October 2009

Pyramidal Blind Spots
Foreign companies often enter joint venture partnerships unaware of the dominating corporate governance practices in developing countries. Susan Perkins outlines the potential costs of not recognizing and accounting for these dynamics in the design of a joint venture.

Susan E Perkins

Randall Morck

Bernard Yeung

September 2009

There’s No Place Like Home
Investors strongly tilt their portfolios toward domestic assets and away from foreign instruments in a phenomenon called “home bias.” Wioletta Dziuda discusses how better information could level the imbalance between foreign and domestic mutual fund investments.

Wioletta Dziuda

Jordi Mondria

August 2009

Mysterious Profit
The carry trade is an enigma in the financial world. When experts attempt to explain its continued profitability using traditional risk factors such as consumption growth, stock market returns, and other more complex predictors, they fail miserably. Sergio Rebelo and his colleagues discovered a tantalizing new way to minimize the risk posed by the unpredictable.

A. Craig Burnside

Martin Eichenbaum

Isaac Kleshchelski

Sergio Rebelo

August 2009

Currency Exchange Rates
It seems that any world event can shift exchange rates, but what economic, business, political, and social events truly drive the dollar down—or up? Torben Andersen helps us understand what lies behind daily rises and falls in the value of a dollar.

Torben Andersen

Tim Bollerslev

Francis X. Diebold

Clara Vega

June 2009

Driven Offshore
In 2002 the U.S. Congress responded to the corporate governance crisis that followed the scandal-ridden behavior of Enron, Tyco, WorldCom, and other high-profile corporations by passing the Sarbanes-Oxley Act (SOX). The legislation set out to restore investors’ confidence in financial markets by improving corporate governance. However, in the case of at least one group of companies, the act seems to have produced unexpected results. A study co-authored by Thomas Lys (Professor of Accounting Information & Management at the Kellogg School of Management) indicates that the managements of poorly governed foreign-domiciled firms responded to the act by closing shop in the United States.

Peter Hostak

Emre Karaoglu

Thomas Lys

Yong Yang

June 2009

Global Dual Sourcing Strategies
Many researchers say that their greatest flashes of inspiration come not from extraordinary events but from everyday activities. Intuitive leaps are triggered by observing life unfolding around them, they say. We are all familiar with the anecdote - historically accurate or not - of an apple falling on Isaac Newton’s head while he rested beneath the tree, jolting him to contemplate universal gravitation.

Gad Allon

Jan A. Van Mieghem

May 2009

Liquidity Rules
On the surface, the meltdown of the U.S. subprime mortgage market should not have triggered a worldwide financial crisis. Worst-case estimates put subprime mortgage losses at $250 billion—a drop in the bucket compared to the many trillions of dollars worth of financial instruments traded around the globe.

Ricardo J. Caballero

Arvind Krishnamurthy

April 2009

Living Outside the Box
Living in another country can be a cherished experience, but new research suggests it might also help expand minds. This research, published by the American Psychological Association, is the first of its kind to look at the link between living abroad and creativity.

William Maddux

Adam D. Galinsky

April 2009

The Global “Idea” Market
When we imagine international trade, we conjure up images of supertankers and massive container ships, or maybe ships laden with exotic cargoes of rum, coffee, and spices. But international trade today involves much more than crude oil and bananas. We live in a global marketplace of ideas, when trademarks, patents, and research are moving from Argentina to Tanzania at the speed of light. In the Internet age, people are trading ideas around the world.

Daniel Spulber

September 2008

Communicating the Risks of Investments in Intellectual Property
Investors examining financial statements in the United States may encounter two primary sets of financial reporting standards. Generally Accepted Accounting Principles (GAAP) are generally used by companies based in the United States. However, firms in much of the rest of the world use International Financial Reporting Standards (IFRS). Recently, the U.S. Securities and Exchange Commission decided that foreign companies can provide U.S. investors with financial statements prepared according to IFRS without having to reconcile them to GAAP. According to research by Kellogg School of Management accounting professor Robert Magee, not only are the statements prepared using the international standards better at communicating certain information to potential investors, the use of these standards promotes better corporate decision-making about how to invest in research and development.

Robert Magee

September 2008

Strategic Activism and Nonmarket Strategy
In 1987 Rainforest Action Network (RAN) initiated a nationwide boycott against Burger King. At the core of their demands was the accusation that the contracts with Central American countries for exports of cheap hamburger beef resulted in “rainforests being denuded to provide pasture for cattle” (RAN 2007). The result: a 12 percent drop in Burger King’s sales and the cancellation of $35 million worth of contracts with the tropical countries. This example reflects a trend: activist organizations ceasing to direct their demands to governments and, according to David Baron and Daniel Diermeier, “increasingly turning to private politics to advance their agenda.”

David P. Baron

Daniel Diermeier

July 2008

Cultural Intelligence in Global Teams
Modern organizations operate in a thoroughly global environment. Not only do they buy and sell goods and services in several national markets, but they also hire individuals from a variety of cultures. As a result, culturally heterogeneous teams frequently determine strategy, undertake planning, carry out research, and perform other complex tasks for organizations.

Maddy Janssens

Jeanne M. Brett

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June 2008

Women and Math, the Gender Gap Bridged
Nine years before the 19th Amendment granted American women the right to vote, a committee of Swedish scientists in 1911 awarded a second Nobel Prize to Marie Curie, a French Pole, in recognition of her discovery of the elements radium and polonium. Nine years before Title IX cracked down on gender discrimination in American education, Soviet cosmonaut Valentina Tereshkova became the first woman to rocket into space, piloting Vostok 6 in 1963. Across generations and cultures, women have reached remarkable levels of scientific and social achievement. Yet five years into the 21st century, the leader of one of the world's most elite universities, in one of the oldest democracies, opined upon "the unfortunate truth" that women probably are not as mentally equipped for work in math and science as men (Summers 2005).

Luigi Guiso

Ferdinando Monte

Paola Sapienza

Luigi Zingales

June 2008

Patent Protection and Innovation in Pharma
Viagra doesn't grow on trees. Neither does Advil, Lipitor, or any of the myriad other drugs that make their way to market. Those biochemical breakthroughs are rooted in human innovations, not magic. Like most other human endeavors, innovation is thought to be encouraged by some pushing and prodding.

Yi Qian

April 2008

Cost-Sharing Agreements
Most managers who work in international businesses are aware that transfer prices — that is, the prices one division of their business pays or receives for products and/or services supplied to or acquired from its other divisions — can have a large effect on their total tax bill and their overall corporate-wide profitability. These tax consequences arise because of the differences in tax rates across the jurisdictions in which the various divisions of the company do business. Most managers also know that choosing transfer prices in a way that both minimizes a firm's tax liability and receives the approval of tax authorities is among the most important tax issues that their firms face. While transfer pricing regulations (e.g., §1.482 of the U.S. Treasury regulations) try to restrict firms' choices by requiring that the prices charged for the transfers of internal products or services occur at "arm's length" or market prices, firms often have discretion in selecting transfer prices because these internally transferred products or services have no identical external, or market, counterparts.

Ronald A. Dye

April 2008

Concrete Threats
During the summer of 2007, a couple of months after finishing a draft of a paper on the Brazilian cement industry, Alberto Salvo, Assistant Professor of Management and Strategy, received a phone call from Elizabeth Farina, President of Brazil's Administrative Council for Economic Defense, an antitrust authority that is part of the Ministry of Justice.

Alberto Salvo

April 2008

A Borderline Question
Snaking 1,900 miles from Tijuana to Matamoros, San Diego to Brownsville, the border between Mexico and the United States might seem large. But its physical size is dwarfed by the passions that it evokes among hundreds of millions of people spread to its north and south. As anxiously scrutinized as they are heavily traversed, those miles of desert, rivers, and fences symbolize to some a gateway to everything that is great about America, while to others they are a gaping leak on a sinking ship. Even the most casual observer of America's front-page headlines or late-night TV monologues knows of big city rallies, millions of immigrants strong, and of the volunteer army of Minutemen, rifle-toting citizens intent on locking down the border. That border and its issues recently brought Congress to a standstill, and may help decide the next American President.

David A. Besanko

Brad Wible

January 2008

Big Fish, Little Fish—Choose Your Pond
"Stockholder and public disapproval of executive pay levels is growing and could lead to government intervention unless directors and managers confront the executive pay issue squarely and come to grips with it," wrote David Kraus in a 1980 Harvard Business Review article. At that time, an average chief executive officer (CEO) earned 42 times more than an average worker, and the ratio had been fairly stable for decades.

Bård Harstad

December 2007

Letting Go of Voting Rights May Be a Good Investment Strategy
Dividends paid by a dual class stock are at least as informative for dual-class firms as for single-class firms, if not more so. Earnings, in contrast, are less informative for dual-class firms than for single-class firms. Reduced management accountability, which both accompanies and stems from the separation of cash flow rights from voting rights in dual-class firms, is responsible for the reduced usefulness of earnings information.

Jennifer Francis

Katherine Schipper

Linda Vincent

October 2007

The Value of a Cabinet Position
On May 28, 2007, Japan’s Minister of Agriculture, Toshikatsu Matsuoka, hanged himself in his residence. Accused of corruption and about to face an inquiry in Parliament, Mr. Matsuoka committed suicide. Were the accusations related to the power that his position conveyed? Mr. Matsuoka was facing corruption charges brought about by undeclared political donations.

Takanori Adachi

Yasutora Watanabe

August 2007

Trust Required Here
Buying a used car is always a difficult experience, in large part because potential buyers have trouble trusting sellers. Trust is an elusive but important component in market transactions. New work by Kent Grayson, a marketing professor at the Kellogg School of Management, and his colleagues focuses on the pension industry in the United Kingdom and Taiwan, and shows that a buyer requires two types of trust: trust in the particular seller (narrow-scope trust) and trust in the broader social context (the market) in which the transaction takes place (broad-scope trust).

Kent Grayson

Devon Johnson

Der-Fa Chen

July 2007

How to Map and Compare Culture Across Firms
Klaus Weber explores how to analyze systematically the language used by companies to communicate with diverse audiences. Comparing the "cultural toolkits" of U.S. and German pharmaceutical companies, he finds that since the 1980s, companies from both countries diverge more in terms of their position in the industry and less on the basis of their country of origin.

Klaus Weber

June 2007

Do Leaders Matter?
The degree to which leaders matter is an old and unsettled question. Despite centuries of thought and study, this issue remains divisive. What none can doubt, however, is this: leaders die. And when they do, national economies can change in major, unexpected ways, according to research by Benjamin Jones, assistant professor of management and strategy at Kellogg, and his colleague Benjamin Olken (Harvard Society of Fellows). Their report in The Quarterly Journal of Economics provides clear evidence that unpredictable changes in a country’s leadership, due to the executive’s death by accident or illness, can trigger changes in gross domestic product (GDP) growth. In this new light, the grip of massive political institutions on economies appears much less commanding than was previously thought.

Benjamin F. Jones

Benjamin A. Olken

May 2007

Why Do IPO Auctions Fail?
When Google successfully launched its initial public offering (IPO) by auction in 2004, there was much media and industry fanfare. In reality, using an IPO auction to determine who gets to buy how many shares at what price is an old approach that either never took off in some countries, or has gone out of fashion in others. IPO auctions were attempted in more than twenty countries in the 1980s and early 1990s, but are rare today.

Ravi Jagannathan

Ann E. Sherman

April 2007

Can geography affect your bank account?
Do Koreans save more than the British? Are Eastern Europeans more reluctant to invest in stocks? Do Brazilians mistrust financial markets? While modern commerce may be global and pay little attention to national borders, people can retain a kind of economic heritage based on culture that influences their views in provincial ways.

Luigi Guiso

Paola Sapienza

Luigi Zingales

April 2007

A Choreographer's Cues
On the cross-cultural negotiations stage, the players are similarly challenged to converge despite strong differences in behavior and communication style. In "The Negotiation Dance: Time, Culture, and Behavioral Sequences in Negotiation," Kellogg School Professor Jeanne Brett (with Professor Wendi Adair of Cornell University) presents the intricate patterns of international negotiation, providing insights designed to encourage sure-footedness. "Negotiating cross culturally presents many challenges," says the DeWitt W. Buchanan Jr. Professor of Dispute Resolution, who joined Kellogg in 1976, "but one of the most important is how people communicate information about their preferences and priorities."

Wendi L. Adair

Jeanne M. Brett

April 2007

A Dollar Short
It happened in one country after another during the 1990s: a large, contractionary currency devaluation followed by surprisingly mild rates of inflation. But when Kellogg School Finance Professor Sergio Rebelo and his co-researchers looked closely at the aftermath of the devaluations, they observed a remarkably similar set of economic reactions. Whether in Finland, Sweden, Mexico, Korea, Thailand, Malaysia, the Philippines, Indonesia or Brazil, the same patterns in pricing emerged. In each country, the prices that changed most were those of imports and exports at the dock. The prices of these goods in retail stores were more stable, Rebelo's team found.

Ariel Burstein

Craig Burnside

Martin Eichenbaum

Sergio Rebelo

João C. Neves