First Look

Abstract—This article engages in a methodological experiment by using historical evidence to challenge a common misperception about internalization theory. The theory has often been criticized for maintaining that it assumes a hierarchically organized MNE based on knowledge flowing from the home country. This is not an accurate description of how global firms operate in recent decades, but this article shows it has never been true historically. Using longitudinal data on individual firms from the nineteenth century onwards, it reveals evidence of how entrepreneurs and firms with multinational activity faced by market imperfections changed the design of their headquarters and their organizational structures.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54625

Abstract—Evidence suggests that consumers seek to become more expert about hedonic products to enhance their enjoyment of future consumption occasions. Current approaches to becoming expert center on cultivating an analytic mindset. In the present research the authors explore the benefit to enthusiasts of moving beyond analytics to cultivate a holistic style of processing. In the taste context the authors define holistic processing as nonverbal, imagery based, and involving narrative processing. The authors conduct qualitative interviews with taste experts (Master Sommeliers) to operationalize the holistic approach to hedonic learning and then test it against traditional analytic methods in a series of experiments across a range of hedonic products. The results suggest that hedonic learning follows a sequence of stages whose order matters and that the holistic stage is facilitated by attending to experience as a narrative event and by employing visual imagery. The results of this multi-method investigation have implications for both managers and academics interested in how consumers learn to become expert in hedonic product categories.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54622

Abstract—I examine whether political influence as a response to voters’ interest in employment levels is reflected in the enforcement actions of the Securities and Exchange Commission (SEC). I find that large employers are less likely to experience SEC enforcement actions. Next, I examine whether variations in politicians’ sensitivity to employment levels result in variations in enforcement against large employers. I find that large employers are less likely to face enforcement actions during presidential elections if they are based in politically important states. Large employers also face fewer enforcement actions if they are based in high-unemployment states during elections of senators who serve on SEC oversight committees. Large employers based in high-unemployment districts enjoy lower enforcement if their congressmen serve on SEC oversight committees. The findings suggest that voters’ interests are reflected in SEC enforcement.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54514

Abstract—Consumers have an increasingly wide variety of options available to entertain themselves. This poses a challenge for content aggregators who want to effectively promote their video content online through original trailers of movies, sitcoms, and video games. Marketers are now trying to produce much shorter video clips to promote their content on a variety of digital channels. This research is the first to propose an approach to produce such clips and to study their effectiveness, focusing on comedy movies as an application. Web-based facial-expression tracking is used to study viewers’ real-time emotional responses when watching comedy movie trailers online. These data are used to predict both viewers’ intentions to watch the movie and the movie’s box office success. The authors then propose an optimization procedure for cutting scenes from trailers to produce clips and test it in an online experiment and in a field experiment. The results provide evidence that the production of short clips using the proposed methodology can be an effective tool to market movies and other online content.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54634

Abstract—Using proprietary credit default swap (CDS) data, I investigate how capital shocks at protection sellers impact pricing in the CDS market. Seller capital shocks—measured as CDS portfolio margin payments—account for 12% of the time-series variation in weekly spread changes, a significant amount given that standard credit factors account for 18% during my sample. In addition, seller shocks possess information for spreads that is independent of institution-wide measures of constraints. These findings imply a high degree of market segmentation and suggest that frictions within specialized financial institutions prevent capital from flowing into the market at shorter horizons.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54636

Abstract—Platform owners sometimes enter complementors' product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms' overall quality. Using data from Amazon.com, we analyze the patterns of Amazon's entry into its third-party sellers' product spaces. We find evidence consistent with the former explanation: the likelihood of Amazon's entry is positively correlated with the popularity and customer ratings of third-party sellers' products. We also find that Amazon's entry reduces the shipping costs of affected products and hence increases demand. Results also show that small third-party sellers affected by Amazon's entry appear to be discouraged from growing their businesses on the platform subsequently. The results have implications for complementors participating in various platform-based markets.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54598

Abstract—After decades of both de-prioritizing shareholders' economic interests and low corporate profitability, Japan introduced the JPX400 in 2014. The index highlighted the country's “best-run" companies by annually selecting the 400 most profitable among Japan's large and liquid firms. Index-inclusion incentives led firms to increase ROE proportionally by 41%, though firms did not realize significant capital-market or product-market benefits from inclusion. Status incentives contributed to the observed performance improvement. Back-of-the-envelope estimates suggest that JPX400-inclusion incentives accounted for 16% (20%) of the growth in aggregate earnings (market capitalization) over our sample period. Stock indexes can transform longstanding behavior via non-pecuniary channels.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=53030

Abstract—We provide the first large-sample evidence on the behavior and impact of non-practicing entities (NPEs) in the intellectual property space. We find that on average, NPEs appear to behave as opportunistic “patent trolls.” NPEs sue cash-rich firms—and target cash in business segments unrelated to alleged infringement at essentially the same frequency as they target cash in segments related to alleged infringement. By contrast, cash is neither a key driver of intellectual property lawsuits by practicing entities (e.g., IBM and Intel) nor of any other type of litigation against firms. We find further suggestive evidence of NPE opportunism: targeting of firms that have reduced ability to defend themselves, repeated assertions of lower-quality patents, increased assertion activity nearing patent expiration, and forum shopping. We find moreover that NPE litigation has a real negative impact on innovation at targeted firms: firms substantially reduce their innovative activity after settling with NPEs (or losing to them in court). Meanwhile, we neither find any markers of significant NPE pass-through to end innovators nor of a positive impact of NPEs on innovation in the industries in which they are most prevalent

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=47648

Abstract—We document a strong effect of pension and insurance company (P&I) assets on the long end of the yield curve. Using data from 26 countries, the yield spread between 30-year and 10-year government bond yields is negatively related to the ratio of pension assets (in funded and private pension and life insurance arrangements) to GDP, suggesting that preferred-habitat demand by the P&I sector for long-dated assets drives the long end of the yield curve. We draw on changes in regulations in several European countries between 2008 and 2013 to provide well-identified evidence on the effect of the P&I sector on yields and to show that P&I demand is in part driven by hedging linked to the regulatory discount curve. When regulators reduce the dependence of the regulatory discount curve on a particular security, P&I demand for the security falls and its yield increases. We describe settings in which pension discount rules can have a destabilizing impact on bond markets.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=54633

Abstract—We document a strong and robust positive relationship between real rates and the contemporaneous valuation of volatile stocks, which we contend measures the economy’s risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the one-year real rate since 1970, while the valuation of the aggregate stock market explains just 1%. In addition, the real rate forecasts returns on volatile stocks, confirming our interpretation that changes in risk appetite drive the real rate. Increases in our measure of risk appetite are followed by a boom in investment and output.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=51958

In this simulation exercise, four family members must negotiate over the future of the family business. Should the business be sold to a strategic buyer, or should the family retain control? If the business is sold, how should the proceeds of the sale be distributed among family members? If the business is not sold, how should ongoing ownership and control be shared among family members? The exercise, which is inspired by a collection of real-world scenarios, provides an opportunity to practice techniques for learning about the motivations of others and for forging agreements that balance the interests of multiple parties.

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In this simulation exercise, four family members must negotiate over the future of the family business. Should the business be sold to a strategic buyer, or should the family retain control? If the business is sold, how should the proceeds of the sale be distributed among family members? If the business is not sold, how should ongoing ownership and control be shared among family members? The exercise, which is inspired by a collection of real-world scenarios, provides an opportunity to practice techniques for learning about the motivations of others and for forging agreements that balance the interests of multiple parties.

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https://hbsp.harvard.edu/product/918045-PDF-ENG

In this simulation exercise, four family members must negotiate over the future of the family business. Should the business be sold to a strategic buyer, or should the family retain control? If the business is sold, how should the proceeds of the sale be distributed among family members? If the business is not sold, how should ongoing ownership and control be shared among family members? The exercise, which is inspired by a collection of real-world scenarios, provides an opportunity to practice techniques for learning about the motivations of others and for forging agreements that balance the interests of multiple parties.

Purchase this case:
https://hbsp.harvard.edu/product/918046-PDF-ENG

In this simulation exercise, four family members must negotiate over the future of the family business. Should the business be sold to a strategic buyer, or should the family retain control? If the business is sold, how should the proceeds of the sale be distributed among family members? If the business is not sold, how should ongoing ownership and control be shared among family members? The exercise, which is inspired by a collection of real-world scenarios, provides an opportunity to practice techniques for learning about the motivations of others and for forging agreements that balance the interests of multiple parties.

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No abstract available.

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Zensar, an established mid-tier IT services company based in India, is known for its customer-centric approach and close-knit culture. Sandeep Kishore has recently stepped in as the MD and CEO, replacing the previous CEO of 15 years. Kishore is developing his strategy for Zensar against a backdrop of a rapidly changing IT industry. Kishore, a strong proponent of digitizing business processes in order to increase productivity and revenue, wants to execute his idea to make Zensar a fully digital company. However, in doing so he has to strike a balance between driving an aggressive digital strategy and retaining Zensar’s culture.

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In December 2017, Vincent van den Boogert, CEO of ING in the Netherlands, was reflecting upon the company’s “agile” transformation, a reorganization of work that had been critical to respond to and exceed rapidly changing customer expectations. Launched in 2015 at the head office, agile had spread to the rest of the Dutch organization, from client services to the branch network, and permeated the overall company culture. It was now time to rollout the transformation to other units of the ING Group, but some questions remained: Could agile be as successful in other countries as it had been in the Netherlands? How fast should ING roll out the transformation? How could they build on the experience acquired so far to improve their methodology?

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Supplement to HBS No. 818-077. Together with the agile methodology, innovation at ING was an enabler for the company’s purpose of empowering people to stay a step ahead in life and business. The case explores ING's innovation priorities and strategy as well as the related challenges ahead.

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In 2016, ING Group began an overhaul of its company culture, culminating in a code of conduct dubbed "The Orange Code."

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In 2015, Yıldiz Holding, one of the world’s largest producer of confections, biscuits, and crackers, was at the end of its divestiture process from Ak Gıda, one of the leading dairy companies in Turkey. The company had adopted a dual track process, pursuing an initial public offering (IPO) process as well as attempting, in parallel, a strategic sale to create a competitive bidding process. Ak Gıda was cofounded in 1996 by the Ulker and Topbas families as a result of a joint vertical integration strategy: Ulker family, owners of Yıldiz Holding, would secure milk powder, one of the main raw materials for its biscuits and chocolate production, and Topbas family would be able to create its own private label dairy products for its nation-wide hard-discount chain BIM. Following Yıldiz Holding’s acquisition of United Biscuits for over $3 billion in 2014, the Holding’s CFO Cem Karakas and its Chief Strategy and Growth Officer Nurtaç Ziyal Afridi, were tasked with divesting its vertical assets including Ak Gıda. The duo had prepared Ak Gıda for an IPO in Istanbul, while also having negotiated with multiple parties for its sale. Now, the duo needed to make a final decision: should they go forward with the listing, or should they sell Ak Gıda to the world’s largest dairy company, Groupe Lactalis?

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