London Business School

About: London Business School is a education organization based out in London, England, United Kingdom. It is known for research contribution in the topics: Portfolio & Equity (finance). The organization has 1138 authors who have published 5118 publications receiving 437980 citations. The organization is also known as: LBS.

Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets

Abstract: We study the price adjustment practices and provide quantita- tive measurement of the managerial and customer costs of price adjust- ment using data from a large U.S. industrial manufacturer and its custom- ers. We e nd that price adjustment costs are a much more complex construct than the existing industrial-organization or macroeconomics literature recognizes. In addition to physical costs ( menu costs), we identify and measure three types of managerial costs (information gath- ering, decision-making, and communication costs) and two types of customer costs (communication and negotiation costs). We e nd that the managerial costs are more than 6 times, and customer costs are more than 20 times, the menu costs. In total, the price adjustment costs comprise 1.22% of the company' s revenue and 20.03% of the company' s net margin. We show that many components of the managerial and customer costs are convex, whereas the menu costs are not. We also document the link between price adjustment costs and price rigidity. Finally, we provide evidence of managers' fear of antagonizing customers. I have no answer to the questionof how to measure these menu change costs, but these (menu cost) theories will never be taken seriously until an answer is provided. Edward Prescott (1987, p. 113)

Double Jeopardy Revisited

Abstract: In any given time period, a small brand typically has far fewer buyers than a larger brand. In addition, its buyers tend to buy it less often. This pattern is an instance of a widespread phenomenon...

Tilting at Windmills? The Environmental Movement and the Emergence of the U.S. Wind Energy Sector

Abstract: Through a study of the emergent U.S. wind energy sector, 1978–1992, this paper examines how large-scale social movements external to an industry can influence the creation of new market opportunities and hence encourage entrepreneurship. We theorize that through the construction and propagation of cognitive frameworks, norms, values, and regulatory structures, and by offering a preexisting social structure, social movement organizations influence whether entrepreneurs attempt to start ventures in emerging sectors. We find that the direct and indirect effects of social resources (e.g., environmental groups) had a larger impact on entrepreneurial activity in this sector than the availability of natural resources such as land with high-quality wind. Greater numbers of environmental movement organization members increased nascent entrepreneurial activity, and this effect was mediated by favorable state regulatory policy. Greater membership numbers also enhanced the effects of important natural resources, mark...

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.

Forecast Dispersion and the Cross Section of Expected Returns

Abstract: Recent work by Diether, Malloy, and Scherbina (2002) has established a negative relationship between stock returns and the dispersion of analysts’ earnings forecasts. I offer a simple explanation for this phenomenon based on the interpretation of dispersion as a proxy for unpriced information risk arising when asset values are unobservable. The relationship then follows from a general options-pricing result: For a levered firm, expected returns should always decrease with the level of idiosyncratic asset risk. This story is formalized with a straightforward model. Reasonable parameter values produce large effects, and the theory’s main empirical prediction is supported in cross-sectional tests. IN AN INTRIGUING RECENT ARTICLE, Diether, Malloy, and Scherbina (2002) (hereafter DMS) document a new anomaly in the cross section of returns: Firms with more uncertain earnings (as measured by the dispersion of analysts’ forecasts) do worse. The finding is important in that it directly links asset returns with a quantitative measure of an economic primitive—information about fundamentals—but the sign of the relationship is apparently wrong. Rather than discounting uncertainty, investors appear to be paying a premium for it. This would seem to pose a formidable challenge to usual notions of efficiently functioning markets. This article argues that the challenge can be met. In fact, a simple, standard asset pricing model implies the DMS effect even when there is no cross-sectional relationship between dispersion of beliefs and fundamental risk. The logic relies on two elements. First, when fundamentals are unobservable, dispersion may proxy for idiosyncratic parameter risk. Second, for a levered firm, expected equity returns will in general decrease with the level of idiosyncratic asset risk due to convexity. I formalize this in a straightforward way. The story has some direct and distinguishing testable implications, which I take to the data. The empirical evidence is remarkably supportive. The theory offered here contrasts sharply with the explanation suggested by DMS. They view the negative relationship between forecast dispersion and subsequent returns as supportive of a story in which costly arbitrage leads