First Look

March 25, 2014

The Entrepreneurial Advantage Of Hot Men

What attracts venture investors to certain entrepreneurs? Intelligence, experience, and a successful track record never hurt. Now you can add physical attractiveness to the list. And gender. Research by Alison Wood Brooks and colleagues shows that an attractive male can be more persuasive to investors than either female entrepreneurs or less-attractive men. "Investors Prefer Entrepreneurial Ventures Pitched by Attractive Men" is being published in Proceedings of the National Academy of Sciences.

The Business Of Oktoberfest

Oktoberfest in Cincinnati? Turns out the popular German festival is celebrated around the world, according to a new case study by Juan Alcácer, Christian Bettinger, and Andreas Philippi. The case explores the economic benefit delivered by the festival to its sponsors, and asks whether opportunities exist to capture more value globally.

Gates, Set, Match?

Former tennis star Andre Aggasi and megainvestor Bill Gates are at the center of a case exploring the conflicting goals of a not-for-profit foundation and a for-profit charter school fund. The Bill & Melinda Gates Foundation is hesitant to make an equity investment in the Canyon-Agassi Charter School Facilities Fund. "As (fund raiser Charles) Turner and Agassi walked off the court, they realized they would have to go back to the drawing board to better gauge which investors would have an appetite for this type of investment and how best to market the fund to those parties going forward." The case, "Canyon-Agassi Investing in Charter Schools," was written by Nicolas P. Retsinas, Nicole Shomair, Vernon Beckford, and Lisa Strope.

— Sean Silverthorne


  • August 2013
  • Palgrave Macmillan

The Political Economy of Empire in the Early Modern World

By: Reinert, Sophus A., and Pernille Røge, eds.

Abstract—This volume recasts our understanding of the practical and theoretical foundations and dynamic experiences of early modern imperialism. The imperial encounter with political economy was neither uniform across political, economic, cultural, and religious constellations nor static across time. The contributions collected in this volume address, with undeniable pertinence for the struggles of later periods, the moral and military ambiguity of profits and power, as well as the often-jealous interactions between different solutions to the problem of empire. The book presents a powerful mosaic of imperial theories and practices contributing to the creation of the modern world and to the most pressing concerns of our time.

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  • August 2013
  • Proceedings of the National Academy of Sciences

Investors Prefer Entrepreneurial Ventures Pitched by Attractive Men

By: Brooks, Alison Wood, Laura Huang, Sarah Wood Kearney, and Fiona Murray

Abstract—Entrepreneurship is a central path to job creation, economic growth, and prosperity. In the earliest stages of start-up business creation, the matching of entrepreneurial ventures to investors is critically important. The entrepreneur's business proposition and previous experience are regarded as the main criteria for investment decisions. Our research, however, documents other critical criteria that investors use to make these decisions: the gender and physical attractiveness of the entrepreneurs themselves. Across a field setting (three entrepreneurial pitch competitions in the United States) and two experiments, we identify a profound and consistent gender gap in entrepreneur persuasiveness. Investors prefer pitches presented by male entrepreneurs compared with pitches made by female entrepreneurs, even when the content of the pitch is the same. This effect is moderated by male physical attractiveness: attractive males were particularly persuasive, whereas physical attractiveness did not matter among female entrepreneurs.

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  • August 2013
  • The Cambridge History of Capitalism: Volume 2. The Spread of Capitalism: From 1848 to the Present

Firms and Global Capitalism

By: Jones, Geoffrey

Abstract—This chapter forms part of the two-volume Cambridge History of Capitalism, a definitive new reference work that traces the history of capitalism from its origins to the present day. The chapter focuses on the role of business enterprises as powerful actors in the spread of global capitalism after 1848 and up the present day. It shows how multinational firms have created and co-created markets and ecosystems through their ability to transfer financial, organizational, and cultural assets, as well as skills and ideologies across borders. The chapter argues that capitalism proved much better than political leaders in building institutions that coordinated activities across borders, but also points to the historical evidence concerning disappointing and sometimes negative outcomes in knowledge and technology transfer. Business enterprises emerge both as important drivers of international economic growth and as significant agents in the divergent patterns of wealth and poverty that have characterized the last two centuries.

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  • August 2013
  • Science

A Better Route to Tech Standards

By: Lerner, Josh, and Jean Tirole

Abstract—Technological standards are ubiquitous, whether they allow consumers to communicate seamlessly across wireless networks or manufacturers to procure goods across complex global supply chains. These standards-shaped by standard-setting organizations (SSOs) and participating engineers, academics, lawyers, and executives-in turn shape how new technologies evolve, specifying rules for how standard-compliant products must work and interact with other components. This standardization process is under tremendous stress. Many disputes roiling courts and administrative bodies around the world-such as those involving Apple, Google, Microsoft, and Samsung-concern commitments made during the standardization process and the ways that firms have sought to "game" the system. We explore why the system is breaking down and propose a way in which standard setting could be redesigned to address these problems.

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  • August 2013
  • The Political Economy of Empire in the Early Modern World

The Empire of Emulation: A Quantitative Analysis of Economic Translations in the European World, 1500-1849

By: Reinert, Sophus A.

Abstract—No abstract available.

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  • August 2013
  • Accounting Review

Accounting Standards and International Portfolio Holdings

By: Yu, Gwen, and Aida Sijamic Wahid

Abstract—Do differences in countries' accounting standards affect global investment decisions? We explore this question by examining how accounting distance, the difference in the accounting standards used in the investor's and the investee's countries, affects the asset allocation decisions of global mutual funds. We find that investors tend to underweight investees with greater accounting distance. Using the mandatory adoption of International Financial Reporting Standards (IFRS) as an event that changed the accounting standards of various country-pairs, we examine how two sources of changes in accounting distance-(i) change due to IFRS adoption of the investee and (ii) change due to IFRS adoption in the investor's country-affect global portfolio allocation decisions. We find that the tendency to underinvest in investees with greater accounting distance significantly weakens when accounting distance is reduced either from an investee's IFRS adoption or from IFRS adoption in the investor's country. The latter finding holds despite the fact that IFRS adoption in the investor's country had no impact on the accounting standards under which the investee firms present their financial information; the only change is in the investor's familiarity with these standards. This suggests that differences in accounting standards affect investor demand by imposing greater information-processing cost on those less familiar with the reporting standards.

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Working Papers

Monetary Policy Drivers of Bond and Equity Risks

By: Campbell, John Y., Carolin E. Pflueger, and Luis M. Viceira

Abstract—The exposure of U.S. Treasury bonds to the stock market has moved considerably over time. While it was slightly positive on average in the period 1960-2011, it was unusually high in the 1980s and negative in the 2000s, a period during which Treasury bonds enabled investors to hedge macroeconomic risks. This paper explores the effects of monetary policy parameters and macroeconomic shocks on nominal bond risks, using a New Keynesian model with habit formation and discrete regime shifts in 1979 and 1997. The increase in bond risks after 1979 is attributed primarily to a shift in monetary policy towards a more anti-inflationary stance, while the more recent decrease in bond risks after 1997 is attributed primarily to an increase in the persistence of monetary policy interacting with continued shocks to the central bank's inflation target. Endogenous responses of bond risk premia amplify these effects of monetary policy on bond risks.

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Opting Out of Good Governance

By: Foley, C. Fritz, Paul Goldsmith-Pinkham, Jonathan Greenstein, and Eric Zwick

Abstract—Cross-listing on a U.S. exchange does not bond foreign firms to follow the corporate governance rules of that exchange. Hand-collected data show that 80% of cross-listed firms opt out of at least one exchange governance rule, instead committing to observe the rules of their home country. Relative to firms that comply, firms that opt out have weaker governance practices in that they have a smaller share of independent directors. The decision to opt out reflects the relative costs and benefits of doing so. Cross-listed firms opt out more when coming from countries with weak corporate governance rules, but if firms based in such countries are growing and have a need for external finance, they are more likely to comply. Finally, opting out affects the value of cash holdings. For cross-listed firms based in countries with weak governance rules, a dollar of cash held inside the firm is worth $1.52 if the firm fully complies with U.S. exchange rules but just $0.32 if it is non-compliant.

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Abstract—When fund managers have close ties to their investees, it can facilitate efficient information sharing but can also increase the possibility of favoritism. Using the investment choices of mutual funds in China, we test whether funds with close ties to their investees make timelier investment decisions-i.e., they purchase (sell) prior to positive (negative) investee performance. We measure close ties using the education network between fund managers and managers of the investee firms. We find that having close ties to an investee leads to more timely investments only when the funds are closely monitored. For poorly monitored funds, we find that having close ties can lead to less timely investments. Further examination shows that the reduced timeliness of connected funds is driven by a reluctance to withdraw holdings prior to weak investee performance. We interpret this as agency conflicts from delegated portfolio management reducing the information sharing role of close ties and leading to collusion when the counter party is in need. The findings suggest that close ties lead to timely investment decisions only when the informed parties are free of agency conflicts.

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Profits and Economic Development

By: Schwab, Dan, and Eric Werker

Abstract—Using industry-level manufacturing data, this paper demonstrates a negative effect of rents, measured by the mark-up ratio, on productivity growth. This result is robust to alternate specifications, including an instrumental variables approach. The negative effect is strongest in poor countries, suggesting that high profits stymie economic development rather than enable it. Consistent with the rent-seeking mechanism of the model, we find that high rents are associated with a slower reduction in tariffs. A country's average mark-up is a strong negative predictor of future economic growth, indicating that we may be measuring a phenomenon of the broader business environment.

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Cases & Course Materials

Oktoberfest, an annual festival held in Munich (Germany) for more than 200 years, has grown in recent decades into a hugely popular event that attracts 7 million visitors annually, a large proportion of whom are foreign. In fact, Oktoberfest's global appeal is so strong that hundreds of copycat Oktoberfest events exist in cities as diverse as Cincinnati (U.S.), Bangalore (India), Beijing (China), and Blumenau (Brazil). The case provides information about the economic value Oktoberfest generates for its main players: the city of Munich, the breweries, the souvenir and merchandise stands, and the firms that provide rides. It then asks whether there are unexploited opportunities to capture more value from Oktoberfest globally.

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  • Harvard Business School Case 514-005

Grupo Beta San Miguel

In November 2013, Dr. Jose Pinto, head of Grupo Beta San Miguel (BSM), Mexico's largest private sugar producer, is weighing the future prospects of the Mexican sugar industry as he considers whether BSM should bid on one of the state-owned sugar mills slated for auction. His decision will be informed by dynamics in the North American sugar market-NAFTA affords Mexico unique duty-free access to the U.S.-as well as the world sugar market and other major sugar-producing countries, especially Brazil.

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  • Harvard Business School Case 313-069

Reinventing Brainlab (A)

The management of Germany's Brainlab AG, a leading provider of software-driven oncology and surgery solutions, needs to evaluate strategic options for proceeding without an exclusive hardware partner in its most profitable business segment.

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  • Harvard Business School Case 314-038


No abstract available.

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  • Harvard Business School Case 614-042

Nivea (A)

The case describes the efforts of Beiersdorf, a worldwide leader in the cosmetics and skin care industries, to generate and commercialize new R&D through open innovation using external crowds and "netnographic" analysis. Beiersdorf, best known for its consumer brand Nivea, has a rigorous R&D process that has led to many successful product launches, but are there areas of customer need that are undervalued by the traditional process? A novel online customer analysis approach suggests untapped opportunities for innovation, but can the company justify a launch based on this new model of research?

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  • Harvard Business School Case 614-043

Nivea (B)

This supplementary case follows up on an innovative R&D approach by Beiersdorf, a skin care and cosmetics company. The case relates what happened to the product launched by Beiersdorf, to its Nivea line, following the events of the A case, and how the commercial success of the product informed thinking by leaders in R&D for the future.

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  • Harvard Business School Case 114-053

Red Star Furniture Group Co. Ltd.

Founded in 1986, Red Star had become the leading department store in China for furniture and home equipment products (bathroom, lamps, textiles complements, etc.). The business model of Red Star was to provide adequate space for vendors (that rented the space) in good shopping mall facilities, well designed and equipped (parking, transportation, services) and located in key developing zones of Chinese growing cities. In the first 27 years, Red Star had opened 115 shopping malls in 85 different cities. With capacity to launch up to 10 new malls per year, Red Star expected to reach 200 malls by 2020. By 2012, the company employed over 15,000 people. With increased competition, and growing complexity of its operations, how should the company manage its ambitious growth strategy?

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  • Harvard Business School Case 514-079

Dumb Ways to Die: Advertising Train Safety (A)

The case series focuses on Melbourne Trains' viral advertising campaign to improve safe behaviors around trains among young people. This iconic, low budget campaign swept the Cannes Lions advertising awards in 2013 and became a social media sensation.

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  • Harvard Business School Case 214-033

Canyon-Agassi Investing in Charter Schools

After an unusual round of doubles in May 2011, real estate investor Bobby Turner, Managing Partner, Canyon-Agassi Charter School Facilities Fund (CACSFF) and Chairman, CEO, and Co-Founder of Canyon Capital Realty Advisors, found himself at a loss for words. Turner was in the midst of raising capital for the CACSFF, a vehicle designed to promote the success and growth of best-in-class charter schools by acting as a for-profit "bridge" developer of educational facilities throughout the United States. He thought he had found the perfect investor in Bill Gates, the Microsoft founder and billionaire philanthropist, who for years had been an outspoken supporter of education reform. But as he made his pitch on the tennis court alongside his partner, retired professional tennis star Andre Agassi, and Andre's wife, retired professional tennis star Steffi Graf, he realized he would encounter more resistance than originally expected. Despite Gates' fascination and intrigue with the pair's novel concept, he was hesitant to mix the non-profit oriented efforts of the Bill & Melinda Gates Foundation with a for-profit private equity investment. Turner had heard similar concerns from other philanthropists and foundations. Furthermore, the fund's characterization as a social enterprise left unanswered questions regarding how making a positive impact could be juxtaposed with efforts to maximize investor profits. What started off as the match of the century ended rather unceremoniously as Gates graciously declined the opportunity to invest in CACSFF. As Turner and Agassi walked off the court, they realized they would have to go back to the drawing board to better gauge which investors would have an appetite for this type of investment and how best to market the fund to those parties going forward.

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  • Harvard Business School Case 214-027

ISS A/S: The Buyout

Provides the opportunity to value a leveraged buy-out and to examine the nature and extent of a company's responsibilities to its bondholders. Here, the context is a "going private" transaction in Europe, where the financing plan called for the addition to the company's balance sheet of a significant amount of new debt and a reshaping of the capital structure. While leveraged buyouts had been used in Europe for several years, this was likely the first LBO done with a company that had publicly traded investment grade debt outstanding. The increased debt from the deal would increase the risk to the company and to the existing bonds, and the bonds' prices would fall significantly as a result. Students can use discounted cash flow techniques to value the LBO. They can then consider the wisdom of undertaking the LBO at the offered price and work out a sensible debt schedule for the company. Students must also evaluate the effect of the transaction on the existing bonds and understand the principles governing contractual duties (and how they differ from fiduciary obligations) towards bondholders (accounting for a business and social culture outside the United States) in order to determine the best course of action for the private equity buyers.

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  • Harvard Business School Case 714-451

Transforming Tommy Hilfiger (A)

At the end of 2005, Tommy Hilfiger is taken private by Apax Partners after years of disappointing performance and strategic impasse. Students are asked to evaluate alternative strategic options for the company and to propose a concrete turnaround plan for the first 100 days after the acquisition.

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  • Harvard Business School Case 613-092

Dignity Health: A Portfolio of Improvement Projects

No abstract available.

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  • Harvard Business School Case 713-509

Hennes & Mauritz, 2000

In 2000, Hennes & Mauritz (H&M) was the second-largest and most global player in the fashion retail business. It operated 682 stores, 80% of them outside its home country of Sweden, and achieved revenues of $3.0 billion and operating profits of $375 million. In 1999, when H&M announced plans to enter the U.S., sales had grown 20% per year and operating profits 30% per year for a decade. After the August announcement of U.S. expansion plans, its share price hit a record $35 (a P/E of over 90). But the new millennium brought challenges and uncertainty. In March 2000, the first nonfamily CEO, Fabian Mansson, resigned after only two years at the helm and the company issued a profits warning. In September 2000, H&M's share price closed at $18.68, a fall of nearly 50% from the prior year. Meanwhile Gap, the world's leading fashion retailer with revenues of $13.7 billion, was adding 600 stores a year and expanding into Europe from its U.S. base. Rolf Erikson, Masson's replacement, impressed few analysts and questions lingered about H&M's ability to maintain its rate of expansion. What did new CEO Rolf Erikson need to do to avert the threat from Gap and restore the company's fortunes?

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  • Harvard Business School Case 713-512

Hennes & Mauritz, 2012

In 2012, Hennes & Maurtiz (H&M) was the second-largest specialty apparel retailer in the world. Sales for fiscal 2012 were $18.1 billion and operating profits were $3.3 billion. H&M operated 2,776 stores, 93% of them outside its home base of Sweden. Over the past decade, H&M had passed Gap in sales, but the company had failed to keep up with Inditex's growth and its Spanish rival had larger sales and greater profitability than H&M. H&M had also lagged behind Inditex in supply pipeline speed, brand diversification, online retail presence, and expansion into China. Meanwhile, the world's leading hypermarket chains, including Wal-Mart and Tesco, were making significant headway in apparel and challenge H&M's basic clothing segment. In 2012, CEO Karl-Johan Persson, grandson of the company's founder Erling Persson, promised increased expansion into underdeveloped markets, a stronger push to online retailing, and the launch of a major new retail brand. Whether Persson's plans were enough to catch up with Inditex remained to be seen.

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