Publications
Global, Local, and Contagious Investor Sentiment
| Authors: | Malcolm Baker, Jeffrey Wurgler, and Yu Yuan |
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| Publication: | Journal of Financial Economics (forthcoming) |
Abstract
We construct investor sentiment indices for six major stock markets and decompose them into one global and six local indices. In a validation test, we find that relative sentiment is correlated with the relative prices of dual-listed companies. Global sentiment is a contrarian predictor of country-level returns. Both global and local sentiment are contrarian predictors of the time-series of cross-sectional returns within markets: When sentiment is high, future returns are low on relatively difficult to arbitrage and difficult to value stocks. Private capital flows appear to be one mechanism by which sentiment spreads across markets and forms global sentiment.
Read the paper: http://people.hbs.edu/mbaker/cv/papers/Investor_Sentiment_JFE_Article_In_Press.pdf
Memory Lane and Morality: How Childhood Memories Promote Prosocial Behavior
| Authors: | F. Gino and S. Desai |
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| Publication: | Journal of Personality and Social Psychology (forthcoming) |
Abstract
Four experiments demonstrated that recalling memories from one's own childhood leads people to experience feelings of moral purity and to behave prosocially. In Experiment 1, participants instructed to recall memories from their childhood were more likely to help the experimenter with a supplementary task than were participants in a control condition, and this effect was mediated by self-reported feelings of moral purity. In Experiment 2, the same manipulation increased the amount of money participants donated to a good cause, and self-reported feelings of moral purity mediated this relationship. In Experiment 3, participants who recalled childhood memories judged the ethically questionable behavior of others more harshly, suggesting that childhood memories lead to altruistic punishment. Finally, in Experiment 4, compared to a control condition, both positively valenced and negatively valenced childhood memories led to higher empathic concern for a person in need, which, in turn, increased intentions to help.
Inflation-Indexed Bonds and the Expectations Hypothesis
| Authors: | Carolin E. Pflueger and Luis M. Viceira |
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| Publication: | Annual Review of Financial Economics 3 (December 2011) |
Abstract
This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal bonds in the U.S. and in the U.K. We strongly reject the EH in inflation-indexed bonds and also confirm and update the existing evidence rejecting the EH in nominal bonds. This rejection implies that the risk premium on both real and nominal bonds varies predictably over time. We also find strong evidence that the spread between the nominal and the real bond risk premium, or the breakeven inflation risk premium, also varies over time. We argue that the time variation in real bond risk premia most likely reflects both a changing real interest rate risk premium and a changing liquidity risk premium, and that the variability in the nominal bond risk premia reflects a changing inflation risk premium. We estimate significant time series variability in the magnitude and sign of bond risk premia.
Read the paper: http://www.hbs.edu/research/pdf/11-095.pdf
Working Papers
Behavioral Ethics: Toward a Deeper Understanding of Moral Judgment and Dishonesty
| Authors: | Max H. Bazerman and Francesca Gino |
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Abstract
Early research and teaching on ethics focused on either a moral development perspective or philosophical approaches and used a normative approach by focusing on the question of how people should act when resolving ethical dilemmas. In this paper, we briefly describe the traditional approach to ethics and then present a (biased) review on the behavioral approach to ethics. We define behavioral ethics as the study of systematic and predictable ways in which individuals make ethical decisions and judge the ethical decisions of others that are at odds with intuition and the benefits of the broader society. By focusing on a descriptive rather than a normative approach to ethics, behavioral ethics is better suited than traditional approaches to address the increasing demand from society for a deeper understanding of what causes even good people to cross ethical boundaries.
Download the paper: http://www.hbs.edu/research/pdf/12-054.pdf
Management Practices Across Firms and Countries
| Authors: | Nicholas Bloom, Christos Genakos, Raffaella Sadun, and John Van Reenen |
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Abstract
For the last decade we have been using double-blind survey techniques and randomized sampling to construct management data on over 10,000 organizations across 20 countries. On average, we find that in manufacturing, American, Japanese, and German firms are the best managed. Firms in developing countries, such as Brazil, China, and India, tend to be poorly managed. American retail firms and hospitals are also well managed by international standards, although American schools are more poorly managed than those in several other developed countries. We also find substantial variation in management practices across organizations in every country and every sector, mirroring the heterogeneity in the spread of performance in these sectors. One factor linked to this variation is ownership. Government, family, and founder owned firms are usually poorly managed, while multinational, dispersed shareholder, and private-equity owned firms are typically well managed. Stronger product market competition and higher worker skills are associated with better management practices. Less regulated labor markets are associated with improvements in incentive management practices such as performance-based promotion.
Download the paper: http://www.hbs.edu/research/pdf/12-052.pdf
Income Inequality and Social Preferences for Redistribution and Compensation Differentials
| Author: | William R. Kerr |
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Abstract
In cross-sectional studies, countries with greater income inequality typically exhibit less support for government-led redistribution and greater acceptance of wage inequality (e.g., United States versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality due to forces like skill-biased technical change. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. On one hand, larger compensation differentials are accepted as inequality grows. This growth in differentials is of a smaller magnitude than the actual increase in inequality, but it is nonetheless positive and substantial in size. Weighing against this, growth in inequality is met with greater support for government-led redistribution to the poor. These patterns suggest that short-run inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.
Download the paper: http://www.hbs.edu/research/pdf/12-048.pdf
Inside the Black Box of the Corporate Staff: An Exploratory Analysis Through the Lens of E-Mail Networks
| Authors: | Adam M.Kleinbaum and Toby Stuart |
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Abstract
The corporate staff is central in theories of the multi-business firm, but empirical evidence on its function is limited. In this paper, we examine the high-level role of two units of a corporate staff through analysis of electronic communications. We find sharp cross-sectional differences in communication patterns: relative to people in the line organization, staff members are more central in the corporate e-mail network and possess broader networks. However, much of this difference is attributed to who sorts into jobs in the corporate staff, rather than being caused by employment in the corporate staff per se. Results suggest that once people receive the "corporate imprimatur" on their network structures, they retain it even when they move back to the line organization.
Download the paper: http://www.hbs.edu/research/pdf/12-051.pdf
Discretion Within the Constraints of Opportunity: Gender Homophily and Structure in a Formal Organization
| Authors: | Adam M.Kleinbaum, Toby E. Stuart, and Michael L. Tushman |
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Abstract
Homophily in social relations is widely documented. We know that homophily results from both individual preferences and uneven opportunities for interaction, but how these two mechanisms interact in formal organizations is not well understood. We argue that organizational structures and geography delimit opportunities for interaction, but that within the opportunity sets created by business units, job functions, and offices, actors have a greater level of discretion to choose their interaction partners. Therefore, we expect to observe more homophilous interactions within these structures than across their boundaries. We test this argument using a dataset consisting of millions of e-mails exchanged among thousands of employees in a large information technology firm. We find significant interaction effects between being of the same sex and being in the same business unit or same office on dyadic communication rates, though not with same job function. In an extension, we find that men's communication patterns are consistent with this theory, but that women communicate differently: relative to male-male and male-female pairings, female-female interactions are much more likely to occur across organizational boundaries. These findings have implications for research on homophily, gender, and formal and informal structure in organizations.
Download the paper: http://www.hbs.edu/research/pdf/12-050.pdf
What Do Development Banks Do? Evidence from Brazil, 2002-2009
| Authors: | Sergio G. Lazzarini, Aldo Musacchio, Rodrigo Bandeira-de-Mello, and Rosilene Marcon |
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Abstract
While some authors view development banks as an important tool to alleviate capital constraints in scarce credit markets and unlock productive investments, others see those banks as conduits of cheap loans to politically connected firms that could obtain capital elsewhere. We test these contrasting views using data on loans and equity allocations in the period 2002-2009 by the Brazilian National Development Bank (BNDES), one of the largest development banks in the world. In our fixed effect regressions, we find that BNDES' allocations do not seem to affect firm-level operational performance and investment decisions, although they do reduce firm-level cost of capital due to the governmental subsidies accompanying loans. Next, examining the selection process through which BNDES' capital is allocated to firms, we find that BNDES apparently selects firms with good operational performance but also provides more capital to firms with political connections (measured as campaign donations to politicians who won an election). Yet, we do not find evidence that BNDES is systematically bailing out firms. In general, BNDES appears to be generally selecting firms with capacity to repay their loans, as regular commercial banks would do.
Download the paper: http://www.hbs.edu/research/pdf/12-047.pdf
Financing Risk and Innovation
| Authors: | Ramana Nanda and Matthew Rhodes-Kropf |
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Abstract
Technological revolutions and waves of creative destruction are associated with new ventures and the destruction of mature firms, but also with the failure of numerous startups, suggesting a time of increased experimentation in the economy. We provide a model of investment into new ventures that demonstrates why some places, times, and industries should be associated with a greater degree of experimentation by investors. Investors respond to increases in the forecasted probability of future funding by funding more innovative ideas. We propose that extremely novel technologies may need 'hot' financial markets to get through the initial period of discovery or diffusion.
Download the paper: http://www.hbs.edu/research/pdf/11-013.pdf
Cases & Course Materials
Oral Rehydration Therapy
Nava Ashraf and Claire Qureshi
Harvard Business School Case 911-035
This case highlights the puzzlingly high rate of diarrhea-related child mortality in developing countries despite the existence of a simple, effective treatment: oral rehydration therapy (ORT). ORT treated extreme dehydration caused by diarrhea, which was a leading cause of death among young children in developing countries, particularly in Africa and Asia. Heralded in the 1970s as one of the most important medical advancements of the 20th century, ORT contributed to a reduction in diarrhea-related child deaths from roughly 4.5 million in 1980 to 1.5 million in 2000. Yet for reasons unclear to the global public health community, the mortality rate stalled at around 1.5 million, where it remained in 2010. In presenting the problem of diarrhea-related death, the solution represented by ORT, and the various factors potentially influencing ORT utilization, the case allows students to analyze the possible causes of low ORT utilization and potential measures to address them.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/911035-PDF-ENG
The American Repertory Theater
Rohit Deshpandé, Allen S. Grossman, and Ryan Johnson
Harvard Business School Case 512-026
When Diane Paulus, artistic director and CEO of the American Repertory Theater (A.R.T.) first started in 2008, she attracted media coverage around an aesthetic that aimed to give the audience more ownership over the theater experience, excited theatergoers by experimenting with new venues, and received critical recognition for the breadth and range of the work she staged. Paulus also recognized the changing realities in theater, which included dropping subscription numbers and an increase in single-ticket buyers. Paulus, inspired by the mission of the A.R.T.-to expand the boundaries of theater-hastened a shift in the A.R.T. business model. Her new plans included operating two unique segmented venues, creating and presenting varied content that aimed to be both challenging and popular, and driving a sales and marketing campaign focused on single-ticket buyers, memberships, and dynamic pricing. Early results showed some promise; the A.R.T. was closer to breakeven than in previous years. However, some questioned whether the A.R.T. was beginning to look like a commercial theater, focused on presenting theater that sold, rather than truly expanding boundaries. Despite the questioning, Paulus remained committed to fulfilling her vision of the A.R.T. mission in order to solidify A.R.T. as a leading and financially stable not-for-profit regional theater.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512026-PDF-ENG
Branding Yoga
Rohit Deshpandé, Kerry Herman, and Annelena Lobb
Harvard Business School Case 512-025
Yoga, an ancient discipline, has become popular worldwide. The marketing of yoga and dispute over its origins have led to debate as to whether yoga should be branded at all. Some yoga instructors have gone so far as to copyright their varieties of yoga; others in the yoga community say it is a religious and/or spiritual practice and as such should not be claimed as intellectual property.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512025-PDF-ENG
Foxconn Technology Group (B)
Robert G. Eccles, George Serafeim, and Beiting Cheng
Harvard Business School Supplement 112-058
The case describes the challenges that Foxconn faced after a series of suicides took place at its plants. The response of Foxconn's management is presented and the associated implications for Foxconn's stock price are discussed.
Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/112058-PDF-ENG
Gracious Eloise: What Do Angels Want? (A)
Lena G. Goldberg, Janet Kraus, and Mary Beth Findlay
Harvard Business School Case 312-054
Eloise Bune successfully turned an idea into a product, but could she persuade angel investors that she had a business worth investing in? The case details her interactions with the angel investors and explores the role of angel investors in providing financial capital, business experience, and other assistance to start-ups.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/312054-PDF-ENG
Gracious Eloise: What Do Angels Want? (B)
Lena G. Goldberg, Janet Kraus, and Mary Beth Findlay
Harvard Business School Supplement 312-055
Having received an extensive critique of her business plan but only a small amount of financing from an angel group she pitched in 2010, Eloise Bune responds to the angels' concerns, refines her presentation, and pitches her company again.
Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/312055-PDF-ENG
Gene Sequencing: Staking a Position in an Expanding Industry
Richard G. Hamermesh, Mara G. Aspinall, and Phillip Andrews
Harvard Business School Case 812-004
Toward the end of 2010, companies in the gene sequencing industry were pushing aggressive R&D programs to develop technologies and products in the race to sequence the entire human genome at a cost of $1,000. It remained to be seen when the "$1,000 genome" would arrive, and despite all the buzz surrounding the industry, it was still unclear to investors who the industry winners would be. This case focuses on the emergence of third-generation sequencing and the four segments in the industry: hardware, consumables, services, and interpretation. The case presents the history of the industry, the evolution of sequencing technology, and the business models of players in each segment.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/812004-PDF-ENG
American International Group—2010
Jay W. Lorsch and Melissa Barton
Harvard Business School Case 411-074
The AIG Board underwent significant restructuring after the company was bailed out by the U.S. government in September 2008 in the midst of the financial crisis.
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http://cb.hbsp.harvard.edu/cb/product/411074-PDF-ENG
CARD Group: Mutually Reinforcing Institutions
Cynthia A. Montgomery, Michael Shih-ta Chen, and Dawn Lau
Harvard Business School Case 712-414
CARD (Center for Agricultural and Rural Development) is a Philippines-based microfinance organization that began as an NGO and has since expanded into eight related entities providing services to the poor. Under founding director Dr. Aristotle Alip's leadership, CARD has become one of the top microfinance institutions in the world. More recently, larger commercial and financial institutions are seeking a slice of the microfinance market. The main dilemma Dr. Alip faces is as follows: Should he partner with commercial institutions to reap benefits from their larger sources of capital and technology expertise? Would that mean compromising his original mission of elevating people from the base of the pyramid?
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/712414-PDF-ENG