First Look

July 22, 2014

Accounting For Health Care

How much does it really cost to treat a patient? Robert S. Kaplan and Mary L. Witkowski use process mapping and time-driven activity-based costing to measure the costs of treating patients for a specific medical condition. "With valid outcome and cost information, managers and clinicians can standardize clinical and administrative processes, eliminate non-value added and redundant steps, improve resource utilization, and redesign care so that appropriate medical resources perform each process step," the authors report in their paper "Better Accounting Transforms Health Care Delivery," published in Accounting Horizons.

Understanding The Consequences Of A Bad Rep

Pavel Ivanov Zhelyazkov and Ranjay Gulati gauge the effect of a poor reputation by studying how a venture firm is treated after it repeatedly withdraws from investment syndicates. One takeaway: reputation is in the eyes of the beholder. "Crime and Punishment: The Reputational Consequences of Withdrawals from Venture Capital Syndicates," is scheduled to be published in an upcoming Academy of Management Best Paper Proceedings.

A Case Study For Foodies

Gastón Acurio is a famous Peruvian chef whose local dishes are legendary. Now he wants to go international—should he remain true to his recipes or modify them for an international palate? The dilemma is written up in the case "Gastón Acurio: A Recipe for Success."

— Sean Silverthorne


  • August 2013
  • hfm (Healthcare Financial Management)

Improving Value with TDABC

By: Kaplan, Robert S.

Abstract—The article discusses the benefits of time-driven activity-based costing (TDABC) combined with outcomes measurement for healthcare organizations. Topics covered include improving resource efficiency, optimizing care over the complete care cycle, and planning and budgeting of resource capacity. It also mentions that TDABC enhances quality of care and clinical outcomes while reducing healthcare costs.

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  • August 2013
  • hfm (Healthcare Financial Management)

Using TDABC to Deliver Better Patient Outcomes at Lower Cost

By: Kaplan, Robert S.

Abstract—No abstract available.

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  • August 2013
  • Accounting Horizons

Better Accounting Transforms Health Care Delivery

By: Kaplan, Robert S., and Mary L. Witkowski

Abstract—The paper describes the theory and preliminary results for an action research program that explores the implications from better measurements of health care outcomes and costs. After summarizing Porter's outcome taxonomy (Porter 2010), we illustrate how to use process mapping and time-driven activity-based costing to measure the costs of treating patients over a complete cycle of care for a specific medical condition. With valid outcome and cost information, managers and clinicians can standardize clinical and administrative processes, eliminate non-value added and redundant steps, improve resource utilization, and redesign care so that appropriate medical resources perform each process step. These actions enable costs to be reduced while maintaining or improving medical outcomes. Better measurements also allow payers to offer bundled payments, based on the costs of using efficient processes and contingent on achieving superior outcomes. The end result will be a more effective and more productive health care sector. The paper concludes with suggestions for accounting research opportunities in the sector.

  • August 2013
  • Journal of Applied Corporate Finance

Attracting Long-Term Investors Through Integrated Thinking and Reporting: A Clinical Study of a Biopharmaceutical Company

By: Knauer, Andrew, and George Serafeim

Abstract—Faced with a large percentage of investors that chase short-term returns, companies could benefit by attracting investors with longer-term horizons and incentives that are more consistent with the long-term strategy of the company. The managers of most companies take their investor base as a "given" that cannot be changed through their actions or words. Using the case of Shire, a biopharmaceutical company with a strong commitment to the goals of improving the safety of its products and the reliability of its supply chain, the authors of this article suggest that companies have the ability and the means to change their investor base in ways that are consistent with their strategy. One of the most promising ways of attracting such investors is integrated reporting, which provides companies with a means of credibly communicating the commitment of its top leadership to diffusing integrated thinking across the organization and to building strong relationships with important external stakeholders. In the case of Shire, both a commitment to integrated thinking and the adoption of integrated reporting appear to have helped the company attract longer-term investors, which in turn has strengthened management's confidence to carry out its strategy of stakeholder engagement and investment.

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  • August 2013
  • Harvard Business Review

Where to Launch in Africa?

By: Soltes, Eugene F.

Abstract—A case study in the management of new business enterprises in developing countries is examined. A dilemma facing a Malawian entrepreneur in whether to locate a packaging industry new business in his native Malawi or in the larger market of Nigeria is examined. Conflicting opinions on the case are offered by businesspeople with experience in Africa.

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  • August 2013
  • Accounting Review

Admitting Mistakes: Home Country Effect on the Reliability of Restatement Reporting

By: Srinivasan, Suraj, Aida Sijamic Wahid, and Gwen Yu

Abstract—We study the frequency of restatements by foreign firms listed on U.S. exchanges. We find that the restatement rate of U.S. listed foreign firms is significantly lower than that of comparable U.S. firms and that the difference depends on the firm's home country characteristics. Foreign firms from countries with a weak rule of law are less likely to restate than are firms from strong rule of law countries. While the lower rate of restatements can represent an absence of errors, it can also indicate a lack of detection and disclosure of errors and irregularities. We infer the magnitude of detection and disclosure by associating the frequency of restatements with the quality of the firm's internal reporting system. We find that only U.S. firms and foreign firms from strong rule of law countries show a positive association between restatement frequency and internal control weaknesses. Firms from weak rule of law countries show no significant association. We interpret these findings as home country enforcement affecting firms' likelihood of detecting and reporting existing accounting irregularities. This suggests that for U.S. listed foreign firms, less frequent restatements can be a signal of opportunistic reporting rather than a lack of accounting errors and irregularities.

  • August 2013
  • Academy of Management Best Paper Proceedings

Crime and Punishment: The Reputational Consequences of Withdrawals from Venture Capital Syndicates

By: Zhelyazkov, Pavel Ivanov, and Ranjay Gulati

Abstract—Traditional research has long treated reputation as an egocentric attribute, typically described as an intangible asset directly shaped by the focal actor's track record. We argue, however, that reputation is dyadic: that an actor can have different reputations with different alters, and that its various reputations are shaped by three processes-awareness, interpretation, and reevaluation. Awareness-the extent of the alter's knowledge of the focal actor's past behavior-is determined by the proximity of the two and by their centrality in the interorganizational network. Interpretation-the alter's processing of that knowledge to make inferences about the focal actor's character-is determined by what the alter perceives to be the root cause of the behaviors in question. Finally, reevaluation-change in the alter's beliefs about the focal actor-is determined by the gap between the alter's prior beliefs and new information. Specifically, when the alter's prior experiences of the focal actor are particularly negative, the latter's poor behavior in other relationships is unlikely to have much marginal effect. We test the resulting hypotheses by examining how a venture capital firm's reputation for unreliability, triggered by repeated withdrawals from investment syndicates, affects its probability of future syndication.


Working Papers

Abstract—Foreign participation in local-currency-bond markets in emerging countries has increased dramatically over the past decade. In light of this trend, we revisit the question of the optimal exchange-rate regime when developing countries can borrow internationally with local-currency-denominated debt. We find that, as local-currency-bond markets develop, a "pseudo-flexible regime," whereby a country accumulates reserves in conjunction with debt, is the policy that most effectively stabilizes fluctuations under real external shocks.

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Patent Trolls

By: Cohen, Lauren, Umit G. Gurun, and Scott Duke Kominers

Abstract—We provide theoretical and empirical evidence on the evolution and impact of non-practicing entities (NPEs) in the intellectual property space. Heterogeneity in innovation, given a cost of commercialization, results in NPEs that choose to act as "patent trolls" that chase operating firms' innovations even if those innovations are not clearly infringing on the NPEs' patents. We support these predictions using a novel, large dataset of patents targeted by NPEs. We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks). Furthermore, NPEs target firm profits arising from exogenous cash shocks unrelated to the allegedly infringing patents. We next show that NPEs target firms irrespective of the closeness of those firms' patents to the NPEs', and that NPEs typically target firms that are busy with other (non-IP related) lawsuits or are likely to settle. Lastly, we show that NPE litigation has a negative real impact on the future innovative activity of targeted firms.

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Banks as Patient Fixed-Income Investors

By: Hanson, Samuel G., Andrei Shleifer, Jeremy C. Stein, and Robert W. Vishny

Abstract—We examine the business model of traditional commercial banks in the context of their coexistence with shadow banks. While both types of intermediaries create safe "money-like" claims, they go about this in different ways. Traditional banks create safe claims by relying on deposit insurance, supported by costly equity capital. This structure allows bank depositors to remain "sleepy": they do not have to pay attention to transient fluctuations in the mark-to-market value of bank assets. In contrast, shadow banks create safe claims by giving their investors an early exit option that allows them to seize collateral and liquidate it at the first sign of trouble. Thus traditional banks have a stable source of funding, while shadow banks are subject to runs and fire-sale losses. These different funding models in turn influence the kinds of assets that traditional banks and shadow banks hold in equilibrium: traditional banks have a comparative advantage at holding fixed-income assets that have only modest fundamental risk but are relatively illiquid and have substantial transitory price volatility.

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Cases & Course Materials

  • Harvard Business School Case 514-014

Gastón Acurio: A Recipe for Success

Gastón Acurio, star chef and restaurateur from Peru, must decide whether and how to adapt his signature Peruvian cuisine to local tastes as he opens restaurants in new countries.

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  • Harvard Business School Case 514-001

Bridges Ventures

Bridges Ventures, a UK- based impact investor with double-digit returns on its investments, is reflecting on its social impact and pondering its future course.

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