Showing papers by "HEC Paris published in 2012"
TL;DR: A large body of empirical research has shown that social relationships and the networks these relationships constitute are influential in explaining the processes of knowledge creation, diffusion, absorption, and use.
880 citations
TL;DR: The authors empirically showed that the cost of bank debt is systematically higher for firms that operate in competitive product markets, and that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms and in illiquid industries.
337 citations
TL;DR: In this article, the authors provide a more granular understanding of how technology and demand interact and highlight the role of demand as a source of innovation, and reveal a distinction between external and internal sources of innovation.
325 citations
TL;DR: In this article, a new architecture for understanding how power guides and shapes consumer behavior is proposed, and empirical evidence is presented that synthesizes these findings into a parsimonious account of how power alters consumer behavior as a function of both product attributes and recipients.
312 citations
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TL;DR: In this paper, a new architecture for understanding how power guides and shapes consumer behavior has been proposed, and empirical evidence is presented that synthesizes these findings into a parsimonious account of how power alters consumer behavior as a function of both product attributes and recipients.
Abstract: The current paper reviews the concept of power and offers a new architecture for understanding how power guides and shapes consumer behavior Specifically, we propose that having and lacking power respectively foster agentic and communal orientations that have a transformative impact on perception, cognition, and behavior These orientations shape both who and what consumers value New empirical evidence is presented that synthesizes these findings into a parsimonious account of how power alters consumer behavior as a function of both product attributes and recipients Finally, we discuss future directions to motivate and guide the study of power by consumer psychologists
283 citations
TL;DR: In this paper, the authors examine the decision making process underlying investments in renewable energy technologies and propose and test a conceptual model that examines the structural and behavioural factors affecting the investors decisions as well as the relationship between renewable energy investments and portfolio performance.
250 citations
TL;DR: The authors identify the value creation and capture mechanisms embedded in these ties through a theoretical framework of two conceptual public-private structural alternatives, each associated with different value-creating capacities, rationales, and outcomes.
Abstract: Intersecting the boundaries of public and private economic activity, public-private ties carry important organizational strategy, management, and policy implications. We identify the value creation and capture mechanisms embedded in these ties through a theoretical framework of two conceptual public-private structural alternatives, each associated with different value-creating capacities, rationales, and outcomes. Two important restraints on private value capture—public partner opportunism and external stakeholder activism—arise asymmetrically under each form, carrying a critical effect on partnership outcomes.
237 citations
TL;DR: In this article, the authors provide general evidence from the U.S. showing that the gross flow of start-ups by recently graduated students with an undergraduate degree in science or engineering is at least an order of magnitude larger than the spin-offs by their faculty, and that a recent graduate is twice as likely as her Professor to start a business within three years of graduation.
227 citations
TL;DR: In this article, the authors explored consumers' tendency to choose the option in the center of an array and explored the process underlying this effect and found that brands in the horizontal center receive more visual attention.
Abstract: Consumers' tendency to choose the option in the center of an array and the process underlying this effect is explored. Findings from two eye-tracking studies suggest that brands in the horizontal center receive more visual attention. They are more likely to be chosen. Investigation of the attention process revealed an initial central fixation bias, a tendency to look first at the central option, and a central gaze cascade effect, progressively increasing attention focused on the central option right prior to decision. Only the central gaze cascade effect was related to choice. An offline study with tangible products demonstrated that the centrally located item within a product category is chosen more often, even when it is not placed in the center of the visual field. Despite widespread use, memory-based attention measures were not correlated with eye-tracking measures. They did not capture visual attention and were not related to choice.
221 citations
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TL;DR: The authors identify the value creation and capture mechanisms embedded in these ties through a theoretical framework of two conceptual public-private structural alternatives, each associated with different value-creating capacities, rationales, and outcomes.
Abstract: Intersecting the boundaries of public and private economic activity, public-private ties carry important organizational strategy, management, and policy implications. We identify the value creation and capture mechanisms embedded in these ties through a theoretical framework of two conceptual public-private structural alternatives, each associated with different value-creating capacities, rationales, and outcomes. Two important restraints on private value capture--public partner opportunism and external stakeholder activism--arise asymmetrically under each form, carrying a critical effect on partnership outcomes.
217 citations
TL;DR: In this paper, the authors argue that there exists a culture gap between Asia and the West; namely, Asian consumers feel safer buying prestigious Western brands with which individuals around them are familiar and the cult of the designer is a potent tool in building emotional connections with a vast number of clients.
TL;DR: In this article, the authors show that the sensitivity of corporate investment to stock price is higher for firms cross-listed in the U.S. than for firms that never cross-list.
Abstract: We show that the sensitivity of corporate investment to stock price is higher for firms cross-listed in the U.S. than for firms that never cross-list. This difference is strong, does not exist prior to the crosslisting decision, and does not vanish over time after this decision. Moreover, the impact of a U.S. cross-listing on the investment-to-price sensitivity is higher for firms that rank high on measures of governance and disclosure quality, which suggests that our finding is not exclusively driven by the improvement in corporate governance that follows a U.S cross-listing. Instead, we argue that a crosslisting enhances managers’ reliance on stock price because it makes stock prices more informative to managers. In support of this learning hypothesis, we find that the positive impact of a U.S. crosslisting on the investment-to-price sensitivity is higher when a cross-listing is more likely to stimulate trading based on information new to managers.
TL;DR: The framework and findings suggest that conceptual models and tests of unidirectional or team-level effects are likely to substantially misrepresent the mechanisms by which network ties and emergent team states coevolve.
Abstract: Which comes first—team social networks or emergent team states (e.g., team climate)? We argue that team members' social network ties and team members' climate perceptions coevolve over time as a function of six reciprocal and co-occurring processes. We test our conceptual framework in a 10-month longitudinal study of perceptions of team psychological safety and social network ties in 69 work teams and find considerable support for our hypotheses. Our main results suggest that perceptions of psychological safety predict network ties. The more psychologically safe team members perceive their team to be, the more likely they are to ask their teammates for advice and to see them as friends, and the less likely they are to report difficult relationships with them. At the same time, network ties predict psychological safety. Team members adopt their friends' and advisors' perceptions of the team's psychological safety and reject the perceptions of those with whom they report a difficult relationship. Our framework and findings suggest that conceptual models and tests of unidirectional or team-level effects are likely to substantially misrepresent the mechanisms by which network ties and emergent team states coevolve.
TL;DR: For instance, the authors suggests that many behaviors are driven by processes operating outside of awareness, and an array of implicit measures to capture such processes can be found in social and cognitive psychology literature.
Abstract: Accumulated evidence from social and cognitive psychology suggests that many behaviors are driven by processes operating outside of awareness, and an array of implicit measures to capture such proc...
TL;DR: The study theoretically as well as empirically establishes the need for conceptualizing mechanistic governance as a viable and significant governance mechanism for offshore ISD contracts and provides insights to managers on having well-specified contracts and acknowledging the role of mechanistic Governance for better performance.
Abstract: Although control theory has often been invoked to explain the coordination between client and vendor for information systems development ISD, insights into its moderating effects for explicating ISD contract performance, especially in the offshore context, is rather limited. Such insights would enable better understanding of variables that have complementary or substitutive effects on performance. Further, the control literature talks about different control modes e.g., formal and informal control modes classified as behavior, outcome, clan, and self-control modes without adequately distinguishing among the different control mechanisms enacting each of the control modes. In this research, by explicitly classifying the distinctions that exist within each of the control modes, we uncover the key role played by mechanistic governance in outsourced ISD. Grounding our arguments in the information requirement for performance evaluation, the study theorizes the moderating influence of mechanistic governance on the relationships of contract specificity and relational governance with ISD quality and cost performance. We test the theorized model in a field study comprising 160 offshore ISD projects executed by Indian vendors. Our results establish the significant complementary role of mechanistic governance on the relationships of contract specificity with both cost and quality performance variables. Further, mechanistic governance substitutes the impact of relational governance on cost performance. Thus, the study theoretically as well as empirically establishes the need for conceptualizing mechanistic governance as a viable and significant governance mechanism for offshore ISD contracts. The study also teases out the distinctions between the two prime contract types in vogue for managing offshore ISD contracts, namely, fixed price and time and materials contracts. The study thus contributes not only to control theory but also to the stream of literature examining offshore ISD contracts. Further, the study provides insights to managers on having well-specified contracts and acknowledging the role of mechanistic governance for better performance.
TL;DR: In this paper, the authors show that the prospect of a debt renegotiation favorable to shareholders reduces the firm's equity risk and support the hypothesis that the threat of strategic default can reduce the firms' equity risk.
Abstract: We show that the prospect of a debt renegotiation favorable to shareholders reduces the firm's equity risk. Equity beta and return volatility are lower in countries where the bankruptcy code favors debt renegotiations and for firms with more shareholder bargaining power relative to debt holders. These relations weaken as the country's insolvency procedure favors liquidations over renegotiations. In the limit, when debt contracts cannot be renegotiated, equity risk is independent of shareholders' incentives to default strategically. We argue that these findings support the hypothesis that the threat of strategic default can reduce the firm's equity risk.
01 Jul 2012
TL;DR: A critical issue has been absent from the conversation on dynamic capabilities: the two seminal papers represent not only diverging but seemingly incompatible understandings of the framework.
Abstract: A critical issue has been absent from the conversation on dynamic capabilities: the two seminal papers represent not only diverging but seemingly incompatible understandings of the framework. Here,...
TL;DR: The theoretical model finds that the market rewards firms forming alliances that contribute resources that can be synergistically combined with firms' own resources as well as with network resources accessed through their alliance portfolios.
Abstract: We examine how new network resources accessed through alliance formations interact with network resources present in a firm's alliance portfolio. We test our theoretical model using event study methodology and data from the global air transportation industry. We find that the market rewards firms forming alliances that contribute resources that can be synergistically combined with firms' own resources as well as with network resources accessed through their alliance portfolios. Our results also indicate that the market penalizes firms entering into alliances that create resource combinations that are substitutes to resource combinations deployed by existing alliance partners. Copyright © 2011 John Wiley & Sons, Ltd.
TL;DR: In this paper, the causal effects of analyst coverage on corporate investment and financing policies were studied, and it was shown that a decrease in analyst coverage increases information asymmetry and thus increases the cost of capital; as a result, firms decrease their investment and finance.
Abstract: We study the causal effects of analyst coverage on corporate investment and financing policies. We hypothesize that a decrease in analyst coverage increases information asymmetry and thus increases the cost of capital; as a result, firms decrease their investment and financing. We use broker closures and broker mergers to identify changes in analyst coverage that are exogenous to corporate policies. Using a difference-in-differences approach, we find that firms that lose an analyst decrease their investment and financing by 2.4% and 2.6% of total assets, respectively. These results are significantly stronger for firms that are smaller, have less analyst coverage, have a bigger increase in information asymmetry, and are more financially constrained.
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TL;DR: In this article, the authors analyzed the relation among analyst coverage, earnings management and financial development in an international context, and found that the effectiveness of financial analysts as monitors increases with a country's financial development.
Abstract: Using data from 21 countries, this paper analyzes the relation among analyst coverage, earnings management and financial development in an international context. We document that the effectiveness of financial analysts as monitors increases with a country’s financial development (FD). We find that in high-FD countries, increased within-firm analyst coverage results in less earnings management. Such is not the case in low-FD countries. Our results are economically significant and robust to reverse causality checks. Our findings illustrate one mechanism through which financial development mitigates the cost of monitoring firms and curbs earnings management.
TL;DR: In this paper, the authors explore the relationship between the formal versus informal nature of opportunism and the formal and informal characteristics of contractual governance and derive implications for research on the role of contractual mechanisms in dealing with interorganizational opportunism.
Abstract: This study investigates contracting mechanisms in situations of opportunistic disputes between organizations. The authors specifically explore the relationships between the formal versus informal nature of opportunism and the formal versus informal nature of contractual governance. They use a unique data set of 102 buyer–supplier disputes to explore in depth different types of opportunism – that is, strong form versus weak form opportunism – and different types of contracting mechanisms – that is, the controlling and coordinating functions of formal contracts and the cooperative and competitive sides of relational contracts. The authors’ detailed empirical analysis suggests distinct relationships between the different contracting mechanisms, the different types of opportunism, and the level of legal fees necessary to deal with the dispute. From these findings the authors derive implications for research on the role of contractual mechanisms in dealing with interorganizational opportunism.
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TL;DR: In this article, the authors study competition between a dealer (OTC) market and a limit order market and show that an increase in the matchmaker's trading fee can raise investors' exante expected welfare.
Abstract: We study competition between a dealer (OTC) market and a limit order market. In the limit order market, investors can choose to be "makers" (post limit orders) or "takers" (hit limit orders) whereas in the dealer market they must trade at dealers' quotes. Moreover, in the limit order market, investors pay a trading fee to the operator of this market ("the matchmaker"). We show that an increase in the matchmaker's trading fee can raise investors' ex-ante expected welfare. Actually, it induces makers to post more aggressive offers and thereby it raises the likelihood of a direct trade between investors. For this reason as well, a reduction in the matchmaker's trading fee can counter-intuitively raise the OTC market share. However, entry of a new matchmaker results in an improvement in investors' welfare, despite its negative effect on trading fees. The model has testable implications for the effects of a change in trading fees and their breakdown between makers and takers on various measures of market liquidity.
Journal Article•
TL;DR: In this article, the authors identified seven specific ways in which family run businesses build their resilience: 1. They are frugal in good times and bad. 2. They set a high bar for capital expenditures. 3. They acquire fewer (and smaller) companies. 4. They focus on resilience, not short-term results. 5. They retain talent better than their competitors do. 6. They're more international.
Abstract: Though the term "family business" may call to mind visions of local mom-and-pop firms, family-controlled companies play a huge role on the global stage. Not only do they include sprawling corporations like Walmart and Tata Group, but they account for more than 30% of all companies with sales in excess of $1 billion. And over the long term, their financial performance exceeds that of traditional public companies, according to a new study by BCG and Ecole Polytechnique. Family-controlled companies surpass their peers because they focus on resilience, not short-term results. During economic booms, this approach leads them to forgo some opportunities (and hence do slightly worse than their counterparts), but it puts them in a position of strength during downturns, when they shine. The researchers identified seven specific ways in which family-run businesses build their resilience: 1. They're frugal in good times and bad. 2. They set a high bar for capital expenditures. 3. They carry little debt. 4. They acquire fewer (and smaller) companies. 5. They're more diversified. 6. They're more international. 7. They retain talent better than their competitors do. Though these practices come more naturally to executives who feel an obligation to be stewards for the next generation, executives at any corporation can adopt them. Indeed, the researchers uncovered a number of nonfamily-controlled companies that mimicked the behaviors of family firms and saw very similar patterns of performance.
TL;DR: In this article, a new dynamic asymmetric copula model is proposed to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections.
Abstract: International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections. We find that copula correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower for EMs than for DMs. Tail dependence has also increased but its level is still relatively low for EMs. We propose new measures of dynamic diversification benefits that take into account higher order moments and nonlinear dependence. The benefits from international diversification have reduced over time, drastically so for DMs. EMs still offer significant diversification benefits, especially during large market downturns.
TL;DR: In this paper, the authors analyze the investment decisions of a large sample of investors, with the objective to identify the main determinants of their choices, and have important implications for both investors and policy makers.
Abstract: Notwithstanding their many environmental, economic and social advantages, renewable energy technologies (RE) account for a small fraction of the world’s primary energy supply. One possible cause for this limited diffusion is that private investments in the RE sector, although potentially appealing, remain insufficient. The lack of adequate financing is also a clear indication that our understanding of the process by which investors fund RE ventures is still incomplete. This paper aims to fill in this gap and to shed new light on RE investment decisions. Building upon behavioral finance and institutional theory, we posit that, in addition to a rational evaluation of the economics of the investment opportunities, various nonfinancial factors affect the decision to invest in renewables. We analyze the investment decisions of a large sample of investors, with the objective to identify the main determinants of their choices. Our results shed new light on the role of institutional and behavioral factors in determining the share of renewable energy technologies in energy portfolios, and have important implications for both investors and policy makers: they suggest that RE technologies still suffer from a series of biased perceptions and preconceptions that favor status quo energy production models over innovative alternatives
TL;DR: It is argued that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs and that there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior.
Abstract: Economic theory reduces the concept of rationality to internal consistency. As far as beliefs are concerned, rationality is equated with having a prior belief over a “Grand State Space”, describing all possible sources of uncertainties. We argue that this notion is too weak in some senses and too strong in others. It is too weak because it does not distinguish between rational and irrational beliefs. Relatedly, the Bayesian approach, when applied to the Grand State Space, is inherently incapable of describing the formation of prior beliefs. On the other hand, this notion of rationality is too strong because there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs. 1. Rationality of Belief and Belief Formation Economic theory is both the birthplace and the prime application of the rational choice paradigm. Throughout the 20 th century, economics has relied on rationality, and refined the definition of rational choice, offering concepts such as subjective expected utility maximization and Nash equilibrium, which have proved useful in several other disciplines.
TL;DR: A favorable response to minority participation in minority participation has been found to conform to demands from minority resource suppliers that hold an unconventional logic as discussed by the authors, which can be seen as an indicator of support for minority participation.
Abstract: To what extent do organizations respond favorably to minority participation—that is, conform to demands from minority resource suppliers that hold an unconventional logic? A favorable response to m...
TL;DR: The authors conjecture that banks present in two regions charge the appropriate risk premiums for trade-related projects between these markets, whereas higher rates are charged for projects involving shipments to markets where they are absent.
TL;DR: The authors investigated framing effects by replicating the Holt and Laury's (Am. Econ. Rev. 92:1644-1655, 2002) procedure for measuring risk aversion under various frames.
Abstract: We present a new experimental evidence of how framing affects decisions in the context of a lottery choice experiment for measuring risk aversion. We investigate framing effects by replicating the Holt and Laury's (Am. Econ. Rev. 92:1644-1655, 2002) procedure for measuring risk aversion under various frames. We first examine treatments where participants are confronted with the 10 decisions to be made either simultaneously or sequentially. The second treatment variable is the order of appearance of the ten lottery pairs. Probabilities of winning are ranked either in increasing, decreasing, or in random order. Lastly, payoffs were increased by a factor of ten in additional treatments. The rate of inconsistencies was significantly higher in sequential than in simultaneous treatment, in increasing and random than in decreasing treatment. Both experience and salient incentives induce a dramatic decrease in inconsistent behaviors. On the other hand, risk aversion was significantly higher in sequential than in simultaneous treatment, in decreasing and random than in increasing treatment, in high than in low payoff condition. These findings suggest that subjects use available information which has no value for normative theories, like throwing a glance at the whole connected set of pairwise choices before making each decision in a connected set of lottery pairs.
TL;DR: This paper showed that managers use the information they learn from the stock market when they decide on corporate cash savings, and that corporate savings are much more sensitive to stock price when the price contains more information that is new to managers.
Abstract: This paper shows that managers use the information they learn from the stock market when they decide on corporate cash savings. In particular, corporate savings are much more sensitive to stock price when the price contains more information that is new to managers. Moreover, the significant effect of stock price informativeness on the savings-to-price sensitivity is not due to market mispricings and remains even after controlling for various sources of public and managerial private information. Overall, the results highlight a new channel through which the stock market affects corporate decisions, which suggests that the stock market is not a sideshow.