abstract—Creativity researchers have long paid careful attention to individual creativity, beginning with studies of well-known geniuses and expanding to personality, biographical, cognitive, and social-psychological studies of individual creative behavior. Little is known, however, about the everyday psychological experience and associated creative behavior in the life and work of ordinary individuals. Yet evidence is mounting that such individuals can be responsible for important instances of creativity and innovation in the world: open innovation, user innovation, and citizen innovation. Research into this phenomenon could do much to advance the study and practice of creativity.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54028

  • forthcoming
  • American Sociological Review

Firm Turnover and the Return of Racial Establishment Segregation

By: Ferguson, John-Paul, and Rembrand Koning

Abstract—Racial segregation between American workplaces is greater today than it was a generation ago. This increase has happened alongside the declines in within-establishment occupational segregation on which most prior research has focused. We examine more than 40 years of longitudinal data on the racial employment composition of every large private-sector workplace in the United States to calculate between-establishment and within-establishment trends in racial employment segregation over time. We demonstrate that the return of racial establishment segregation owes little to within-establishment processes but rather stems from differences in the turnover rates of more- and less-homogeneous workplaces. Present research on employment segregation focuses intently on within-firm processes. By doing so, we may be overstating what progress has been made on employment integration and ignoring other avenues of intervention that may give greater leverage for further integrating firms.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54114

  • forthcoming
  • Academy of Management Journal

Deep Help in Complex Project Work: Guiding and Path-clearing Across Difficult Terrain

By: Fisher, Colin M., Julianna Pillemer, and Teresa M. Amabile

Abstract—How do teams working on complex projects get the help they need? Our qualitative investigation of the help provided to project teams at a prominent design firm revealed two distinct helping processes, both characterized by deep, sustained engagement that far exceeds the brief interactions described in the helping literature. Such deep help consisted of (1) guiding a team through a difficult juncture by working with its members in several prolonged, tightly clustered sessions, or (2) path-clearing by helping a team address a persistent deficit via briefer, intermittent sessions throughout a project's life. We present a model theorizing these processes, which has two noteworthy features. First, it emphasizes the socially constructed nature of helping behavior. That is, the parties must establish and maintain a helping frame for their interaction, especially when help-givers are high-status external leaders. Second, the model specifies that the rhythms of deep help—the duration and temporal patterns of giver-receiver interactions—are resource-allocation decisions that also contribute to the social meaning of help. These findings illuminate the theoretical and practical overlap between helping and external leadership in knowledge-intensive project work as well as the role of temporality in the helping process.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54030

  • forthcoming
  • Academy of Management Journal

The Role of Investor Gut Feel in Managing Complexity and Extreme Risk

By: Huang, Laura

Abstract—Securing financial resources from investors is a key challenge for many early stage entrepreneurial ventures. Given the inherent uncertainty surrounding a decision to invest in these ventures, prior research has found that experienced investors rely heavily on their investor gut feel—dynamic expertise-based emotion-cognitions specific to the entrepreneurship context. In this paper, I inductively find that rather than based on rapid, nonconscious impulse, as much of prior literature would suggest, what investors call their "gut feel" is an elaborate "intuiting process." This process serves a distinct purpose: it emboldens investors to make investments that would otherwise be considered overly risky and likely to lead to failure. In the theoretical model I present, I delineate how investors are guided by a predisposed stance on risk and uncertainty, which dictates the approach investors take towards managing the complexity of an investment opportunity—and how they cognitively and emotionally reframe investment risk into a compelling narrative that transcends avoidance behavior and leads investors to invest. These findings expand our overall understanding of the complex ways in which investors contend with the risks and uncertainties in entrepreneurial finance.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54066

  • forthcoming
  • Academy of Management Journal

We Ask Men to Win & Women Not to Lose: Closing the Gender Gap in Startup Funding

By: Kanze, Dana, Laura Huang, Mark Conley, and E. Tory Higgins

Abstract—Male entrepreneurs are known to raise higher levels of funding than their female counterparts, but the underlying mechanism for this funding disparity remains contested. Drawing upon Regulatory Focus Theory, we propose that the gap originates with a gender bias in the questions that investors pose to entrepreneurs. A field study conducted on question-and-answer interactions at TechCrunch Disrupt New York City during 2010 through 2016 reveals that investors tend to ask male entrepreneurs promotion-focused questions and female entrepreneurs prevention-focused questions, and that entrepreneurs tend to respond with matching regulatory focus. This distinction in the regulatory focus of investor questions and entrepreneur responses results in divergent funding outcomes for entrepreneurs whereby those asked promotion-focused questions raise significantly higher amounts of funding than those asked prevention-focused questions. We demonstrate that every additional prevention-focused question significantly hinders the entrepreneur's ability to raise capital, fully mediating gender's effect on funding. By experimentally testing an intervention, we find that entrepreneurs can significantly increase funding for their startups when responding to prevention-focused questions with promotion-focused answers. As we offer evidence regarding tactics that can be employed to diminish the gender disadvantage in funding outcomes, this study has practical as well as theoretical implications for entrepreneurship.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54068

  • January 2018
  • Journal of Labor Economics

Who Gets Hired? The Importance of Competition Among Applicants

By: Lazear, Edward P., Kathryn L. Shaw, and Christopher Stanton

Abstract—Despite seeming to be an important requirement for hiring, the concept of a slot is absent from virtually all of economics. Macroeconomic studies of vacancies and search come closest, but the implications of slot-based hiring for individual worker outcomes has not been analyzed in a market context. A model of hiring into slots is presented in which job assignment is based on comparative advantage. Crucially, and consistent with almost all realistic hiring contexts, being hired and assigned to a job depends not only on one’s own skill but also on the skill of other applicants. The model has many implications, the most important of which are as follows: First, bumping of applicants occurs when one job seeker is slotted into a lower-paying job or pushed into unemployment by another applicant who is more skilled. Second, less able workers are more likely to be unemployed because high-ability workers are more flexible in what they can do. Third, vacancies are higher for difficult jobs because easy jobs can be filled by more workers. Fourth, some workers are overqualified for their jobs, whereas others are underqualified. Misassigned workers earn less than they would have had they found an open slot in a job that more appropriately matches their skills. Despite that, overqualified workers earn more than the typical worker in that job. These implications are borne out using four different data sets that match the data requirements to test these points and others implied by the model.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54078

Stock Market Returns and Consumption

By: Di Maggio, Marco, Amir Kermani, and Kaveh Majlesi

Abstract—This paper employs Swedish data containing security level information on households' stock holdings to investigate how consumption responds to changes in stock market returns. We exploit households’ portfolio weights in previous years as an instrument for actual capital gains and dividends payments. We find that unrealized capital gains lead to a marginal propensity to consume (MPC) of 13% for the bottom 50% of the wealth distribution but a flat 5% for the rest of the distribution. We also find that households’ consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are broadly consistent with near-rational behavior in which households optimize their consumption with respect to capital gains and dividends income as if they were separate sources of income.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=54113

Nowcasting Gentrification: Using Yelp Data to Quantify Neighborhood Change

By: Glaeser, Edward L., Hyunjin Kim, and Michael Luca

Abstract—Data from digital platforms have the potential to improve our understanding of gentrification and enable new measures of how neighborhoods change in close to real time. Combining data on businesses from Yelp with data on gentrification from the Census, Federal Housing Finance Agency, and Streetscore (an algorithm using Google Streetview), we find that gentrifying neighborhoods tend to have growing numbers of local groceries, cafes, restaurants, and bars, with little evidence of crowd-out of other types of businesses. For example, the entry of a new coffee shop into a zip code in a given year is associated with a 0.5 percent increase in housing prices. Moreover, Yelp measures of local business activity provide leading indicators for housing price changes and help to forecast which neighborhoods are gentrifying.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=54099

Abstract—Relative total shareholder return (rTSR) is increasingly used to incentivize and evaluate managers. Although compensation experts acknowledge a primary objective is to filter shocks unrelated to managerial performance, we document that a significant subset of firms, who choose index-based rTSR-benchmarks in lieu of specific peers, do not adequately achieve this objective. Structural estimates reveal that noisy-benchmark selection implies significant negative performance consequences. Reduced-form analysis shows that a firm's choice of index-based benchmarking is 1) driven by its compensation consultants' systematic tendencies and governance-related frictions and 2) associated with lower ROA, suggesting noisy-benchmark selection is a novel indicator of weak governance.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=51919

This case follows the program director of La Ceiba, a Honduras-based microfinance institution, as he navigates four challenging negotiation scenarios involving the organization's loan clients. Students are asked to adopt the perspective of the Program Director and to consider how they would act in these negotiation scenarios that are characterized by unclear objectives and severely asymmetric power dynamics. How should they approach negotiation situations in which the power balance is heavily in their own favor? Should they exert this power and engage in a “hard” negotiation approach? Or, are there circumstances where a “soft” negotiation approach is warranted? In addition to helping students develop a framework about when to use soft versus hard negotiation approaches, two of the notable lessons that arise are (i) the role of apologies after misusing power and (ii) how even “using one’s power for good” can translate into paternalistic outcomes.

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Supplements the (A) case.

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  • Harvard Business School Case 717-405

BlackRock (B): Acquire MLIM?

Supplements the (A) case.

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https://cb.hbsp.harvard.edu/cbmp/product/717405-PDF-ENG

  • Harvard Business School Case 717-406

BlackRock (C): Integrating BGI

Supplements the (A) case.

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https://cb.hbsp.harvard.edu/cbmp/product/717406-PDF-ENG

  • Harvard Business School Case 717-407

BlackRock (D): Organizing for the Future

Supplements the (A) case.

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  • Harvard Business School Case 616-019

Ozark Feed and Ag Corporation: The ERP Decision

This case describes a medium-sized business that manufactures animal feed for commercial and companion animals. The company has been growing rapidly and is considering whether or not to implement an enterprise resource planning (ERP) system. Ozark currently uses an IT system built and refined in house and, though less flexible than desired, allowed for some specific functionality the company used, such as a pricing system tied to the company’s commodity hedging positions on a real-time, as well as off-the-shelf systems, for recording financial transactions and reporting, purchasing, warehouse management, and manufacturing execution. The case provides an overview of ERP systems and implementation. Ozark is deciding among three ERP options; different senior executives support different options.

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No abstract available.

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This supplements the (A) case by summarizing key developments in the Bangladesh ready-made garment industry after the fire at Tazreen Fashions factory, including formation of the Bangladesh Fire and Building Safety Accord (“Accord”) and the Alliance for Bangladesh Worker Safety (“Alliance”) in response to the Rana Plaza factory collapse, legal and policy changes in Bangladesh, and independent assessments of safety standards and subcontracting in the industry.

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No abstract available.

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The case focuses on Irene Rosenfeld’s tenure as CEO of the global snack food company Mondelēz International. Beginning in 2006, she had led the company through many acquisitions, including France’s LU Biscuit and British confectionery company Cadbury, before, in 2012, boldly splitting the company into two: Kraft, a North American grocery business, and Mondelēz International, a global snack food company.

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  • Harvard Business School Case 618-033

BeiGene

BeiGene was a biopharmaceutical company founded on exploiting a temporal regulatory policy discontinuity. Because of regulatory challenges in China, most innovative new drugs launched there four to six years after their initial U.S. launches. This gave BeiGene a window of opportunity to develop drug candidates toward known targets with known mechanisms of actions that would allow it to become first-in-class in China. But how well would the company's strategy hold up to the 2017 regulatory reforms?

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