First Look

October 31, 2017

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Mutual funds and unicorns

Sergey Chernenko, Josh Lerner, and Yao Zeng investigate the recent trend of open-end mutual funds investing in highly valued “unicorns,” and governance issues surrounding those investments. Mutual Funds as Venture Capitalists? Evidence from Unicorns.

Harvard’s investigation into a soccer scandal

A new case study peers behind the scenes as Harvard University administrators react to the discovery that members of the men’s soccer team have been keeping sexually explicit “scouting reports” on the women’s soccer team. The case was written by Alison Wood Brooks and Katherine Coffman. Harvard Men’s Soccer.

Business sustainability from a historical perspective

Business historians have traditionally looked at how businesses innovate and create wealth. Now, says historian Ann-Kristin Bergquist, it’s time to understand the environmental consequences of that growth. “This working paper concludes that the emergent business history needs to be more fully incorporated in wider management and economics literatures on sustainability, while calling for the mainstreaming of the subject in the discipline of business history,” writes Bergquist. Business and Sustainability: New Business History Perspectives.

Other new publications from Harvard Business School faculty are listed below.

by Sean Silverthorne
  • forthcoming
  • Journal of Political Economy

The Market for Financial Adviser Misconduct

By: Egan, Mark, Gregor Matvos, and Amit Seru

Abstract—We construct a novel database containing the universe of financial advisers in the United States from 2005 to 2015, representing approximately 10% of employment of the finance and insurance sector. We provide the first large-scale study that documents the economy-wide extent of misconduct among financial advisers and the associated labor market consequences of misconduct. Seven percent of advisers have misconduct records, and this share reaches more than 15% at some of the largest advisory firms. Roughly one-third of advisers with misconduct are repeat offenders. Prior offenders are five times as likely to engage in new misconduct as the average financial adviser. Firms discipline misconduct—approximately half of financial advisers lose their jobs after misconduct. The labor market partially undoes firm-level discipline by rehiring such advisers. Firms that hire these advisers also have higher rates of prior misconduct themselves, suggesting "matching on misconduct." These firms are less desirable and offer lower compensation. We argue that heterogeneity in consumer sophistication could explain the prevalence and persistence of misconduct at such firms. Misconduct is concentrated at firms with retail customers and in counties with low education, elderly populations, and high incomes. Our findings are consistent with some firms "specializing" in misconduct and catering to unsophisticated consumers, while others use their clean reputation to attract sophisticated consumers.

Publisher's link:

  • October 5, 2017
  • New England Journal of Medicine

Making Patients and Doctors Happier—The Potential of Patient-Reported Outcomes

By: Rotenstein, Lisa, Robert S. Huckman, and Neil Wagle

Abstract—No abstract available.

Publisher's link:

  • forthcoming
  • Clinical Pharmacology & Therapeutics

Innovation Incentives and Biomarkers

By: Stern, Ariel Dora, Brian M. Alexander, and Amitabh Chandra

Abstract—Previously, we have discussed the importance of economic incentives in shaping markets for precision medicines. Here we consider incentives for biomarker development, including discovery and establishment. Biomarkers can reveal valuable information regarding diagnosis and prognosis, predict treatment efficacy or toxicity, serve as markers of disease progression, and serve as auxiliary endpoints for clinical trials. Some have multiple uses, while others have a specialized role, resulting in diverse incentives across players in the healthcare system.

Publisher's link:

Abstract—This working paper provides a long-term business history perspective on sustainability. For a long time, the central issues in business history concerned how business enterprises innovated and created wealth as well as patterns of success and failure in that process. There now exists, after a lag, a compelling stream of research focused on the environmental consequences of that growth. This working paper reviews this new stream of research, which focuses on two related but distinct themes. The earliest theme to be explored, in a literature dating from the 1990s, is the story of how and why some conventional industries sought to become less polluting. Research has dated this phenomenon back to the late nineteenth century, showed it gained momentum from the 1960s, and resulted in a mainstreaming of sustainability rhetoric, and sometimes practice, in large corporations from the 1980s, primarily in Western developed countries. A more recent research theme is the story of how for-profit entrepreneurs developed new product categories such as organic food and wind and solar energy, which explicitly focused on sustainability. Again this process has been traced back to the nineteenth century. With the rise in green consumerism and public policy support in some Western countries for sustainability during the 1990s, these two historical trends met, as the concept of sustainable development spread to large conventional corporations, and visionary green firms scaled or were acquired by conventional big businesses. The concept of sustainability became socially constructed in a sufficiently broad fashion as to permit even the most unsustainable and dirty industries. This working paper concludes that the emergent business history needs to be more fully incorporated in wider management and economics literatures on sustainability, while calling for the mainstreaming of the subject in the discipline of business history.

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Mutual Funds as Venture Capitalists? Evidence from Unicorns

By: Chernenko, Sergey, Josh Lerner, and Yao Zeng

Abstract—Using novel contract-level data, we study the recent trend in open-end mutual funds investing in unicorns—highly valued, privately held start-ups—and the consequences of these investments for corporate governance provisions. Larger funds and those with more stable funding are more likely to invest in unicorns. Compared to venture capital groups (VCs), mutual funds have weaker cash flow rights and are less involved in terms of corporate governance, being particularly underrepresented on boards of directors. Having to carefully manage their own liquidity pushes mutual funds to require stronger redemption rights, suggesting contractual choices consistent with mutual funds’ short-term capital sources.

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Deep Help in Complex Project Work: Guiding and Path-Clearing Across Difficult Terrain

By: Fisher, Colin M., Julianna Pillemer, and Teresa M. Amabile

Abstract—How do teams working on complex projects get the help they need? Our qualitative investigation of the help provided to project teams at a prominent design firm revealed two distinct helping processes, both characterized by deep, sustained engagement that far exceeds the brief interactions described in the helping literature. Such deep help consisted of (1) guiding a team through a difficult juncture by working with its members in several prolonged, tightly clustered sessions or (2) path-clearing by helping a team address a persistent deficit via briefer, intermittent sessions throughout a project’s life. We present a model theorizing these processes, which has two noteworthy features. First, it emphasizes the socially constructed nature of helping behavior. That is, the parties must establish and maintain a helping frame for their interaction, especially when help-givers are high-status external leaders. Second, the model specifies that the rhythms of deep help—the duration and temporal patterns of giver-receiver interactions—are resource-allocation decisions that also contribute to the social meaning of help. These findings illuminate the theoretical and practical overlap between helping and external leadership in knowledge-intensive project work and the role of temporality in the helping process.

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Abstract—We examine how app developers on the Android mobile platform adjust their innovation efforts (rate and direction) and value-capture strategies in response to Google’s entry threat and actual entry into their markets. We find that, after Google’s entry threat increases, affected developers reduce innovation and raise the prices for the affected apps. Once Google enters, the developers reduce innovation and increase prices further. However, app developers’ incentives to innovate are not completely suppressed; rather, they shift innovation to unaffected and new apps. Given many apps already offering similar features, Google’s entry may reduce such social inefficiency.

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  • Harvard Business School Case 918-011

Harvard Men's Soccer

In the fall of 2016, the Crimson, Harvard’s undergraduate newspaper, broke a story revealing that the 2012 Harvard Men’s Soccer team had produced a sexually explicit “scouting report” about the Women’s Soccer team. The story generated national headlines and thrust gender issues, and the University, into the media spotlight. In the following months, the breadth of this type of practice was revealed; the “scouting reports” had been an annual tradition of the Men’s Soccer team, and the Cross Country team admitted to similar practices. This case follows the decision-making of Harvard administrators as they deal with the discovery of the scouting report. In addition to exploring leadership through crisis, the case challenges readers to explore the boundaries of appropriateness in how we think and talk about interpersonal attraction.

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  • Harvard Business School Case 317-040

State Street—The Development and Growth of SHE

No abstract available.

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  • Harvard Business School Case 817-126

CIC: Catalyzing Entrepreneurial Ecosystems (A)

CIC creates "entrepreneurial ecosystems," renting out office and co-working space to start-ups and related companies and providing basic business needs like Wi-Fi and legal advice. Founder Tim Rowe refers to the CIC as "innovation infrastructure," bringing together money, talent, and ideas in one place. Founded in Cambridge in 1999, CIC has since grown to become one of the largest concentrations of entrepreneurial activity in the world and has expanded to multiple locations across the Boston area. Rowe envisions taking this model to cities across the world, and CIC is in fact about to open a new branch in St. Louis, its first location outside greater Boston. He is concerned, though, because one month from opening day, CIC still has a lot of empty space and few clients signed up. Rowe and his team have to consider how to quickly bring in more clients before opening day, and, more broadly, whether the CIC idea will work outside the Boston/Cambridge area.

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  • Harvard Business School Case 817-127

CIC: Catalyzing Entrepreneurial Ecosystems (B)

CIC engages in "guerrilla warfare," offering free or highly discounted rates in order to get its empty offices filled before the opening day of its St. Louis branch. Opening day is a huge success, and CIC St. Louis grows rapidly, even opening a second building. In the following years, it ramps up its expansion efforts and opens new branches or begins the expansion process in multiple cities around the country and the world, as well as expanding its Boston/Cambridge offerings. CIC is now considering how to improve its expansion operations, while also trying to figure out how fast it should be moving.

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  • Harvard Business School Case 718-405

Virtual Reality and the Gaming Sector 2017

This brief note explores the emerging possibilities of virtual reality and its potential as a gaming platform.

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