Working Papers
Legislating Stock Prices
| Authors: | Lauren Cohen, Karl Diether, and Christopher Malloy |
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Abstract
In this paper we demonstrate that legislation has a simple, yet previously undetected impact on firm stock prices. While it is understood that the government and firms have an important relationship, it remains difficult to determine which firms any given piece of legislation will affect, and how it will affect them. By observing the actions of legislators whose constituents are the affected firms, we can gather insights into the likely impact of government legislation on firms. Specifically, focusing attention on "interested" legislators' behavior captures important information seemingly ignored by the market. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. Further, the more complex the legislation, the more difficulty the market has in assessing the impact of these bills. Consistent with the legislator incentive mechanism, the more concentrated the legislator's interest in the industry, the more informative are her votes for future returns.
Download the paper: http://www.hbs.edu/research/pdf/13-010.pdf
IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property
| Authors: | Joachim Henkel, Carliss Y. Baldwin, and Willy C. Shih |
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Abstract
Distributed value creation can boost the overall value created but may create serious challenges for capturing value. In order to draw in external contributors, an innovator often waives legal exclusion rights or reveals formerly exclusive knowledge. But as a result, contributors may appropriate a large share of the jointly created value. In turn, integrating external contributions entails the risk of becoming dependent on outside owners of IP. To address this tension we propose the concept of "IP modularity." We argue that, by managing a system's modular structure in conjunction with its IP, firms can reconcile distributed innovation with value capture.
Download the paper: http://www.hbs.edu/research/pdf/13-012.pdf
FIN Around the World: The Contribution of Financing Activity to Profitability
| Authors: | Russell Lundholm, George Serafeim, and Gwen Yu |
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Abstract
We study how the availability of domestic credit influences the contribution that financing activities make to a firm's return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm's ROE in countries with higher domestic credit. The higher contribution of financing activities is not driven by firms taking greater leverage in these countries, but by firms realizing a higher spread (i.e., a greater difference in operating performance and borrowing cost) when more domestic credit is available. Also, we find that firms partially substitute trade credit for financial credit, with large firms exhibiting the greatest rate of substitution. For small firms, the rate of substitution improves with the country's available domestic credit, while large firms are insensitive to this friction. The findings suggest that both country and firm-level factors have a significant impact on how financing activities contribute to corporate performance.
Download the paper: http://www.hbs.edu/research/pdf/13-011.pdf
Cases & Course Materials
Buro Happold (Abridged)
Robert G. Eccles and Ryan Johnson
Harvard Business School Case 412-123
In 1996, Ted Happold, the founder of the engineering services firm Buro Happold, passed away, and Padraic Kelly became the firm's new managing director (MD). One of his first initiatives was "Aim for Growth," which was intended to help the firm grow beyond its current size, wherein it was constrained by a structure of having each of the firm's founding partners responsible for a group of 25 to 30 engineers. This initiative was very successful, but the firm then found itself with a lack of leadership skills at all levels of the organization to manage a company of a much larger size, growing by a factor of 10 over 10 years. The lack of leadership skills was recognized by clients who gave the firm feedback on this. In response, Buro Happold developed its first formal internal training programs under the name of "Archimedes Academy." The first two programs were (1) the Job Leader Program, targeted for senior engineers and designed to help them be more effective in working with clients and (2) the Project Leader Program, targeted for project leaders and designed to help them develop the "softer" management skills to complement their technical ones. A distinctive aspect of Archimedes Academy is that these first programs were developed and delivered by the cohorts who first attended them. Rather than partner with a university to develop an accredited program, the firm decided it would be better off developing the program itself, with the help of an outside consultant who had done something similar at his previous employer, in order to make sure the programs were specific enough to Buro Happold's needs and relevant to the firm's culture. The first two programs were a big success, and the firm expanded the training offerings under the Archimedes banner. The case ends with a client, a Middle Eastern city authority, asking Buro Happold Consulting, a new unit created by Padraid Kelly after stepping down as MD in 2006, asking the firm to develop a training program for them. This request raises the question of whether this internal training capability should become the basis of an external service offering.
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Green Mountain Coffee Roasters: Confidential Information for Negotiation with Keurig
Thomas R. Eisenmann, Shikhar Ghosh, and James K. Sebenius
Harvard Business School Case 812-103
Case provides confidential information for students assuming the role of Green Mountain Coffee Roasters (GMCR) senior executives in a negotiation to license technology from Keurig, a startup that has developed an innovative "portion pack" coffee brewing solution. The negotiation will determine the royalty to be paid to Keurig by GMCR, which will bear capital expenditures, and determine whether GMCR secures exclusive distribution rights to Keurig's system.
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Keurig: Confidential Information for Negotiation with Green Mountain Coffee Roasters
Thomas R. Eisenmann, Shikhar Ghosh, and James K. Sebenius
Harvard Business School Case 812-102
Case provides confidential information for students assuming the role of senior executives of Keurig, a startup that has developed an innovative "portion pack" coffee brewing solution, in a negotiation to license technology to Green Mountain Coffee Roasters (GMCR). The negotiation will determine the royalty to be paid to Keurig by GMCR, which will bear capital expenditures, and determine whether GMCR secures exclusive distribution rights to Keurig's system.
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ATR KimEng Financial Corporation
Li Jin, Michael Shih-ta Chen, and Dawn Lau
Harvard Business School Case 212-026
ATR KimEng is a Philippino asset management business. It is making an important decision on its own strategy going forward: should it stay independent or be taken over by a large bank in the region. Through this case, we discuss the financial service industry in Southeast Asia and study the opportunities and challenges presented by the changing global market dynamics.
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Keurig and Green Mountain Coffee Roasters
Paul W. Marshall, Thomas R. Eisenmann, Shikhar Ghosh, and Lauren Barley
Harvard Business School Case 812-101
Provides background information for a negotiations exercise in which students will represent either Keurig, a startup that has developed an innovative "portion pack" coffee brewing solution, or Green Mountain Coffee Roasters (GMCR), a fast-growing premium coffee roaster interested in licensing Keurig's technology. The negotiation will determine the royalty to be paid to Keurig by GMCR, which will bear capital expenditures, and whether GMCR secures exclusive distribution rights to Keurig's system.
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I Paid a Bribe (Dot) Com
Karthik Ramanna and Rachna Tahilyani
Harvard Business School Case 112-078
Anti-corruption web platform "ipaidabribe.com" leverages the transparency and anonymity of the Internet to encourage private citizens in India who have been the victims of corruption to self-report details of bribes paid, including the bribe amount, the name of the corrupt official, and services rendered. The ipaidabribe.com portal then aggregates these data to create maps and charts of corrupt activities across Indian cities. The theory is that such data will build awareness and shame, raising the cost of corruption. But after initial successes-buoyed by visibility generated from mass street protests against corruption in 2011-traffic to the website has slowed. The question before spouses, ex-bankers, and ipaidabribe.com co-founders Ramesh and Swati Ramanathan is how to generate and sustain interest in the web platform so that they have real impact on retail corruption in India. Possible solutions discussed include teaming up with local governments and police, focusing attention on one or two Indian cities, and franchising ipaidabribe.com internationally to create more visibility.
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The Promise of Impact Investing
V. Kasturi Rangan, Sarah Appleby, and Laura Moon
Harvard Business School Note 512-045
This note provides an overview of the impact investing industry, a new and burgeoning field of investments seeking to create social and environmental benefits while also generating a financial return. Recent reports have estimated a global market of at least $500 billion in the next decade. The note discusses the role of the various players such as impact investors, intermediary organizations, and program implementors in the development of the industry, as well as the emergence of new corporate structures for social enterprises and the creation of innovative financial instruments such as the Social Impact Bond.
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Business-driven Research at IBM Research India
Willy Shih, Margaret Pierson, Pankaj Agarwal, Diego Medicina, and Juan Prajogo
Harvard Business School Case 612-076
What is the right mix between business-driven and pure research? This case considers the question in the setting of IBM Research India, where a management push for balance between exploratory research and the fulfillment of business needs meets some resistance from employees who were accustomed to so-called pure basic research. The case looks at the Spoken Web project, a good example of use-inspired research for which management has yet to develop a viable business plan.
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Microsoft IT India
Willy Shih, Margaret Pierson, Alexander Down, Will Jurist, Diego Medicina, and Helen Wang
Harvard Business School Case 612-078
Raj Biyani faced tough challenges managing Microsoft IT India: leading a remote development organization in which key decisions were made in Redmond and managing an organization that was perceived as less strategic than its sister Microsoft India Development Center with which it shared the Hyderabad, India site. The case follows Biyani's thought process in diagnosing the organization's problems and poses the challenges of leading globally distributed operations.
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Aman Resorts (Abridged)
Eugene Soltes and Aldo Sesia
Harvard Business School Case 112-100
This case describes the operating model and philosophy of this high-end set of global properties. Aman relies on employees taking considerable initiative to deliver the highest quality personalized service in the hospitality industry. The case also highlights Aman's strategy and operations, which differ in many ways from industry standards. "Aman Resorts (Abridged)" is a slightly shorter version of "Aman Resorts," HBS No. 111-012.
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