First Look

Abstract—The National Bureau of Economic Research held a symposium titled "New Perspectives on Corporate Capital Structures" on April 5–6, 2013 in Cambridge, Massachusetts. In its call for the submission of theoretical and empirical papers for the symposium, the NBER noted that the global financial crisis of 2007–2008 and its aftermath have focused attention on the growing use of leverage by financial intermediaries and on the evolving structure of corporate debt markets—and given rise to new questions about the private and social costs and benefits of leverage and, in particular, the role of leverage in affecting the likelihood and extent of systemic financial distress. On the other hand, rising levels of cash on hand at many non-financial firms have highlighted a "low-leverage puzzle" and raised questions about the implications of cash holdings for corporate investment and economic growth.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50095

Abstract—Innovation and the pursuit of new business opportunities are essential for growth at the firm level; moreover, they provide the foundation for an economy to achieve new levels of technological prowess, productivity, and ultimately prosperity. This chapter describes recent work in economics and management scholarship on how firms grow, with specific focus on questions surrounding the types of innovations that large and small firms pursue and how they impact their relative growth rates.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50066

Abstract—We study adaptation by financial intermediaries as a response to technological change in the context of venture capital finance. Using a theoretical model and rich data, we are able to both document and provide a framework to understand the changes in the investment strategy of VCs in recent years—an increased prevalence of investors who "spray and pray"—providing a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where early experiments significantly inform beliefs about the future potential of the venture. We also highlight how this adaptation by financial intermediaries has altered the trajectory of aggregate innovation away from complex technologies where initial experiments cost more towards those where information on future prospects is revealed quickly and cheaply.

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Abstract—Building on recent research in social psychology, this paper analyzes the link between the precision of initial cash offers and M&A outcomes. About one-half of the offers are made at the precision of $1 or $5 per share, and an additional one-third at the precision of half dollar or one quarter. The practice of making offers at round price-per-share levels is associated with the following unfavorable outcomes for the bidder: (1) higher purchase price for target shares, (2) lower probability to complete the deal, and (3) lower announcement return. A median-sized offer made at the precision of $1 or $5 per share is associated with a $4 to $5 million higher expected transaction price than one made at a precision greater than one quarter.

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Abstract—Prior to the Great Depression and President Franklin Roosevelt’s New Deal programs, considerable pressure for antitrust revision came from trade associations of independent proprietors. A perhaps unlikely leader, Edna Gleason, organized California’s retail pharmacists and coordinated trade networks to monitor and enforce Resale Price Maintenance (RPM) contracts, a system of price-fixing, then known as “fair trade.” Progressive jurists, including Louis Brandeis, and institutional economist E.R.A. Seligman supported RPM as a legitimate tactic to protect small businesspeople and enhance non-price competition. The breakdown of legal and economic consensus regarding what constituted “unfair competition” allowed businesspeople to act as intermediaries between heterodox economic thought and contested antitrust law, ultimately tailoring federal policy to accommodate state regulations.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50101

This case explores the strategic options available to TAV Airports Holding, a Turkish firm, after it withdraws from a bid to build Istanbul's newest airport. The new airport would eventually replace Istanbul Atatürk Airport, where TAV makes 43% of its current revenue, and losing it will leave the company without a presence in its nation's largest city. TAV weighs four options: continue expanding internationally to the U.S. and other distant markets, buy an ownership stake in Istanbul's other remaining airport, diversify into related businesses, or seek out large infrastructure projects unrelated to airports. Will vertical or geographic diversification be more likely to ensure TAV's future?

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Supplements the (A) case.

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In 2005, Teruo Yabe is asked to revive Tessei, the 669-person JR-East subsidiary responsible for cleaning its Shinkansen ("bullet") trains. Operational mistakes, customer complaints, safety issues, and employee turnover are at or near all-time highs, even as the demands on Tessei continued to grow. Given previous leaders' failed attempts to fix Tessei's problems with increased managerial monitoring and controls, Yabe seeks a creative approach to overcome the motivation, capability, and coordination challenges facing his organization. Like many contemporary leaders, he selects transparency as his tool. He is, however, unique in adopting a highly nuanced approach to implementing transparency. In the process, he not only leads a fantastic organizational turnaround but also helps to make otherwise "dirty" work more meaningful for Tessei front-line employees. The case, therefore, presents students, particularly in leadership, organizational behavior, operations management, and service operations courses, with an opportunity to think through how a well-crafted transparency strategy can act as a powerful leadership tool.

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In 2009, Lee O'Rourke was promoted to district vice president in charge of Macy's newly created North Florida district. This district consisted of 11 stores located in the greater Orlando area and in the east coast towns of Daytona, Melbourne, Merritt Island, and Vero Beach. The performance of these stores had lagged in recent years, and O'Rourke was charged with building a cross-functional district team to support these stores and with improving their overall performance. O'Rourke and her team were able to drive almost immediate improvement in the district's sales growth and profitability and in other key areas such as customer service scores. How can O'Rourke ensure that these stores continue to perform well going forward?

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The note, while not intended to be historically comprehensive, explores the regulation of international trade from the period after World War II to developments in 2010, focusing on shifts in trade theory and policy as well as economic benefits and disadvantages associated with trade liberalization. The note also discusses the advantages and disadvantages of multilateral vs. bilateral or plurilateral agreements, as the latter become more common in arrangements between trading partners.

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No abstract available.

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In 2015, Dietmar Hopp, owner of Germany’s Bundesliga football team TSG Hoffenheim and co-founder of the global enterprise software company SAP, was considering how to ensure long-term sustainability and competitiveness for TSG Hoffenheim. While historically a small team from bottom rungs of the league, TSG Hoffenheim, with revenues of €60 million to €70 million, reached the top division of the Bundesliga in the 2008–2009 season thanks to a deliberate strategy focused on enhanced scouting, strong youth programs, and innovative technology and analytics that improved player development. In 2014 Hopp, who had personally invested €300 million in the club, built a “footbonaut,” an automated training environment that collected data on players’ skills and strengths. The tool, one of three in the world, helped scouts and coaches better assess and develop each player. Yet some managers felt the technology was a distraction, an investment too expensive for a team that was not yet cash-flow positive. The team finished the 2014–2015 season in eighth place, below the top division, and Hopp wondered whether the focus on technology and analytics was the right strategy to grow the club. He wondered if the “moneyball” approach—when a smaller team competed with wealthier teams by using statistical analysis to buy undervalued assets and sell overvalued assets—could work in football and if investments in technology could lead the team to financial independence.

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