First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. See our Working Papers section.

September 26, 2017

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Uber’s bumpy ride

This case study follows Uber’s rough road in 2017, presenting a summary of the company’s growth, resignation of the CEO, and the role of Uber’s board in changing company culture. It was written by Suraj Srinivasan, Jay W. Lorsch, and Quinn Pitcher. Uber in 2017: One Bumpy Ride.

Is Taylor Swift an economic indicator?

Singer Taylor Swift recently announced an auction where fans would be given a chance to buy performance tickets based on their engagement with Swift’s website. The goal: Derail scalpers and put tickets into the hands of “superfans.” Scott Duke Kominers says the move is an innovative marketing move, but auctions create their own problems. Fans Watch Taylor Swift. Economists Watch the Fans.

Using Yelp to study local economies in real time

One of the challenges confronting economic researchers is that performance data generated by government agencies often lag by several years. Edward L. Glaeser, Hyunjin Kim, and Michael Luca suggest that data collected by social review site Yelp “can complement government surveys by measuring economic activity in close to real time, at a granular level.” Nowcasting the Local Economy: Using Yelp Data to Measure Economic Activity at Scale.

Other new research publications from Harvard Business School faculty follow.

— Sean Silverthorne
 
  • forthcoming
  • Review of Financial Studies

Managing the Family Firm: Evidence from CEOs at Work

By: Bandiera, Oriana, Andrea Prat, Renata Lemos, and Raffaella Sadun

Abstract—We present evidence on the labor supply of CEOs and on whether family and professional CEOs differ on this dimension. We do so through a new survey instrument that allows us to codify CEOs’ diaries in a detailed and comparable fashion and to build a bottom-up measure of CEO labor supply. The comparison of 1,114 family and professional CEOs reveals that family CEOs work 9% fewer hours relative to professional CEOs. Hours worked are positively correlated with firm performance, and differences between family and non-family CEOs account for approximately 18% of the performance gap between family and non-family firms. We investigate the sources of the differences in CEO labor supply across governance types by exploiting firm and industry heterogeneity and quasi-exogenous meteorological and sport events. The evidence suggests that family CEOs value—or can pursue—leisure activities relatively more than professional CEOs.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53254

  • September 12, 2017
  • Harvard Business Review

What’s the Right Kind of Bonus to Motivate Your Sales Force?

By: Chung, Doug J., and Das Narayandas

Abstract—Companies typically compensate their sales force by using some combination of salary, commission, and bonuses, but executives are often unsure which incentives provide the best motivation. Should bonuses be tied to quotas or should they be given unconditionally? Is it better to use bonuses as a reward or as punishment? A randomized field experiment at a large Indian company investigated these questions, finding that conditional bonuses were more than twice as effective as unconditional bonuses. The results have implications for companies trying to use bonuses to more effectively manage their salespeople.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53260

  • forthcoming
  • Journal of Political Economy

Reply: Do Powerful Politicians Really Cause Corporate Downsizing?

By: Cohen, Lauren, Joshua D. Coval, and Christopher J. Malloy

Abstract—While we commend the initiative of Snyder and Welch (2017), we lay out in this short reply why we remain highly confident in our results and our interpretation thereof. We welcome authors to continue to explore the data for themselves and look forward to the new questions they can tackle with it.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53265

  • forthcoming
  • Boston University Law Review

Troll Check? A Proposal for Administrative Review of Patent Litigation

By: Cohen, Lauren, John Golden, Umit Gurun, and Scott Duke Kominers

Abstract—The patent system is commonly justified as a way to promote social welfare and, more specifically, technological progress. For years, however, there has been concern that patent litigation is undermining, rather than furthering, these goals. Particularly in the United States, the time, cost, and complications of patent suits provide openings for opportunistic assertions of infringement. This article proposes a way to address information problems that facilitate opportunistic assertion: an automatic process of administrative review at the threshold of infringement lawsuits in U.S. district courts. The results of this review would be nonbinding but admissible in later court proceedings. Whether conducted by an independent Patent Litigation Review Board or a division of the U.S. Patent and Trademark Office, such review would (1) help discourage—or bring to an earlier and less costly end—relatively weak patent-infringement lawsuits; (2) strengthen the litigation and bargaining positions of patentees with especially robust cases; (3) flag weaknesses in litigation positions to the benefit of private parties and the courts; and (4) provide policymakers with information that facilitates evaluation and adjustment of patent-system performance. This article uses multiple economic models to show the likely benefits of early stage administrative review. Nonetheless, because of the fluid and complex nature of the patent litigation landscape, this article proposes that the review process initially be adopted on a pilot basis.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53264

  • September 2017
  • Health Affairs

Narrow Networks on the Health Insurance Marketplaces: Prevalence, Pricing, and the Cost of Network Breadth

By: Dafny, Leemore S., Igal Hendel, Victoria Marone, and Christopher Ody

Abstract—Anecdotal reports and systematic research highlight the prevalence of narrow-network plans on the Affordable Care Act’s health insurance Marketplaces. At the same time, Marketplace premiums in the period 2014–2016 were much lower than projected by the Congressional Budget Office in 2009. Using detailed data on the breadth of both hospital and physician networks, we studied the prevalence of narrow networks and quantified the association between network breadth and premiums. Controlling for many potentially confounding factors, we found that a plan with narrow physician and hospital networks was 16% cheaper than a plan with broad networks for both, and that narrowing the breadth of just one type of network was associated with a 6%–9% decrease in premiums. Narrow-network plans also have a sizable impact on federal outlays, as they depress the premium of the second-lowest-price silver plan, to which subsidy amounts are linked. Holding all else constant, we estimate that federal subsidies would have been 10.8% higher in 2014 had Marketplaces required all plans to offer broad provider networks. Narrow networks are a promising source of potential savings for other segments of the commercial insurance market.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53250

  • September 14, 2017
  • Personality and Social Psychology Bulletin

From Misperception to Social Connection: Correlates and Consequences of Overestimating Others' Social Connectedness

By: Whillans, A.V., C. Christie, S. Cheung, A.H. Jordan, and F.S. Chen

Abstract—Two studies document the existence and correlates of a widespread social belief, wherein individuals who have recently moved to a new social environment see their peers as more socially connected than they themselves are. In Study 1, the prevalence of this belief was documented in a large sample of first-year students (N=1099). In Study 2, the prevalence of this social belief was replicated in a targeted sample of university students (N=389). Study 2 also documented both positive and negative implications of this belief. Specifically, at any given time, students who believed that their peers were more socially connected than they themselves were reported lower well-being and belonging. Over time, however, the belief that one’s peers are moderately more socially connected than oneself was associated with more friendship formation.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53066

Lessons Unlearned? Corporate Debt in Emerging Markets

By: Alfaro, Laura, Gonzalo Asis, Anusha Chari, and Ugo Panizza

Abstract—This paper documents a set of new stylized facts about leverage and financial fragility for emerging market firms following the Global Financial Crisis (GFC). Corporate debt vulnerability indicators during the Asian Financial Crisis (AFC) attributed to corporate financial roots provide a benchmark for comparison. Firm-level data show that post-GFC, emerging market corporate balance sheet indicators have not deteriorated to AFC crisis-country levels. However, more countries are close to or in the “vulnerable” range of Altman’s Z-score, and average leverage for the entire emerging market sample is higher in the post-GFC period than during the AFC. Regression estimates suggest that the relationship between leverage, exchange rate depreciations, and corporate financial distress is time varying. Also, a central finding is that firm size is correlated with corporate distress and, further, that currency depreciations amplify the impact of leverage on financial vulnerability for large firms during a crisis. Consistent with Gabaix (2011) the paper finds a granularity effect in that large firms are systemically important—idiosyncratic shocks to the sales growth of large firms significantly correlate with GDP growth in our emerging markets sample. Relatedly, the sales growth of large firms with higher leverage is more adversely impacted by exchange rate shocks. While this result holds for the average country in our sample, there is substantial cross-country heterogeneity.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52652

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.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52919

Nowcasting the Local Economy: Using Yelp Data to Measure Economic Activity at Scale

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

Abstract—Can new data sources from online platforms help to measure local economic activity at scale? Government datasets from agencies such as the U.S. Census Bureau have long been the gold standard for measuring economic activity at the local level. However, these statistics typically appear only after multi-year lags, and the public-facing versions are aggregated to the county or ZIP code level. In contrast, crowdsourced data from online platforms such as Yelp are often contemporaneous and geographically finer than official government statistics. In this paper, we present evidence that Yelp data can complement government surveys by measuring economic activity in close to real time, at a granular level. We find that changes in the number of businesses and restaurants reviewed on Yelp can help to predict changes in the number of overall establishments and restaurants in County Business Patterns. Contemporaneous and lagged Yelp data can generate an algorithm that is able to explain 29.2% of the residual variance after accounting for lagged CBP data, in a testing sample not used to generate the algorithm. The nowcasting results are more accurate for denser, wealthier, and more educated ZIP codes.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53271

Abstract—This working paper explores long-run patterns in the strategies of international business in developing countries. There was a massive wave of Western multinational investment in the developing world during the first wave of globalization before the 1920s. The subsequent decades of de-globalization saw the proportion of world FDI in developing countries sharply decline, and it has remained far below pre-1914 levels during the second global economy beginning in the 1980s. This working paper shows how management strategies were shaped by context in each historical period, which provided a mixture of opportunity and risk. In the first wave of globalization, MNEs sought access to resources, and governments frequently gave them exclusive contracts and favorable deals in order to build businesses. The major management challenge was to overcome logistical challenges to enable minerals and other commodities to be exported into global value chains. During the Great Reversal, the main challenges faced by MNEs were political. Firms needed to build political contacts with assertive host governments and attempt to strengthen their local identities, especially by localizing their managements. There was little need to adjust products to highly protected markets or respond to limited local competition. In the contemporary global economy, political risks partially declined with the spread of liberalization and the abandonment of anti-foreign restrictions. However corporate strategies needed to carefully manage relations with governments. Emerging markets, or at least the larger and more fast-growing ones in Asia and Latin America, were increasingly seen as indispensable by MNEs in every industry. They were both a place to assemble manufactured goods and locate activities in the lower end of global value chains and a fast-growing market. There was a growing need to incorporate local relevance into global products and to respond to local competitors.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53247

Merchants and the Origins of Capitalism

By: Reinert, Sophus A., and Robert Fredona

Abstract—N.S.B. Gras, the father of Business History in the United States, argued that the era of mercantile capitalism was defined by the figure of the “sedentary merchant,” who managed his business from home, using correspondence and intermediaries, in contrast to the earlier “traveling merchant,” who accompanied his own goods to trade fairs. Taking this concept as its point of departure, this essay focuses on the predominantly Italian merchants who controlled the long-distance East-West trade of the Mediterranean during the Middle Ages and Renaissance. Until the opening of the Atlantic trade, the Mediterranean was Europe’s most important commercial zone, its trade enriched European civilization, and its merchants developed the most important premodern mercantile innovations, from maritime insurance contracts and partnership agreements to the bill of exchange and double-entry bookkeeping. Emerging from literate and numerate cultures, these merchants left behind an abundance of records that allow us to understand how their companies, especially the largest of them, were organized and managed. These techniques can also be put in the context of premodern attitudes toward commerce and the era’s commercial-political relations. The Commercial Revolution anticipated the Industrial Revolution by over half a millennium and laid the groundwork for today’s world of global business.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53259

  • Harvard Business School Case 817-073

MIA: Profit at the Base of the Pyramid

In January 2016, Guillermo Jaime had just returned home to Mexico City after attending a Harvard Business School executive education program. Jaime was the founder and CEO of Mejoramiento Integral Asistido (MIA), a company providing affordable housing to low-income Mexicans living at the base of the pyramid (BOP), defined as those living on less than $10 per day. Since its launch in 2009, MIA had built nearly 25,000 homes—providing safe shelter to more than 100,000 Mexicans—while generating an earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of over 8%. At the executive education program, Jaime had learned that entrepreneurs could build on their unique attributes and capabilities to expand and grow their businesses. Should he continue to expand the services MIA offered to BOP customers? Could he leverage what made MIA unique—offering affordable homes for its BOP customers in Mexico—to fulfill other critical needs at the BOP for water, clean energy, and health care services? Jaime was an expert in housing, but could he translate that expertise to such diverse sectors? If so, how should he begin?

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https://cb.hbsp.harvard.edu/cbmp/product/817073-PDF-ENG

  • Harvard Business School Case 516-056

Cox Automotive Media Group

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/516056-PDF-ENG

  • Harvard Business School Case 417-080

MOD Pizza in 2017

This supplement describes how MOD Pizza has grown between May 2015 (when the first case ends) and early 2017.

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https://cb.hbsp.harvard.edu/cbmp/product/417080-PDF-ENG

  • Harvard Business School Case 517-091

Paytm: Building a Payments Network

By January 2017, Paytm, a mobile payments company that started in 2010, became India’s largest mobile payments platform with over 142 million users and $5 billion valuation. Could Paytm become a $100 billion company its founder Vijay Shekhar Sharma envisioned it be?

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https://cb.hbsp.harvard.edu/cbmp/product/517091-PDF-ENG

  • Harvard Business School Case 817-060

RubiconMD

No abstract available.

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  • Harvard Business School Case 517-127

Theranos: Small Volume Blood Testing (A)

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/517127-PDF-ENG

  • Harvard Business School Case 517-128

Theranos: Small Volume Blood Testing (B)

No abstract available.

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In late 2015, Dr. Shehan Dissanayake, a managing director and board member of Bahamian investment firm The Tavistock Group (Tavistock), the largest shareholder in the Australian Agricultural Company (AACo), one of the country's largest agribusinesses, faces a potentially challenging future operating environment in Australia. The country's national government has recently instituted changes to its foreign direct investment (FDI) policies that could affect Tavistock's goals for its long-term investment in AACo. The changes happened in response to popular and political concern over the sharp increase in foreign purchases of Australian land and real estate. As a foreign-owned company, AACo was likely to face more rigorous screenings and oversight as it grew. How could Dissanayake best manage Tavistock's investment in this new political and regulatory climate?

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  • Harvard Business School Case 117-070

Uber in 2017: One Bumpy Ride

Uber Technologies Inc., the popular ride-hailing company, entered 2017 having doubled its bookings in 2016 and achieving a valuation of nearly $70 billion, making it the largest venture capital–backed company in the world. Co-founder and CEO Travis Kalanick embodied the company, with a hard-charging attitude embedded in the company's workplace culture, which allowed it to successfully take on the entrenched taxi industry. Uber looked to enjoy another year of global growth in 2017, until lawsuits and a cascading series of scandals surrounding that same workplace culture led a group of powerful investors to seek Kalanick's resignation to protect their investment. This case presents an overview of the growth of Uber, the impact of Kalanick, and the role that Uber's board of directors had in shaping the company's growth. It centers on the factors leading to Uber board members and investors to call for Kalanick's resignation, focusing on how board oversight can help shape company culture, and how entrepreneurial boards deal with founder CEOs. The case also deals with the recommendations of the report prepared by ex-U.S. attorney general Eric Holder on Uber's workplace culture, and how those recommendations will, or will not, help the company, and the role that the board has in shepherding in those changes.

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