Authenticity: is it real or is it marketing?

Marty Echt, the new head of marketing at Hunsk Engines, is determined to bring the motorcycle maker back to its roots. He says it's not enough to project authenticity to customers--employees must personally subscribe to the brand's values. Should the company's CEO support Marty's "real deal" vision? Five experts comment on this fictional case study. Bruce Weindruch, the founder and CEO of the History Factory, says that an authenticity-based campaign can be effective--but only if it's truly drawn from history. Marketers like Marty often remember their organization's past in a golden haze. Weindruch recommends exploring old engineering drawings, ads, and product photos in order to understand what customers and employees really valued back in the day. Gillian Arnold, a consultant to luxury fashion and fine jewelry brands, thinks Marty's approach is right: People in key marketing posts must be passionate about their products and know them inside and out. She argues that the CEO needs to commit more fully to the new campaign and address the significant gap between the staff and the brand. James H. Gilmore and B. Joseph Pine II, the cofounders of Strategic Horizons, point out that Hunsk needs to manage customers' perceptions rather than trying to be a "real company" or forming a management team whose personal interests match the brand. People purchase a product if it conforms to their self-image; that alone determines the brand's authenticity. Glenn Brackett of Sweetgrass Rods, a maker of bamboo fly-fishing rods, says Marty seems to be one of the few people who understand Hunsk motorcycles. If employees bring blood, sweat, heart, and soul to a product, it will manifest that spirit, and customers will line up for it.     

Is it the weather?

We show that results in the recent strand of the literature, which tries to explain stock returns by weather induced mood shifts of investors, might be data-driven inference. More specifically, we consider two recent studies [Kamstra, Mark J., Kramer, Lisa A., Levi, Maurice D., 2003a. Winter blues: A SAD stock market cycle. American Economic Review 93(1), 324–343; Cao, Melanie, Wei, Jason, 2005. Stock market returns: A note on temperature anomaly. Journal of Banking and Finance 29(6), 1559–1573] that claim that a seasonal anomaly in stock returns is caused by mood changes of investors due to lack of daylight and temperature variations, respectively. While we confirm earlier results in the literature that there is indeed a strong seasonal effect in stock returns in many countries: stock market returns tend to be significantly lower during summer and fall months than during winter and spring months as documented by Bouman and Jacobsen [Bouman, Sven, Jacobsen, Ben, 2002. The Halloween indicator, Sell in May and go away: Another puzzle. American Economic Review, 92(5), 1618–1635], there is little evidence in favor of a SAD or temperature explanation. In fact, we find that a simple winter/summer dummy best describes this seasonality. Our results suggest that without any further evidence the correlation between weather-related variables and stock returns might be spurious and the conclusion that weather affects stock returns through mood changes of investors is premature.     

Is it the weather? Comment

This comment discusses some errors in a recent paper by Jacobsen and Marquering [Jacobsen, B., Marquering, W., 2008. Is it the weather? Journal of Banking and Finance 32 (4), 526–540], in which the authors challenge our previous finding that stock market returns exhibit seasonal patterns consistent with the influence of seasonal affective disorder on investor risk aversion. We find that we cannot replicate the authors’ findings, even after corresponding with them. Furthermore, we document several problems with their methodology, including misspecification of their economic model, misspecification of their econometric model, and use of inappropriate data. While we agree that seasonal affective disorder is not an explanation for all variation in equity markets, we do maintain that careful analysis leads to economically and statistically significant evidence of the effect we originally documented.     

Is it the weather? Response

Kamstra, Kramer and Levi (KKL) in their comment seem to miss the main point of our paper. Many things are correlated with the seasons so it is difficult to distinguish between them when we try to explain the well-known summer winter pattern in stock returns. Finding an isolated seasonal affective disorder (SAD) effect without proper control variables does not disprove our point but strengthens it. To sidestep all of the issues they raise and take our point to the extreme, we show using plain vanilla regressions that the seasonal stock market pattern they attribute to SAD can also be “explained” by variables like ice cream consumption or airline travel. The new variations of SAD variables (“onset” and “incidence”) KKL propose in their recent work for North America are even more problematic than the original SAD variables. We find that these new SAD proxies are not significant in countries where according to KKL they should be: Canada and the United States.     

How does managed care do it?

Integrating the health services and insurance industries, as health maintenance organizations (HMOs) do, could lower expenditure by reducing either the quantity of services or unit price or both. We compare the treatment of heart disease in HMOs and traditional insurance plans using two datasets from Massachusetts. The nature of these health problems should minimize selection. HMOs have 30% to 40% lower expenditures than traditional plans. Both actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial increases in measured productivity relative to traditional insurance.     

What does it mean to be green?

Today a company is not considered environmentalist unless it moves beyond mere compliance with government regulations to behavior its competitors, and even customers, do not expect. How should it set its agenda? Author Art Kleiner proposes that, to be green, a company must ask three questions: What products should we bring to market? How much disclosure of pollution information should we support? And how can we reduce waste at its source? These questions can't be answered, Kleiner says, unless managers insist on sustainable growth. In this sense, a big investment in environmentalism is like a big one in R&D--both presuppose patient capital and managerial maturity. What are green products? Kleiner cautions against giving in to misinformed public opinion--as McDonald's did in giving up its styrene "clamshells," which were more recyclable than the composite papers it switched to. Rather, companies should rely on literature that analyzes the product life cycle. As for public disclosure, the benefits may be unexpected. Federal legislation requiring companies to report the emission of potentially hazardous waste to a central data bank has not made environmentalists attack them. Rather, it has forced companies to learn what chemicals they inadvertently produce and how much--knowledge that helps them improve production processes. Sharing it helps ecological researchers study the combined effects of plant emissions. As for pollution prevention, Kleiner notes the analogy to quality and observes that it is better to design harmful waste products out of the system than catch them at the end of the line.(ABSTRACT TRUNCATED AT 250 WORDS)     

Do they do it for the money?

Using a sample of all top management who were indicted for illegal insider trading in the United States for trades during the period 1989-2002, we explore the economic rationality of this white-collar crime. If this crime is an economically rational activity in the sense of Becker (1968), where a crime is committed if its expected benefits exceed its expected costs, “poorer” top management should be doing the most illegal insider trading. This is because the “poor” have less to lose (present value of foregone future compensation if caught is lower for them). We find in the data, however, that indictments are concentrated in the “richer” strata after we control for firm size, industry, firm growth opportunities, executive age, the opportunity to commit illegal insider trading, and the possibility that regulators target the “richer” strata. We thus rule out the economic motive for this white-collar crime, and leave open the possibility of other motives.     

FASB's conceptual framework: Is it being taught?

FASB conceptual framework supporters suggest that the future acceptance of the framework by the accounting profession is dependent in part upon student classroom exposure to the framework. This study surveyed intermediate accounting professors to determine if this exposure is occurring. Survey results suggest that the framework is frequently discussed-but normally at a superficial level. The study also attempted to develop a profile of teachers who emphasize the framework. No associations were found when testing for individual characteristics. However, an association was found between those identified as substantive framework professors and respondents from programs which allot more than six semester credit hours for the intermediate accounting sequence as well as these programs which offer undergraduate theory courses.     

It wasn't about race. Or was it?

Hope Barrows, a partner at the national accounting firm Fuller Fenton, drove to the office on Sunday and swiped her access card to enter the parking garage. She noticed that another car followed her in--without using an access card. Hope could see that the driver was a man, but she didn't recognize him. Concerned for her safety, she got out and asked to see his ID. Dillon Johnson, an associate at the same firm, was rushing to meet a colleague to review a client's file. Seeing the garage door was open, he drove straight through. He was puzzled when the car in front of him stopped. The female driver got out of her car, walked over to him, and asked for his ID. He felt he was being unfairly questioned because he was black. Hope was white. Now it's Monday, and managing partner Jack Parsons is being deluged with calls. The company seems to be splitting into two angry camps. Some charge that the organization is racist; others are outraged that a woman was made to feel unsafe. One thing is clear: this incident is just the tip of the iceberg. Jack would like to think that Fuller Fenton embraces diversity, but the experiences of Dillon and other African-Americans at the firm tell a very different story. In fact, Jack knows that Dillon was taken off a team for fear that the client--an old-line company in Texas--might object. Jack is trying to calm people down, but he doesn't know what his next step should be. Four commentators offer advice in this fictional case study.     

Is it real? Can we win? Is it worth doing? Managing risk and reward in an innovation portfolio

Minor innovations make up most of a company's development portfolio, on average, but they never generate the growth companies seek. The solution, says Day--the Geoffrey T. Boisi Professor of Marketing and a codirector of the Mack Center for Technological Innovation at Wharton--is for companies to undertake a systematic, disciplined review of their innovation portfolios and increase the number of major innovations at an acceptable level of risk. Two tools can help them do this. The first, called the risk matrix, graphically reveals the distribution of risk across a company's entire innovation portfolio. The matrix allows companies to estimate each project's probability of success or failure, based on how big a stretch it is for the firm to undertake. The less familiar the product or technology and the intended market, the higher the risk. The second tool, dubbed the R-W-W (real-win-worth it) screen, allows companies to evaluate the risks and potential of individual projects by answering six fundamental questions about each one: Is the market real? Explores customers' needs, their willingness to buy, and the size of the potential market. Is the product real? Looks at the feasibility of producing the innovation. Can the product be competitive? and Can our company be competitive? Investigate how well suited the company's resources and management are to compete in the marketplace with the product. Will the product be profitable at an acceptable risk? Explores the financial analysis needed to assess an innovation's commercial viability. Last, Does launching the product make strategic sense? examines the project's fit with company strategy and whether management supports it.     

Having trouble with your strategy? Then map it

If you were a military general on the march, you'd want your troops to have plenty of maps--detailed information about the mission they were on, the roads they would travel, the campaigns they would undertake, and the weapons at their disposal. The same holds true in business: a workforce needs clear and detailed information to execute a business strategy successfully. Until now, there haven't been many tools that can communicate both an organization's strategy and the processes and systems needed to implement that strategy. But authors Robert Kaplan and David Norton, cocreators of the balanced scorecard, have adapted that seminal tool to create strategy maps. Strategy maps let an organization describe and illustrate--in clear and general language--its objectives, initiatives, targets markets, performance measures, and the links between all the pieces of its strategy. Employees get a visual representation of how their jobs are tied to the company's overall goals, while managers get a clearer understanding of their strategies and a means to detect and correct any flaws in those plans. Using Mobil North American Marketing and Refining Company as an example, Kaplan and Norton walk through the creation of a strategy map and its four distinct regions--financial, customer, internal process, and learning and growth--which correspond to the four perspectives of the balanced scorecard. The authors show step by step how the Mobil division used the map to transform itself from a centrally controlled manufacturer of commodity products to a decentralized, customer-driven organization.     

R2: Does it Matter for Firm Valuation?

A considerable amount of research has been devoted to why R² differs across firms or markets, but little attention has been paid to the consequences of this difference. We fill this gap by investigating how differing R² affects investors’ assessment of firm value. Using a sample of 90,111 firm‐year observations from 1970 to 2004, we find that higher R² leads to higher firm valuation and that, on average, high‐R² firms experience significant underperformance in the long run. These results suggest that high‐R² firms tend to be overpriced.     

Family friendly firms: does it pay to care?

In this paper we examine the returns to a portfolio of 29 firms that are perceived as family-oriented. The sample is based on firms awarded the best 100 companies for working mothers in Working Mother Magazine’s annual survey. There is much anecdotal evidence supporting the benefits of these programs, but little evidence relating family-oriented policies to shareholder wealth. We find, based on raw returns, that family-friendly firms do not earn statistically significant excess returns relative to a matched sample or to the S & P 500. Based on risk-adjusted returns, the family-friendly portfolio outperforms the market, but underperforms a matched sample portfolio.     

What's it worth? A general manager's guide to valuation

Behind every major resource-allocation decision a company makes lies some calculation of what that move is worth. So it is not surprising that valuation is the financial analytical skill general managers want to learn more than any other. Managers whose formal training is more than a few years old, however, are likely to have learned approaches that are becoming obsolete. What do generalists need in an updated valuation tool kit? In the 1970s, discounted-cash-flow analysis (DCF) emerged as best practice for valuing corporate assets. And one version of DCF-using the weighted-average cost of capital (WACC)-became the standard. Over the years, WACC has been used by most companies as a one-size-fits-all valuation tool. Today the WACC standard is insufficient. Improvements in computers and new theoretical insights have given rise to tools that outperform WACC in the three basic types of valuation problems managers face. Timothy Luehrman presents an overview of the three tools, explaining how they work and when to use them. For valuing operations, the DCF methodology of adjusted present value allows managers to break a problem into pieces that make managerial sense. For valuing opportunities, option pricing captures the contingent nature of investments in areas such as R&D and marketing. And for valuing ownership claims, the tool of equity cash flows helps managers value their company's stake in a joint venture, a strategic alliance, or an investment that uses project financing.     

Dual class shares – is India ready for it?

Market evidence suggest that a class of common stock with superior voting rights trades at systematically higher prices than an identical class of stock with inferior voting rights, as control over the firm grants the promoters some opportunity to receive a higher payoff. Differential voting rights class of shares may attract a certain class of investors who are only interested in the economic benefits of a company. It assists management in deterring potential rivals from winning a control and allows raising fresh capital for growth without giving up control. The value of controlling a firm derives from the fact that you believe that you or someone else would operate the firm differently from the way it is being run currently. Differential voting rights shares in different countries have indicated that voting rights are generally worth between 10% and 20% of the value of common stock. This article intends to create awareness about differential voting rights shares, to study the international as well as domestic experience and tries to examine the various factors that affect differential voting rights share prices.     

Accounting information systems research: Is it another QWERTY?

This article examines the research within accounting information systems (AIS) as found in articles published in leading accounting, management information systems, and computer science journals from 1982 to 1998. Trend analysis is performed on AIS articles found in the following journals: The Journal of Information Systems; Advances in Accounting Information Systems; Journal of Accounting Research; The Accounting Review; Journal of Accounting and Economics, Accounting, Organizations and Society, Auditing: A Journal of Practice and Theory; Behavioral Research in Accounting; Journal of Management Accounting Research; Management Science; MIS Quarterly; Decision Sciences; Information Systems Research; and Communications of the ACM, among others. The trend analysis is structured across underlying theory, research method, and information systems lifecycle topics of AIS articles in these journals. This article identifies the extant research streams in AIS, where AIS research has been published from 1982 to 1998, and seeks to provide insight into the question: should AIS exist as its own separate research domain? Is AIS research like the QWERTY keyboard (David, 1985), widely adopted due to popular demand, but ineffective and inefficient, with a better AIS research and teaching model available?