First Look

May 29, 2018

Of special interest among new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Banks with materialistic CEOs face risk problems

The proportion of banks run by CEOs who own plenty of luxury goods spiked between 1994 and 2004. Aiyesha Dey and colleagues write in a paper published in the Journal of Accounting & Economics that banks run by materialistic CEOs have weaker risk management functions and bigger corporate culture problems, including aggressive insider trading by executives. Bank CEO Materialism: Risk Controls, Culture and Tail Risk.

Poor economic growth makes people miserable

A healthy economy can certainly provide a boost in how happy people say they are, yet people are more than twice as sensitive to negative economic growth as they are to positive economic growth. In an article appearing this month in Review of Economics and Statistics, Michael I. Norton and colleagues study data from more than 150 countries as they explore the relationship between GDP and subjective well-being. The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-being Data.

The business lessons learned from Disney’s comeback

Bob Iger, the newly appointed CEO of The Walt Disney Company, watched Mickey Mouse, Snow White, and Buzz Lightyear stroll down Main Street during the grand opening of Hong Kong Disney in 2005, then turned to colleagues and asked, “How many characters in this parade were created by Disney in the last 10 years?” The answer: Just one. On multiple levels, Disney’s situation looked bleak back then. But 10 years later, “Frozen” and other Disney movies were raking in big bucks and attendance was up at Disney’s parks. In a case study written by David J. Collis and Ashley Hartman, Iger reflects on the lessons he learned as he set out to resuscitate the struggling company. Reawakening the Magic: Bob Iger and the Walt Disney Company.

A complete list of new research and publications from Harvard Business School faculty follows.

— Dina Gerdeman
  • February 2018
  • Journal of Accounting & Economics

Bank CEO Materialism: Risk Controls, Culture and Tail Risk

By: Bushman, Robert, Robert Davidson, Aiyesha Dey, and Abbie Smith

Abstract—We investigate how the prevalence of materialistic bank CEOs has evolved over time and how risk management policies, non-CEO executives’ behavior, and tail risk vary with CEO materialism. We document that the proportion of banks run by materialistic CEOs increased significantly from 1994 to 2004, that the strength of risk management functions is significantly lower for banks with materialistic CEOs, and that non-CEO executives in banks with materialistic CEOs insider trade more aggressively around government intervention during the financial crisis. Finally, we find that banks with materialistic CEOs have significantly more downside tail risk relative to banks with non-materialistic CEOs.

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  • forthcoming
  • Journal of Management Studies

Disruptive Innovation: An Intellectual History and Directions for Future Research

By: Christensen, Clayton M., Rory McDonald, Elizabeth J. Altman, and Jonathan E. Palmer

Abstract—The concept of disruptive innovation has gained considerable currency among practitioners despite widespread misunderstanding of its core principles. Similarly, foundational research on disruption has elicited frequent citation and vibrant debate in academic circles, but subsequent empirical research has rarely engaged with its key theoretical arguments. This inconsistent reception warrants a thoughtful evaluation of research on disruptive innovation within management and strategy. We trace the theory’s intellectual history, noting how its core principles have been clarified by anomaly-seeking research. We also trace the theory’s evolution from a technology-change framework—essentially descriptive and relatively limited in scope—to a more broadly explanatory causal theory of innovation and competitive response. This assessment reveals that our understanding of the phenomenon of disruption has changed as the theory has developed. To reinvigorate academic interest in disruptive innovation, we propose several underexplored topics—response strategies, performance trajectories, and innovation metrics—to guide future research.

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  • May 2018
  • Review of Economics and Statistics

The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-being Data

By: De Neve, Jan-Emmanuel, George Ward, Femke De Keulenaer, Bert Van Landeghem, Georgios Kavetsos, and Michael I. Norton

Abstract—Are individuals more sensitive to losses than gains in terms of economic growth? We find that measures of subjective well-being are more than twice as sensitive to negative as compared to positive economic growth. We use Gallup World Poll data from over 150 countries, U.S. Behavioral Risk Factor Surveillance System (BRFSS) data on 2.3 million U.S. respondents, and Eurobarometer data that cover multiple business cycles over four decades. This research provides a new perspective on the welfare cost of business cycles, with implications for growth policy and the nature of the long-run relationship between GDP and subjective well-being.

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  • May 2018
  • American Economic Association Papers and Proceedings

Nowcasting Gentrification: Using Yelp Data to Quantify Neighborhood Change

By: Glaeser, Edward L., Hyunjin Kim, and Michael Luca

Abstract—Data from digital platforms have the potential to improve our understanding of gentrification and enable new measures of how neighborhoods change in close to real time. Combining data on businesses from Yelp with data on gentrification from the Census, Federal Housing Finance Agency, and Streetscore (an algorithm using Google Streetview), we find that gentrifying neighborhoods tend to have growing numbers of local groceries, cafés, restaurants, and bars, with little evidence of crowd-out of other types of businesses. For example, the entry of a new coffee shop into a zip code in a given year is associated with a 0.5% increase in housing prices. Moreover, Yelp measures of local business activity provide leading indicators for housing price changes and help to forecast which neighborhoods are gentrifying.

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The Real Exchange Rate, Innovation and Productivity: Regional Heterogeneity, Asymmetries and Hysteresis

By: Alfaro, Laura, Alejandro Cuñat, Harald Fadinger, and Yanping Liu

Abstract—We evaluate manufacturing firms' responses to changes in the real exchange rate (RER) using detailed firm-level data for a large set of countries for the period 2001–2010. We uncover the following stylized facts: In emerging Asia, real depreciations are associated with faster growth of firm-level total factor productivity (TFP), sales and cash-flow, higher probabilities to engage in R&D, and export. We find no significant effects for firms from industrialized economies and negative effects for firms in other emerging economies, which are less export-intensive and more import-intensive. Motivated by these facts, we build a dynamic model in which real depreciations raise the cost of importing intermediates but increase demand and the profitability to engage in exports and R&D, thereby relaxing borrowing constraints and enabling more firms to overcome the fixed-cost hurdle for financing R&D. We decompose the effects of RER changes on productivity growth into these channels and explain regional heterogeneity in the effects of RER changes in terms of differences in export intensity, import intensity, and financial constraints. We estimate the model and quantitatively evaluate the different mechanisms by providing counterfactual simulations of temporary real exchange rate movements. Effects on physical TFP growth, while different across regions, are non-linear and asymmetric.

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Global Portfolio Diversification for Long-Horizon Investors

By: Viceira, Luis M., and Zixuan (Kevin) Wang

Abstract—This paper conducts a theoretical and empirical investigation of the risk of globally diversified portfolios of stocks and bonds and of optimal intertemporal global portfolio choice for long horizon investors in the presence of permanent cash flow shocks and transitory discount rate shocks to asset values. An increase in the cross-country correlations of cash flow shocks raises the risk of a globally diversified portfolio at all horizons. By contrast, an increase in the cross-country correlations of discount rate shocks has a much more muted effect on portfolio risk at long horizons, suggesting that the benefits of global portfolio diversification to long-term investors do not recede when the source of increased global return correlations is correlated discount rates. Empirically, we document a secular increase in the cross-country correlations of both stock returns and government bond returns since the late 1990s. We identify increased correlations of discount rate shocks resulting from financial globalization as the main driver of the upward shift in stock return correlations. We also identify increased correlations of inflation shocks as an equally important source of the upward shift in bond correlations. By contrast, we don’t find evidence of a secular shift in the cross-country correlations of stock market volatility shocks, which have remained fairly low through time except during the financial crisis of 2009.

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  • Harvard Business School Case 218-094


In February 2011, Adam Koppel, a managing director at Brookside Capital, the public equity arm of Bain Capital, must decide whether to increase or exit the firm’s position in Celgene Corporation. News has emerged that raises potential safety concerns associated with Celgene’s key drug, Revlimid. In response, Celgene’s share price has traded down 20% in the last two months and is now almost 10% below the level where Brookside made its initial investment.

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  • Harvard Business School Case 218-099

Celgene (B)

Supplements the (A) case.

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  • Harvard Business School Case 418-007

Christine Lagarde

The case covers the youth and career trajectory of Christine Lagarde across her time at Baker & McKenzie, as a minister in the government of France and as the head of the International Monetary Fund (IMF). The case highlights the challenges and opportunities she faced during each phase of her career and how she managed them. Lagarde started her career in 1981 as a lawyer at the global law firm Baker & McKenzie, which employed approximately 2,500 lawyers across 35 countries by 1999, when she became the firm’s first non-American and female chairman. In 2005, she became France’s Minister for Foreign Trade in President Jacques Chirac’s administration and was the EU’s de facto finance minister when the financial crisis was most acute. In 2011, she was selected to head the IMF. Since 2011, Lagarde built the foundation for the IMF’s adaptation to the realities of the 21st century. By 2017, shortly after Lagarde began her second term as the managing director of the IMF, the world faced pressing issues as a result of the rapidly evolving, hyper-connected global economy—ongoing recovery from the global financial crisis, the rise of emerging economies, deeper cross-border integration, technological change, and growing wealth and income inequality within countries. These interrelated dynamics were playing out alongside heightened anxiety within the populations of some major advanced economies about what these changes meant for them. The concerns manifested themselves in an inward focus, rumblings of protectionism, and questions about the worth of international cooperation and the multilateral system itself. Lagarde believed that the challenges facing the world economy warranted not less but more global cooperation. In this context, she had to determine how the IMF—as the leading advocate of global economic cooperation since its creation—could better demonstrate its effectiveness. She knew that it was a critical moment.

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Connecting life insurance policyholders with potential investors (called Life Settlement Providers), Ashar Group plays a pivotal role in the industry. Its current position is, however, increasingly being challenged by consumer-direct models, led by major providers seeking to shortcut brokers. Ashar faces a strategic dilemma in cooperating—but also in competing—with these providers. Maintaining a mutually beneficial dynamic with policyholders, downstream intermediaries, and other actors thus constitutes a balancing act. The context of this case is an underdeveloped market whose reputation has suffered from broker misconduct. In light of the market’s legacy issues and competing business models, this case study explores strategies Ashar may pursue to secure and enhance its market position. Discussions emerging from this case study have the potential to illuminate directions for market transformation.

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  • Harvard Business School Case 218-086

Acumen Fund—Managing Towards Impact 2018

No abstract available.

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  • Harvard Business School Case 218-072

Background Note: Introduction to Investing for Impact

No abstract available.

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Mickey Mouse, Snow White, and Buzz Lightyear strolled down Main Street at the grand opening of Hong Kong Disney in the fall of 2005, pausing to snap selfies with enthusiastic children in Mickey Mouse ears. Bob Iger, newly appointed CEO of The Walt Disney Company, proudly watched the parade go by, but concerned for the future of the global corporation, he turned to colleagues and asked, “How many characters in this parade were created by Disney in the last 10 years?” There was one. But the languishing Disney animation department was not the company’s only problem. Disney was under pressure: the company had recently delivered poor financial results; ratings at the ABC network had fallen below competitors; Walt’s nephew, Roy E. Disney, had stepped down from the Board after expressing his displeasure with the direction of the company under Iger’s predecessor, Michael Eisner; and Comcast had made a $54 billion hostile bid to take over Disney only one year before. The situation for Disney looked bleak. Yet by December 2015 the tide had turned. The much-anticipated Star Wars: The Force Awakens was set to become the highest grossing film ever in the U.S. and earn over $2 billion worldwide. Frozen had just surpassed $1 billion in box office to become Disney animation’s biggest success ever. In live action movies, Disney franchises, like Pirates of the Caribbean and Marvel’s Iron Man, had produced multiple blockbuster hits. ESPN, ABC, and other cable and broadcast properties were producing record profits. Attendance was up at Disney parks and cruise ships, while the Shanghai Disney Resort, the company’s third and largest theme park in Asia, was scheduled to open in June 2016. Iger thought back to the Hong Kong Disney parade, reflecting on how far the company had come and the lessons he had learned about reawakening the Disney magic.

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  • Harvard Business School Case 516-037


Acxiom built the market for personal data, yet sales have been flat for a decade during which marketing's appetite for data has exploded. Will the acquisition of a digital data onboarder LiveRamp give marketers what they want from a data broker?

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  • Harvard Business School Case 312-032

Note on Bundled Payment in Health Care

The note explains how bundled health care payment differs from fee-for-service payment, provides examples of the difference between the two, describes early innovators in bundling and their results, provides guidance on how to make it happen, and elucidates the legal issues bundling raises. Bundled payment will replace virtually all other health care payment formats. This note explains how and why.

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Vodafone was operating in the fast-moving telecommunications market where innovation and scale were key. Faced with an onslaught of technological advances—big data, automation, and artificial intelligence—CEO Vittorio Colao reflected on how he should change the organization to incorporate these advancements to improve the way the functions work, how to incorporate machine learning and artificial intelligence that de facto improve productivity and slash costs, and what he could do to give back to society and make sure that new opportunities were created for the new generation.

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No abstract available.

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  • Harvard Business School Case 118-030

JetBlue: Relevant Sustainability Leadership

In 2017, JetBlue, the airline founded on the mission to “bring humanity back to air travel,” became one of the first companies to report performance according to the Sustainability Accounting Standards Board (SASB) standards and was first among airlines to adopt the recommendations of the Task Force for Climate-related Financial Disclosures. Despite operating as a smaller player in an industry dominated by few legacy competitors, JetBlue leadership saw themselves as a driver of industry progress. However, was JetBlue’s leadership “relevant sustainability leadership”? Moreover, how could developing metrics and improved performance on material sustainability issues be used as an instrument for change management? JetBlue wanted to achieve best-in-class performance on SASB metrics, as company officials believed sustainability was more than simply a risk mitigation tool. Was it? If so, how could JetBlue receive credit from investors, and competitors, for their sustainability leadership?

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