Showing papers by "London Business School published in 2013"

Organizational Behavior and Human Decision Processes

Abstract: In this paper, we question the simplicity of the common prescription that more thinking leads to better 26 moral choices In three studies, we discover that the relationship between how complexly one reasons 27 before making a decision with moral consequences is related to the outcome of that decision in a curvi

The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness

Abstract: This paper shows that corporate social responsibility (CSR) and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures. For firms with low customer awareness, the relation is either negative or insignificant. In addition, we find that the effect of awareness on the CSR–value relation is reversed for firms with a poor prior reputation as corporate citizens. This evidence is consistent with the view that CSR activities can add value to the firm but only under certain conditions. This paper was accepted by Bruno Cassiman, business strategy.

Using the crowd as an innovation partner.

Abstract: From Apple to Merck to Wikipedia, more and more organizations are turning to crowds for help in solving their most vexing innovation and research questions, but managers remain understandably cautious. It seems risky and even unnatural to push problems out to vast groups of strangers distributed around the world, particularly for companies built on a history of internal innovation. How can intellectual property be protected? How can a crowd-sourced solution be integrated into corporate operations? What about the costs? These concerns are all reasonable, the authors write, but excluding crowdsourcing from the corporate innovation tool kit means losing an opportunity. After a decade of study, they have identified when crowds tend to outperform internal organizations (or not). They outline four ways to tap into crowd-powered problem solving--contests, collaborative communities, complementors, and labor markets--and offer a system for picking the best one in a given situation. Contests, for example, are suited to highly challenging technical, analytical, and scientific problems; design problems; and creative or aesthetic projects. They are akin to running a series of independent experiments that generate multiple solutions--and if those solutions cluster at some extreme, a company can gain insight into where a problem's "technical frontier" lies. (Internal R&D may generate far less information.)

Clarifying the Distinctive Contribution of Ambidexterity to the Field of Organization Studies

Abstract: The concept of organizational ambidexterity has been applied to a wide variety of phenomena in recent years. Its growing appeal is a reflection of its versatility, but this versatility carries the risk of a lack of clarity in meaning and measurement. In this paper, we attempt to bring a sense of perspective to the field of ambidexterity by documenting its growth and usage in scholarly work. We chart the evolution of ambidexterity since its inception, analyzing the diversity in the views held on the topic. We conclude by discussing how ambidexterity research can benefit from greater focus, and we suggest some key areas where it can make a unique contribution.

Beyond Nudges: Tools of a Choice Architecture

Abstract: The way a choice is presented influences what a decision-maker chooses.This paper outlines the tools available to choice architects, that is anyone who present people with choices. We divide these tools into two categories: those used in structuring the choice task and those used in describing the choice options. Tools for structuring the choice task address the idea of what to present to decision-makers, and tools for describing the choice options address the idea of how to present it. We discuss implementation issues in using choice architecture tools, including individual differences and errors in evaluation of choice outcomes. Finally, this paper presents a few applications that illustrate the positive effect choice architecture can have on real-world decisions.

National Institutions and Subnational Development in Africa

Abstract: We investigate the role of national institutions on subnational African development in a novel framework that accounts both for local geography and cultural-genetic traits. We exploit the fact that the political boundaries in the eve of African independence partitioned more than two hundred ethnic groups across adjacent countries subjecting similar cultures, residing in homogeneous geographic areas, to different formal institutions. Using both a matching-type and a spatial regression discontinuity approach we show that differences in countrywide institutional structures across the national border do not explain within-ethnicity differences in economic performance, as captured by satellite images of light density. The average non-effect of national institutions on ethnic development masks considerable heterogeneity partially driven by the diminishing role of national institutions in areas further from the capital cities.

Home bias in open economy financial macroeconomics

Abstract: Standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of ‘financial globalization’, investors still hold a disproportionate share of local equities in their portfolio: the ‘equity home bias’ (French and Poterba (1991)). We review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two-country general equilibrium models. We refer to this literature as Open Economy Financial Macroeconomics. We focus on three broad classes of explanations : (i) hedging motives in frictionless financial markets (real exchange rate and non-tradable income risk), (ii) asset trade costs in international financial markets (such as transaction costs, differences in tax treatments between national and foreign assets...), (iii) informational frictions and behavioural biases. These recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross-border asset holdings across different types of assets: equities, bonds and bank lending. We also present some new micro data on institutional holdings of equity at the fund level. These data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment.

Business Model Innovation: What Can the Ambidexterity Literature Teach US?

Abstract: One of the issues addressed in the growing literature on business model innovation is how to compete with two business models simultaneously. Unfortunately, this body of work lacks a theoretical foundation. I propose that the challenge of managing two different and conflicting business models simultaneously can be framed as an ambidexterity challenge. This implies that ideas and theoretical concepts from the ambidexterity literature can be used to explore issues pertinent to the business model literature. I apply this idea to explore four specific areas where the ambidexterity literature could guide research on the challenge of managing two business models simultaneously and identify several insights that can guide future research on business model innovation.

Blockholders and Corporate Governance

Abstract: This paper reviews the theoretical and empirical literature on the different channels through which blockholders (large shareholders) engage in corporate governance. In classical models, blockholders exert governance through direct intervention in a firm’s operations, otherwise known as “voice.” These theories have motivated empirical research on the determinants and consequences of activism. More recent models show that blockholders can govern through the alternative mechanism of “exit” – selling their shares if the manager underperforms. These theories give rise to new empirical studies on the two-way relationship between blockholders and financial markets, linking corporate finance with asset pricing. Blockholders may also worsen governance by extracting private benefits of control or pursuing objectives other than firm value maximization. I highlight the empirical challenges in identifying causal effects of and on blockholders, and the typical strategies attempted to achieve identification. I close with directions for future research.

When Does Retargeting Work? Information Specificity in Online Advertising

Abstract: Firms can now offer personalized recommendations to consumers who return to their website, using consumers' previous browsing history on that website. In addition, online advertising has greatly improved in its use of external browsing data to target Internet ads. Dynamic retargeting integrates these two advances by using information from the browsing history on the firm's website to improve advertising content on external websites. When surfing the Internet, consumers who previously viewed products on the firm's website are shown ads with images of those same products. To examine whether this is more effective than simply showing generic brand ads, the authors use data from a field experiment conducted by an online travel firm. Surprisingly, the data suggest that dynamic retargeted ads are, on average, less effective than their generic equivalents. However, when consumers exhibit browsing behavior that suggests their product preferences have evolved (e.g., visiting review websites), dynamic retargeted ad...

Access to Collateral and Corporate Debt Structure: Evidence from a Natural Experiment

Abstract: We investigate how firms respond to strengthening of creditor rights by examining their financial decisions following a securitization reform in India. We find that the reform led to a reduction in secured debt, total debt, debt maturity, and asset growth, and an increase in liquidity hoarding by firms. Moreover, the effects are more pronounced for firms that have a higher proportion of tangible assets because these firms are more affected by the secured transactions law. These results suggest that strengthening of creditor rights introduces a liquidation bias and documents how firms alter their debt structures to contract around it.

When Does Retargeting Work? Information Specificity in Online Advertising

Abstract: Firms can now offer personalized recommendations to consumers who return to their website, using consumers' previous browsing history on that website. In addition, online advertising has greatly improved in its use of external browsing data to target Internet ads. Dynamic retargeting integrates these two advances by using information from the browsing history on the firm's website to improve advertising content on external websites. When surfing the Internet, consumers who previously viewed products on the firm's website are shown ads with images of those same products. To examine whether this is more effective than simply showing generic brand ads, the authors use data from a field experiment conducted by an online travel firm. Surprisingly, the data suggest that dynamic retargeted ads are, on average, less effective than their generic equivalents. However, when consumers exhibit browsing behavior that suggests their product preferences have evolved (e.g., visiting review websites), dynamic retargeted ad...

Breaking Them in or Eliciting Their Best? Reframing Socialization around Newcomers’ Authentic Self-expression

Abstract: Socialization theory has focused on enculturating new employees such that they develop pride in their new organization and internalize its values. We draw on authenticity research to theorize that the initial stage of socialization leads to more effective employment relationships when it instead primarily encourages newcomers to express their personal identities. In a field experiment carried out in a large business process outsourcing company in India, we found that initial socialization focused on personal identity (emphasizing newcomers’ authentic best selves) led to greater customer satisfaction and employee retention after six months than socialization that focused on organizational identity (emphasizing the pride to be gained from organizational affiliation) or the organization’s traditional approach, which focused primarily on skills training. To confirm causation and explore the mechanisms underlying the effects, we replicated the results in a laboratory experiment in a U.S. university. We found t...

Concepts of Happiness Across Time and Cultures

Abstract: We explored cultural and historical variations in concepts of happiness. First, we analyzed the definitions of happiness in dictionaries from 30 nations to understand cultural similarities and differences in happiness concepts. Second, we analyzed the definition of happiness in Webster’s dictionaries from 1850 to the present day to understand historical changes in American English. Third, we coded the State of the Union addresses given by U.S. presidents from 1790 to 2010. Finally, we investigated the appearance of the phrases happy nation versus happy person in Google’s Ngram Viewer from 1800 to 2008. Across cultures and time, happiness was most frequently defined as good luck and favorable external conditions. However, in American English, this definition was replaced by definitions focused on favorable internal feeling states. Our findings highlight the value of a historical perspective in the study of psychological concepts.

The Employment Relationship and Inequality: How and Why Changes in Employment Practices are Reshaping Rewards in Organizations

Abstract: We review the literature on recent changes to US employment relationships, focusing on the causes of those changes and their consequences for inequality. The US employment model has moved from a closed, internal system to one more open to external markets and institutional pressures. We describe the growth of short-term employment relationships, contingent work, outsourcing, and performance pay as well as the success of social identity movements in shaping employment benefits. In doing so, we address the role of organizations as sites of conflict within and between stakeholder groups, examining how struggles among stakeholders have contributed to reorganizing employment relationships. We also examine how these changes have affected inequality by (i) influencing the distribution of rewards within organizations (via changes in the determination of pay and benefits and in the allocation of workers to jobs) and (ii) altering, on a macro level, how rewards are distributed among different stakeholders. In closi...

When cheating would make you a cheater: Implicating the self prevents unethical behavior.

Abstract: In 3 experiments using 2 different paradigms, people were less likely to cheat for personal gain when a subtle change in phrasing framed such behavior as diagnostic of an undesirable identity. Participants were given the opportunity to claim money they were not entitled to at the experimenters’ expense; instructions referred to cheating with either language that was designed to highlight the implications of cheating for the actor’s identity (e.g., “Please don’t be a cheater”) or language that focused on the action (e.g., “Please don’t cheat”). Participants in the “cheating” condition claimed significantly more money than did participants in the “cheater” condition, who showed no evidence of having cheated at all. This difference occurred both in a face-to-face interaction (Experiment 1) and in a private online setting (Experiments 2 and 3). These results demonstrate the power of a subtle linguistic difference to prevent even private unethical behavior by invoking people’s desire to maintain a self-image as good and honest.

Have Rating Agencies Become More Conservative? Implications for Capital Structure and Debt Pricing

Abstract: We show that rating agencies have become more conservative in assigning credit ratings to corporations over the period 1985 to 2009. Holding firm characteristics constant, average ratings have dropped by three notches (e.g., from A to BBB ) over time. Consistent with the view that this change has not been fully warranted, we find that defaults for both investment grade and non-investment grade firms have declined over time. The increased stringency has also affected capital structure, cash holdings, growth, and debt spreads. Firms that suffer more from this conservatism issue less debt, have lower leverage, and hold more cash; they are also less likely to obtain a debt rating and they experience lower sales growth. However, their debt spreads are lower compared to the spreads of firms with the same rating that have not suffered from this conservatism, which implies that the market partly undoes the impact of conservatism on debt prices. This evidence suggests that firms and capital markets do not perceive the increase in conservatism to be fully warranted.

Innovation, Growth, and Asset Prices

Abstract: We examine the asset pricing implications of a production economy whose long-term growth prospects are endogenously determined by innovation and R&D. In equilibrium, Rh&D endogenously drives a small, persistent component in productivity which generates long-run uncertainty about economic growth. With recursive preferences, households fear that persistent downturns in economic growth are accompanied by low asset valuations and command high risk premia in asset markets. Empirically, we find substantial evidence for innovation-driven low-frequency movements in aggregate growth rates and asset market valuations. In short, equilibrium growth is risky.

More for the Many: The Influence of Entitativity on Charitable Giving

Abstract: Donations to large numbers of victims are typically muted relative to donations to a single identified victim. This article shows that people can donate more to large numbers of victims if these victims are perceived as entitative —comprising a single, coherent unit. For example, donations to help children in need are higher when the children comprise a family than when they have no explicit group membership. The same effect is observed on donations for endangered animals that are depicted as moving in unison. Perceived entitativity results in more extreme judgments of victims. Victims with positive traits are therefore viewed more favorably when entitative, triggering greater feelings of concern and higher donations. Entitativity has the opposite effect for victims sharing negative traits.

Improving Portfolio Selection Using Option-Implied Volatility and Skewness

Abstract: Our objective in this paper is to examine whether one can use option-implied information to improve the selection of mean-variance portfolios with a large number of stocks, and to document which aspects of option-implied information are most useful to improve their out-of-sample performance. Portfolio performance is measured in terms of volatility, Sharpe ratio, and turnover. Our empirical evidence shows that using option-implied volatility helps to reduce portfolio volatility. Using option-implied correlation does not improve any of the metrics. Using option-implied volatility, risk premium, and skewness to adjust expected returns leads to a substantial improvement in the Sharpe ratio, even after prohibiting short sales and accounting for transaction costs.

The Cheater’s High: The Unexpected Affective Benefits of Unethical Behavior

Abstract: Many theories of moral behavior assume that unethical behavior triggers negative affect. In this article, we challenge this assumption and demonstrate that unethical behavior can trigger positive affect, which we term a "cheater's high." Across 6 studies, we find that even though individuals predict they will feel guilty and have increased levels of negative affect after engaging in unethical behavior (Studies 1a and 1b), individuals who cheat on different problem-solving tasks consistently experience more positive affect than those who do not (Studies 2-5). We find that this heightened positive affect does not depend on self-selection (Studies 3 and 4), and it is not due to the accrual of undeserved financial rewards (Study 4). Cheating is associated with feelings of self-satisfaction, and the boost in positive affect from cheating persists even when prospects for self-deception about unethical behavior are reduced (Study 5). Our results have important implications for models of ethical decision making, moral behavior, and self-regulatory theory.

Now-Casting and the Real-Time Data Flow

Abstract: The term now-casting is a contraction for now and forecasting and has been used for a long time in meteorology and recently also in economics. In this chapter we survey recent developments in economic now-casting with special focus on those models that formalize key features of how market participants and policymakers read macroeconomic data releases in real-time, which involves monitoring many data, forming expectations about them and revising the assessment on the state of the economy whenever realizations diverge sizeably from those expectations.

Cognitive social structures in social network research: A review

Abstract: Summary This review highlights one stream of work within the social network field, namely the work on cognitive social structures (CSS). First, CSS research is positioned within the field of social networks, and the key methods associated with CSS research are described. Research examining systematic biases in individuals' perceptions of social networks is covered, as is research examining the consequences of biased network perceptions (in terms of behaviors and outcomes). A research agenda is forwarded, suggesting three key directions for future research: the social capital of cognitive ties, extending and challenging network accuracy as a source of advantage and collective agency and organizational change. The overall goal is to invigorate research that moves beyond the description of cognitive social structures to an outcome-focused research paradigm. Copyright © 2013 John Wiley & Sons, Ltd.

Prize-based contests can provide solutions to computational biology problems

Abstract: Advances in biotechnology have fuelled the generation of unprecedented quantities of data across the life sciences. However, finding individuals who can address such “big data” problems effectively has become a significant research bottleneck. Historically, prize-based contests have had striking success in attracting unconventional individuals who can solve difficult challenges. To determine whether this approach could solve a real “big data” biologic algorithm problem, we used a complex immunogenomics problem as the basis for a two-week online contest broadcast to participants outside academia and biomedical disciplines. Participants in our contest generated over 600 submissions containing 89 novel computational approaches to the problem. Thirty submissions exceeded the benchmark performance of NIH’s MegaBLAST. The best achieved both greater accuracy and speed (x1000). Here we show the potential of using online prize-based contests to access individuals without domain-specific backgrounds to address big data challenges in life sciences.

From Glue to Gasoline How Competition Turns Perspective Takers Unethical

Abstract: Perspective taking is often the glue that binds people together. However, we propose that in competitive contexts, perspective taking is akin to adding gasoline to a fire: It inflames already-aroused competitive impulses and leads people to protect themselves from the potentially insidious actions of their competitors. Overall, we suggest that perspective taking functions as a relational amplifier. In cooperative contexts, it creates the foundation for prosocial impulses, but in competitive contexts, it triggers hypercompetition, leading people to prophylactically engage in unethical behavior to prevent themselves from being exploited. The experiments reported here establish that perspective taking interacts with the relational context—cooperative or competitive—to predict unethical behavior, from using insidious negotiation tactics to materially deceiving one’s partner to cheating on an anagram task. In the context of competition, perspective taking can pervert the age-old axiom “do unto others as you wo...

License to Ill: The Effects of Corporate Social Responsibility and CEO Moral Identity on Corporate Social Irresponsibility

Abstract: Although managers and researchers have invested considerable effort into understanding corporate social responsibility (CSR), less is known about corporate social irresponsibility (CSiR). Drawing on strategic leadership and moral licensing research, we address this gap by considering the relationship between CSR and CSiR. We predict that prior CSR is positively associated with subsequent CSiR because the moral credits achieved through CSR enable leaders to engage in less ethical stakeholder treatment. Further, we hypothesize that leaders� moral identity symbolization, or the degree to which being moral is expressed outwardly to the public through actions and behavior, will moderate the CSR�CSiR relationship, such that the relationship will be stronger when CEOs are high on moral identity symbolization rather than low on moral identity symbolization. Through an archival study of 49 Fortune 500 firms, we find support for our hypotheses.