Publications
- January 2015
- American Economic Review: Papers and Proceedings
Do Strict Capital Requirements Raise the Cost of Capital? Bank Regulation, Capital Structure, and the Low Risk Anomaly
Abstract—Traditional capital structure theory predicts that reducing banks' leverage reduces the risk and cost of equity but does not change the weighted average cost of capital, and thus the rates for borrowers. We confirm that the equity of better-capitalized banks has lower beta and idiosyncratic risk. However, over the last 40 years, lower-risk banks have not had lower costs of equity (lower stock returns), consistent with a stock market anomaly previously documented in other samples. A calibration suggests that a binding 10 percentage point increase in Tier 1 capital to risk-weighted assets could double banks' risk premia over Treasury bills.
Publisher's link: http://www.hbs.edu/faculty/Publication%20Files/Wurgler_Paper_78db6340-ae41-4630-8e25-d990b547171b.pdf
- January 2015
- Psychological Science
The Moral Virtue of Authenticity: How Inauthenticity Produces Feelings of Immorality and Impurity
Abstract—The current research demonstrates that authenticity is directly linked to morality. Across five experiments, we found that experiencing inauthenticity consistently led participants to feel more immoral and impure. This inauthenticity feeling immoral link produced an increased desire to cleanse oneself and to engage in moral compensation by behaving prosocially. We established the role that impurity played in these effects through mediation and moderation. We found that inauthenticity-induced cleansing and compensatory helping were driven by heightened feelings of impurity rather than from the psychological discomfort of dissonance. Similarly, physically cleansing oneself eliminated the relationship between inauthenticity and prosocial compensation. Finally, we demonstrated additional evidence for discriminant validity: these effects were not driven by general negative experiences (i.e., failing a test) but were unique to experiences of inauthenticity. These results establish that authenticity is a moral state-that being true to thine own self is experienced as a form of virtue.
Publisher's link: http://francescagino.com/#/morality_research
- January 2015
- Neurosurgical Focus
Time-Driven Activity-Based Costing: A Driver for Provider Engagement in Costing Activities and Redesign Initiatives
Abstract—To date, health care providers have devoted significant efforts to improve performance regarding patient safety and quality of care. To address the lagging involvement of health care providers in the cost component of the value equation, UCLA Health piloted the implementation of time-driven activity-based costing (TDABC). Here, the authors describe the implementation experiment, share lessons learned across the care continuum, and report how TDABC has actively engaged health care providers in costing activities and care redesign.
Publisher's link: http://thejns.org/doi/pdf/10.3171/2014.8.FOCUS14381
- January 2015
- Journal of Financial Stability
The Capital Purchase Program and Subsequent Bank SEOs
Abstract—We find that in the aftermath of the recent financial crisis banks replenished only 12% of crisis-related losses through SEOs in 2009 and 2010. However, SEOs are disproportionately conducted by Capital Purchase Program (CPP) recipients, and this is not explained by CPP recipients' economic and regulatory capital needs. SEOs in 2009 and 2010 by CPP recipients alone account for 27% by number, and 52% by dollar amount, of all SEOs by U.S. banks between 1994 and 2010, indicating the CPP is an influential event in the history of U.S. bank SEOs during this period. Controlling for economic and regulatory capital determinants of SEOs, CPP recipients were more likely than non-recipients to have an SEO within four quarters subsequent to CPP receipt. SEO proceeds were used to repay CPP receipts without jeopardizing loan growth. Banks that received CPP funds prior to the passage of the American Recovery and Reinvestment Act (ARRA), and banks with greater reliance on non-traditional banking activities, were more likely to have an SEO expeditiously and repay CPP funds early. Collectively, the results provide new evidence on the realized consequences of the CPP for bank SEOs. The tests suggest the CPP's indirect costs of restrictions on corporate policies and actions as the most likely explanation for the results.
Working Papers
Mobile Money: The Effect of Service Quality and Competition on Demand
Abstract—The use of electronic money transfer through cellular networks ("mobile money") is rapidly increasing in the developing world. The resulting electronic currency ecosystem could improve the lives of the estimated 2 billion people who live on less than $2 a day by facilitating more secure, accessible, and reliable ways to store and transfer money than are currently available. The development of this ecosystem requires a network of agents to conduct cash-for-electronic value transactions and vice versa. This paper estimates the effect of competition and service quality on mobile money demand. In this setting, service quality consists of service reliability (lower stockout and system downtime rates), pricing transparency, and agent expertise. Among our results, we find that agents experience reduced demand for service failures due to stockouts, but not for service failures due to network downtime, suggesting that consumers differentially ascribe responsibility for service failure based on the type of failure they experience. We find that both stockout rate and agent expertise are important competitive dimensions in this setting. Pricing transparency, on the other hand, has a main effect on demand but has no significant interaction with competitive intensity. This paper furthers our understanding of the impact and interaction of quality and competition in service settings, while developing a foundation for the exploration of mobile money by OM scholars.
Download working paper: http://ssrn.com/abstract=2549171
Cases & Course Materials
- Harvard Business School Case 813-113
Edison Schools, Inc.
Edison Schools, Inc., a pioneer in the for-profit management of public schools, demonstrates the challenges and opportunities related to private sector involvement in the delivery of a public good. Follows the organization from its start-up through its initial public offering and, eventually, through its decision to execute a management buyout to exit the public market. Explores at the corporate level the tension between Edison's effort to generate profits while achieving excellent educational outcomes.
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https://cb.hbsp.harvard.edu/cbmp/product/813113-PDF-ENG
- Harvard Business School Case 213-078
Project Sun Devil and Project Paris
Tony Lee is preparing to present a project to the investment committee of Howard Street Capital. He will be recommending an investment in Project Sun Devil, a high-quality 225-unit student housing rental property near Tempe, Arizona. Tony Lee will compete for capital against the other project on the investment committee's agenda, Project Paris. Project Paris, a very different type of real estate transaction, is a hybrid mezzanine investment in the acquisition of a residential real estate services firm headquartered in France. The case provides an overview of the two projects.
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https://cb.hbsp.harvard.edu/cbmp/product/213078-PDF-ENG
- Harvard Business School Case 815-061
Samuel Colt: An American Gun Maker
Samuel Colt not only perfected and patented the technology for a gun that could fire multiple times without reloading, but he also developed and applied early principles of mass production more completely than anyone had done before. Until the 19th century, weapons manufacture, like most industries, had been the exclusive domain of skilled craftsmen, whose families had typically been in the trade for generations. Colt substituted specialized machines that made parts to exact specifications, which could fit into almost any gun of the same type. This made replacement and repair significantly easier and production more uniform. Other industries and countries would later implement these principles of production from Colt's armory, thereby revolutionizing manufacturing. Also, through his personality, product, and marketing, Colt's guns became intertwined with American identity in a tangle that persists to the present.
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https://cb.hbsp.harvard.edu/cbmp/product/815061-PDF-ENG
- Harvard Business School Case 115-026
Cameron Trebbi at Taylor Lowell, LLP
Cameron Trebbi is a senior executive overseeing accounting policy at a large global auditing firm. His role is to lobby the firm's position with various accounting rule-making bodies worldwide. The firm is close to acquiring as new audit clients a consortium of Chinese state-owned enterprises. The consortium has asked Trebbi's firm to seek an exception for state-owned enterprises on a proposed accounting rule. But Trebbi thinks such an exception is unsound accounting policy. He must decide how he will lobby, knowing that his testimony is highly valued by the accounting rule-making body and is likely to be unchallenged.
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https://cb.hbsp.harvard.edu/cbmp/product/115026-PDF-ENG
- Harvard Business School Case 115-024
Dylan Pierce at Hanguk Industries
Hanguk Industries' U.S. country manager, Peter Lee, has a problem-his star hire, Dylan Pierce, is threatening to quit. Hanguk is a large Korean conglomerate multinational that has been keen to attract foreigners. Dylan was hired by Peter to work in Hanguk's U.S. operations. After 18 months, Dylan was promoted to company HQ in Seoul to work with Peter's former boss. Dylan, who is gay and who thrived at Hanguk's California office, quickly runs afoul of the conservative culture at Hanguk's Korean HQ. Dylan's boss in Korea tells him he needs to be less "girly" if he wants to succeed at the company. Angered, humiliated, and confused, Dylan tells Peter he's ready to quit. Peter must respond.
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https://cb.hbsp.harvard.edu/cbmp/product/115024-PDF-ENG
- Harvard Business School Case 115-025
Lobbying at eCab
Erin Jones' ridesharing startup in her mid-sized hometown is finally picking up. She's hoping to reach a sustainable scale so that she can sell to a large player such as Uber in a year. But suddenly, she hits political roadblocks-the local Democratic mayor, facing a tough reelection and urged by the local taxi association, calls for more regulation of her business. Erin's board urges her to actively back the opposition Republican candidate through direct PAC giving, a Super PAC, and indirect lobbying. Erin, a lifelong Democrat, is opposed to the Republican on a number of issues. She must decide whether and how to engage in this election.
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https://cb.hbsp.harvard.edu/cbmp/product/115025-PDF-ENG
- Harvard Business School Case 215-024
'Fair Play' at Huntington Bancshares
No abstract available.
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https://cb.hbsp.harvard.edu/cbmp/product/215024-PDF-ENG
- Harvard Business School Case 715-421
Mobileye: The Future of Driverless Cars
Mobileye was an Israeli company, officially headquartered in The Netherlands, which was a Tier 2 supplier to the global automobile industry. After 15 years of building a leading technology for autonomous driving systems, Mobileye emerged in 2014 as one of the most exciting companies in the race for the driverless car. After going public in August 2014, which made its founders-Amnon Shashua and Ziv Aviram-billionaires, the company looked set to become the de facto standard for vision-based autonomous and ultimately self-driving cars. This case explores the company's competitive position, the challenges of sustaining its advantages in a highly competitive industry, and how it should work with Google, the publicly perceived leader in the self-driving revolution.
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https://cb.hbsp.harvard.edu/cbmp/product/715421-PDF-ENG