Publications
- August 2013
- Journal of Corporate Finance
Golden Parachutes and the Wealth of Shareholders
Abstract—Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.
Publisher's link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1718488
- August 2013
- American Journal of Managed Care
Testimonials Do Not Convert Patients from Brand to Generic Medication
Abstract—Objectives: To assess whether the addition of a peer testimonial to an informational mailing increases conversion rates from brand name prescription medications to lower-cost therapeutic equivalents, and whether the testimonial's efficacy increases when information is added about an affiliation the quoted individual shares with the recipient. Research Design and Methods: A total of 5,498 union members were randomly assigned to receive 1 of 3 different informational letters: 1 without a testimonial (No Testimonial Group), 1 with a testimonial from a person whose shared union affiliation with the recipient was not disclosed (Unaffiliated Testimonial Group), and 1 with a testimonial from a person whose shared union affiliation with the recipient was disclosed (Affiliated Testimonial Group). Results: The conversion rate for the No Testimonial Group was 12.2%, which is higher than the Unaffiliated Testimonial Group rate of 11.3% and the Affiliated Testimonial Group rate of 11.7%. The differences between the groups are not statistically significant. Conclusions: Short peer testimonials do not increase the impact of a mailed communication on conversion rates to lower-cost, therapeutically equivalent medications, even when the testimonial is presented as coming from a more socially proximate peer.
Publisher's link: http://www.ajmc.com/publications/issue/2013/2013-1-vol19-n9/Testimonials-Do-Not-Convert-Patients-From-Brand-to-Generic-Medication
- August 2013
- Health Affairs
Lessons from England's Health Care Workforce Redesign: No Quick Fixes
Abstract—In 2000 the English National Health Service (NHS) began a series of workforce redesign initiatives that increased the number of doctors and nurses serving patients, expanded existing staff roles and developed new ones, redistributed health care work, and invested in teamwork. The English workforce redesign experience offers important lessons for U.S. policy makers. Redesigning the health care workforce is not a quick fix to control costs or improve the quality of care. A poorly planned redesign can even result in increased costs and decreased quality. Changes in skill mix and role definitions should be preceded by a detailed analysis and redesign of the work performed by health care professionals. New roles and responsibilities must be clearly defined in advance, and teamwork models that include factors common in successful redesigns such as leadership, shared objectives, and training should be promoted. The focus should be on retraining current staff instead of hiring new workers. Finally, any workforce redesign must overcome opposition from professional bodies, individual practitioners, and regulators. England's experience suggests that progress is possible if workforce redesigns are planned carefully and implemented with skill.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45847
- August 2013
- Journal of Experimental Psychology: General
Get Excited: Reappraising Pre-Performance Anxiety as Excitement
Abstract—Individuals often feel anxious in anticipation of tasks such as speaking in public or meeting with a boss. I find that an overwhelming majority of people believe trying to calm down is the best way to cope with pre-performance anxiety. However, across several studies involving karaoke singing, public speaking, and math performance, I investigate an alternative strategy: reappraising anxiety as excitement. Compared to those who attempt to calm down, individuals who reappraise their anxious arousal as excitement feel more excited and perform better. Individuals can reappraise anxiety as excitement using minimal strategies such as self-talk (e.g., saying "I am excited" out loud) or simple messages (e.g., "get excited"), which lead them to feel more excited, adopt an opportunity mindset (as opposed to a threat mindset), and improve their subsequent performance. These findings suggest the importance of arousal congruency during the emotional reappraisal process.
- August 2013
- American Economic Journal: Economic Policy
The Dynamics of Firm Lobbying
Abstract—How is economic policy made? In this paper we study a key determinant of the answer to the question: lobbying by firms. Estimating a binary choice model of firm behavior, we find significant evidence for the idea that barriers to entry induce persistence in lobbying. The existence of these costs is further confirmed in studying how firms responded to a particular policy change: the expiration of legislation relating to the H-1B visa. Due to its influence on firm behavior, we argue that this persistence fundamentally changes the environment in which legislation is made.
Publisher's link: http://www.people.hbs.edu/wkerr/DynamicsOfFirmLobbying.pdf
- August 2013
- Industrial and Corporate Change
Industrial Policy and the Creation of New Industries: Evidence from Brazil's Bioethanol Industry
Abstract—Industrial policy programs are frequently used by governments to stimulate economic activity in particular sectors of the economy. This study explores how an industrial policy program can affect the creation and evolution of an industry and, ultimately, the long-term performance of firms. We examine the history of the Brazilian bioethanol industry, focusing on the industrial policy program implemented by the Brazilian government in the 1970s to develop the industry. We put together a novel data set containing detailed information about the history of bioethanol producers. Our findings show that plants founded during the industrial policy program tend to be, in the long run, more productive than those founded before the program was in place. Based on additional analyses and complementary fieldwork, we infer that the wave of acquisitions that occurred after the end of the industrial policy program had an important effect on the performance of the plants founded when the program was in place. Industrial policy, especially in conjunction with a competitive post-industrial policy business landscape, can succeed in nurturing competitive firms.
- August 2013
- Journal of Financial Economics
Winners in the Spotlight: Media Coverage of Fund Holdings as a Driver of Flows
Abstract—We show that media coverage of mutual fund holdings affects how investors allocate money across funds. Controlling for fund performance, fund holdings with high past returns attract extra flows only if these stocks were recently featured in major newspapers. In contrast, holdings that were not covered in the media do not affect flows. We present evidence that media coverage tends to amplify investors' chasing of past returns rather than facilitate the processing of useful information in fund portfolios. Fund managers exploit this behavior by purchasing media-covered past winners at reporting dates, a strategy most prevalent among poorly performing funds. Our evidence suggests that media coverage can exacerbate investor biases and that it is the primary mechanism that makes window-dressing effective.
Publisher's link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1934978
- August 2013
- Emotion
Botsourcing and Outsourcing: Robot, British, Chinese, and German Workers Are for Thinking-Not Feeling-Jobs
Abstract—Technological innovations have produced robots capable of jobs that, until recently, only humans could perform. The present research explores the psychology of "botsourcing"-the replacement of human jobs by robots-while examining how understanding botsourcing can inform the psychology of outsourcing-the replacement of jobs in one country by humans from other countries. We test four related hypotheses across six experiments: (1) Given people's lay theories about the capacities for cognition and emotion for robots and humans, workers will express more discomfort with botsourcing when they consider losing jobs that require emotion versus cognition; (2) people will express more comfort with botsourcing when jobs are framed as requiring cognition versus emotion; (3) people will express more comfort with botsourcing for jobs that do require emotion if robots appear to convey more emotion; and (4) people prefer to outsource cognition-oriented versus emotion-oriented jobs to other humans who are perceived as more versus less robotic. These results have theoretical implications for understanding social cognition about both humans and nonhumans and practical implications for the increasingly botsourced and outsourced economy.
Publisher's link: http://www.hbs.edu/faculty/Pages/download.aspx?name=waytz%20norton.pdf
- August 2013
- New England Journal of Medicine
Public Reporting, Consumerism, and Patient Empowerment
Abstract—No abstract available.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45889
Working Papers
Managers and Market Capitalism
Abstract—In a capitalist system based on free markets, do managers have responsibilities to the system itself? If they do, should these responsibilities shape their behavior when they are engaging in the political process in an attempt to structure the institutions of capitalism? The prevailing view-perhaps most eloquently argued by Milton Friedman-is that the first duty of managers is to maximize shareholder value, and thus that they should take every opportunity (within the bounds of the law) to structure market institutions so as to increase profitability. We maintain here that this shareholder-return view of political engagement applies in cases where the political process is sufficiently "thick," in that diverse views are well represented, and sufficiently detailed information about the issues is widely available. However, we draw on a series of detailed examples in the context of the determination of corporate accounting standards to argue that when the political process of determining institutions of capitalism is "thin," in that managers find themselves with specialized technical knowledge unavailable to outsiders and with little political resistance from the general interest, then managers have a responsibility to market institutions themselves, even if this entails acting at the expense of corporate profits. We make this argument on grounds that this behavior is both in managers' long-run self-interest and, expanding on Friedman's core contention, that it is managers' moral duty. We provide a framework for future research to explore and develop these arguments.
Download working paper: http://ssrn.com/abstract=2231526
Heterogeneous Technology Diffusion and Ricardian Trade Patterns
Abstract—This study tests the importance of Ricardian technology differences for international trade. The empirical analysis has three comparative advantages: including emerging and advanced economies, isolating panel variation regarding the link between productivity and exports, and exploiting heterogeneous technology diffusion from immigrant communities in the United States for identification. The latter instruments are developed by combining panel variation on the development of new technologies across U.S. cities with historical settlement patterns for migrants from countries. The instrumented elasticity of export growth on the intensive margin with respect to the exporter's productivity growth is between 1.6 and 2.4 depending upon weighting.
Download working paper: http://ssrn.com/abstract=2354388
Standard-Essential Patents
Abstract—A major policy issue in standard setting is that patents that are ex-ante not that important may, by being included into the standard, become standard-essential patents (SEPs). In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to intense litigation activity. This paper builds a framework for the analysis of SEPs, identifies several types of inefficiencies attached to the lack of price commitment, shows how structured price commitments restore competition, and analyzes whether price commitments are likely to emerge in the marketplace.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=14-038.pdf
Are Patents Creative or Destructive?
Abstract—Current debate over patent aggregation has led to renewed interest in the long standing question concerning whether patents are a creative or a destructive influence on the process of technological development. In this paper I examine the basic patent tradeoff between incentives and monopoly distortions in light of recent contributions to the literature. I outline where patents can function effectively, where they can be damaging, and where additional complementary mechanisms to spur innovation may be appropriate.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=14-036.pdf
The Organization of Enterprise in Japan
Abstract—Recent research indicates that the joint stock corporation was not a superior form of business organization in many countries during the nineteenth and twentieth centuries. In Japan, by contrast, it appears to have played a more prominent role. When the Civil Code was adopted in 1896, around 5,000 registered enterprises existed, but by 1939, there were over 88,000. Approximately half were joint stock firms, and these outperformed limited and unlimited partnerships on a return on equity basis, while also accounting for most of the aggregate profits. When the private limited liability company was introduced in 1938, it became immediately popular, but it did not displace the joint stock form.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=14-037.pdf
Skilled Immigration and the Employment Structures of U.S. Firms
Abstract—We study the impact of skilled immigrants on the employment structures of U.S. firms using matched employer-employee data. Unlike most previous work, we use the firm as the lens of analysis to account for a greater level of heterogeneity and the fact that many skilled immigrant admissions are driven by firms themselves (e.g., the H-1B visa). OLS and IV specifications find rising overall employment of skilled workers with increased skilled immigrant employment by firm. Employment expansion is greater for younger natives than their older counterparts, and departure rates for older workers appear higher for those in STEM occupations compared to younger workers.
Download working paper: http://ssrn.com/abstract=2354963
Cases & Course Materials
- Harvard Business School Case 313-071
Día Día Practimercados: Meeting the Daily Needs at the Base of the Pyramid (A)
No abstract available.
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- Harvard Business School Case 113-118
Hubei Lantian (A)
No abstract available.
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- Harvard Business School Case 311-083
PepsiCo Peru Foods: More than Small Potatoes
Jorge Tarasuk, VP of Operations and Supply Chain for PepsiCo South America Foods, and his team had worked for 10 years to realize their dream of creating an agro research center in Peru that could provide more productive and healthier varieties of potatoes for the Frito-Lay businesses in PepsiCo's tropical regions, including Brazil, China, Egypt, India, Thailand, and Vietnam, where much of its future growth would come. They were denied several times but kept the idea alive through other projects until conditions presented themselves. But now that they had secured initial funding for the center, the hard work would begin.
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- Harvard Business School Case 414-043
United Rentals (A)
In the spring of 2008, the recession had decimated the company's core business, construction equipment rental. The economic downturn resulted in a significant decrease in North American construction and industrial activities and had adversely affected the company's revenues and operating result. The stock of the company quickly fell from the mid-$30 range in late 2007 to $3 in March 2009. In addition, two of the company's former chief financial officers had been charged with securities fraud and other violations by both the U.S. Attorney's office and the SEC. The Board was faced with the resignation of the founder and chairman, management succession issues, the failed merger with Cerberus, and the lawsuit in Delaware. The Board was responsible for overseeing the change in a number of senior management and board positions, which became increasingly difficult due to the turmoil and poor performance of the company. Recruiting and retaining talent in senior management and on the board were central to the success of the company, which relied on their people for strong performance. In addition, the company's total indebtedness was approximately $3.3 billion, including $146 million of subordinated convertible debenture. The company's substantial indebtedness had the potential to have adverse consequences in a number of ways, including the following: increase their vulnerability to adverse economic, industry, or competitive developments; require the company to devote a substantial portion of its cash flow to debt service, reducing the funds available for other purposes; limit their ability to obtain additional financing; and decrease profitability or cash flow. And the company was still dealing with multiple purported class action and derivative lawsuits that had been filed against it. It was during this time the board started looking for candidates both for the CEO and chairman positions. In December 1997, United Rentals (URI) went public on the NYSE. Ten years later, during the peak of the economic meltdown, the company's performance was in decline. United Rentals had experienced its share of problems in the prior years and was still struggling to emerge from this turmoil.
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- Harvard Business School Case 414-031
United Rentals (B)
In April 2012, Jenne Britell, the chairman of the board of directors of United Rentals, Inc. (NYSE: URI) was preparing her notes for an upcoming stockholders' meeting. It was a meeting unlike most other meetings she had chaired. Stockholders were about to vote on a transaction that was perhaps the ultimate fulfillment of the founders' original vision. She was reminded of the company's founding just 15 years earlier and its meteoric growth. With a considerable sense of achievement and satisfaction, she reflected on her tenure as board chair commencing five years ago. Elected to the board in 2006 and then unanimously selected by her peers as chairman in June 2008, Britell led the board through the aftermath of a tumultuous period that included senior management and board changes, an SEC investigation, financial restatements, the jilting of the company by Cerberus Capital Management in a transaction to acquire URI, and the deepest recession to hit the global economy since the Great Depression. At the meeting, stockholders would be asked to consider approval of a merger agreement between URI, the largest equipment rental company in the world, and RSC, the second largest equipment rental company in the world and URI's largest competitor. The meeting would mark the triumph of a new governance model and company strategy whose development and implementation Britell and CEO Michael Kneeland had led. As Britell reflected on the hard won gains, she also looked forward to the challenges and opportunities that lie ahead as the company managed the integration of RSC's operations with URI and the integration of three new board members from the acquired company. She also reflected on how governance and strategy could continue to evolve as the company planned for the next five years.
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- Harvard Business School Case 814-021
Pixability: Bettina's Board Walk
Bettina Hein, founder-CEO of Pixability, is meeting with her board of directors to discuss her start-up's fundraising prospects and the recent strategic pivot. Though Bettina loves the entrepreneurial exhilaration of "riding a rollercoaster every day," the company's current cash position gives them only a four-month runway. For Bettina, though they can at times be tense, board meetings and their preparation have become an exercise in reflection that gives her encouragement. In her prior start-up, SVOX, Bettina learned a lot about managing a board of directors. While she can apply many of those lessons to her experience at Pixability, she's had to continue to develop new practices for portraying the company's progress and for soliciting advice from her directors while projecting confidence. While preparing for the upcoming meeting, Bettina wonders: How should she structure and lead the meeting? How might her board react to her team's updates? What difficult questions might the board members pose and how should she answer them?
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