Don't trust your gut

Making high-stakes business decisions has always been hard. But in recent decades, it's become tougher than ever. The choices facing managers and the data requiring analysis have multiplied even as the time for analyzing them has shrunk. One simple decision-making tool, human intuition, seems to offer a reliable alternative to painstaking fact gathering and analysis. Encouraged by scientific research on intuition, top managers feel increasingly confident that, when faced with complicated choices, they can just trust their gut. The trust in intuition is understandable. But it's also dangerous. Intuition has its place in decision making--you should not ignore your instincts any more than you should ignore your conscience--but anyone who thinks that intuition is a substitute for reason is indulging in a romantic delusion. Detached from rigorous analysis, intuition is a fickle and undependable guide. And while some have argued that intuition becomes more valuable in highly complex and changeable environments, the opposite is actually true. The more options you have to evaluate, the more data you have to weigh, and the more unprecedented the challenges you face, the less you should rely on instinct and the more on reason and analysis. So how do you analyze more in less time? The answer may lie in technology. Powerful new decision-support tools can help executives quickly sort through vast numbers of alternatives and pick the best ones. When combined with the experience, insight, and analytical skills of a good management team, these tools offer companies a way to make consistently sound and rational choices even in the face of bewildering complexity--a capability that intuition will never match.     

Working on nonprofit boards. Don't assume the shoe fits

Contrary to popular perception, businesspeople can be benevolent. For instance, one recent study notes that four-fifths of all Harvard Business School graduates are involved with nonprofits, with more than half of those serving on boards. Most business professionals will spend some time on a nonprofit board. That's the good news, the author says. The bad news is that the involvement of businesspeople can easily backfire. That's because they often try to take what they have learned from business school and the corporate world and apply it to their duties in the nonprofit sector. On the surface, there are similarities between the for-profit and nonprofit sectors. Both have boards of directors, trustees and chairpeople, regular meetings, and so forth. But the governance of nonprofit organizations is very different from the governance of for-profit businesses in several critical areas, including missions, measurements, and board composition. For instance, the CEO in the nonprofit world must manage a relationship with a nonexecutive board chair. In the for-profit world, the CEO is the chair. Such significant differences make it difficult to transfer ideas and practices between the for-profit and nonprofit worlds. In this article, F. Warren McFarlan describes the main differences between serving on a for-profit board and serving on a nonprofit board. As he points out, understanding the differences will make it easier for businesspeople to move smoothly from one environment to the other and will therefore make their commitments more effective. Nonprofits need businesspeople, but only on the right terms.     

Don't hire the wrong CEO

A disturbing trend is going on in corporate America--CEO churning. Top executives are rapidly coming and going, keeping their jobs for increasingly shorter periods of time. The reason? Most boards are so unclear about the definition of leadership, they are picking the wrong people. CEO churning needn't be, say leadership experts Warren Bennis and James O'Toole. Boards can reverse the trend by following several guidelines. First, boards must come to a shared, accurate definition of leadership. Simply put, leaders must be able to move human hearts--to challenge people and make them want to scale steep peaks. Second, boards should strengthen the CEO selection process by resolving strategic and political conflicts amongst themselves. An agreed-upon strategic direction will make choosing the CEO with the right vision for the company that much easier and can clarify the job for the new CEO. Third, the board needs to measure every CEO candidate's soft qualities. Economic measures are important, but integrity, the ability to provide meaning, and the talent for creating other leaders are critical. Fourth, boards should beware of candidates who act like CEOs. Charisma and glossy pitches can be enticing, but they're rarely the stuff of true leadership. Fifth, boards should accept that real leaders will more than likely overturn the status quo. Sixth, boards need to know that insider heirs usually aren't apparent, and finally, boards should always avoid making a hasty decision. Hiring the right CEO is a slow process at best. Ultimately, the surest way for boards to pick the right CEO is to cultivate and nurture talent in the making.     

高铁债务“绑架”了谁?

最担心的事情还是发生了。2011年7月23日20时38分,甬温线动车追尾,一声巨响,粉碎了无数个家庭的幸福。截至目前,事故已造成40多人死亡,200多人受伤。7.23甬温动车追尾事故让铁道部成为全国舆论讨伐的焦点,也让"大跃进"的高铁建设备受质疑。     

银行家看跨境结算

自2009年8月人民币跨境贸易结算试点项目正式推出至今,已经超过一年半时间了。回望当初,"小荷才露尖尖角"的人民币跨境贸易结算只有少数业内人士关注,到如今,有关人民币国际化的话题屡屡见诸报端,大有"接天莲叶无穷碧"之势。     

Don't Believe the Hype: Local Media Slant,Local Advertising,and Firm Value

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.     

Earnings Surprises,Growth Expectations,and Stock Returns or Don't Let an Earnings Torpedo Sink Your Portfolio

We provide new evidence that the inferior returns to growth stocks relative to value stocks are the result of expectational errors about future earnings performance. Our evidence demonstrates that growth stocks exhibit an asymmetric response to earnings surprises. We show that while growth stocks are at least as likely to announce negative earnings surprises as positive earnings surprises, they exhibit an asymmetrically large negative price response to negative earnings surprises. After controlling for this asymmetric price response, we find no remaining evidence of a return differential between growth and value stocks. We conclude that the inferior return to growth stocks is attributable to overoptimistic expectational errors that are corrected through subsequent negative earnings surprises.     

农民工:户口我不懂

郭传娣出生在安徽巢湖市含山县运漕镇王港行政村的一名普通农民家庭,家中有三个姐姐、一个弟弟、一个妹妹,6个子女的家庭依靠传统种植业为生。因为贫穷,在郭传娣很小的时候父母就把妹妹过继给了别人。     

Discussion of “Earnings Surprises,Growth Expectations,and Stock Returns,or, Don't Let an Earnings Torpedo Sink Your Portfolio”

Review of Accounting Studies -     

Don't Waste a Free Lunch: Managing the Advance Refunding Option

A callable municipal bond issue funding a new project is usually eligible for “advance refunding”—that is, refunding between the issue date and the call date. Such refunding is accomplished by issuing new bonds, and investing the proceeds in an escrow portfolio of Treasury securities whose cash flows pay off the outstanding issue until the call date, when the old bonds are retired. Under favorable market conditions, advance refunding enables a municipality to lock in lower interest rates prior to the call date; waiting until that date would expose the issuer to the risk of higher rates. The right to advance refund is an option whose value depends not only on the issuer's borrowing rate, but also on Treasury rates, which determine the cost of the escrow portfolio. What makes this option (referred to by the authors as the “ARO”) unusual is that it is effectively a free lunch for the issuer. While investors pay a lower price for a callable bond, the price is not affected by the bond's eligibility for advance refunding. The free lunch is demonstrable when the yield of the escrowed Treasuries is higher than the issuer's funding rate to the call date. In such cases, the present value of the cash flows to the call date (which is how the market prices a deep‐in‐the‐money callable bond) exceeds the cost of the escrow. This excess effectively enables the issuer to retire the bonds below their fair market value. Another manifestation of the free lunch offered by advance refunding transaction occurs when the savings exceed the expected value of waiting—that is, when the value of the call option is less than the currently realizable savings. One important consideration when deciding whether and when to advance refund is that the ARO can be exercised only once in an issue's refunding life‐cycle. If an issue is advance refunded, its replacement cannot be. But if an issue is refunded once it becomes callable, the ARO stays alive in the replacement issue. In this article, the authors develop an analytical framework to help issuers deal with this problem. First, they explore how the value of the ARO depends on coupon, maturity, time to call, and prevailing Treasury rates. Then they use the results to make a recommendation about the advance refunding decision: act now or wait? To answer this question, the authors extend the standard measure of refunding efficiency to incorporate the ARO of the replacement issue. Incorporating the ARO of the replacement issue slows down the signal to advance refund, whereas failure to do so could lead to a suboptimal decision. Near the call date, issuers may be better off locking in savings with a hedge rather than sacrificing the eligibility of the replacement issue for advance refunding.     

Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?

One of the puzzles regarding initial public offerings (IPOs)is that issuers rarely get upset about leaving substantial amountsof money on the table, defined as the number of shares soldtimes the difference between the first-day closing market priceand the offer price. The average IPO leaves $9.1 million onthe table. This number is approximately twice as large as thefees paid to investment bankers and represents a substantialindirect cost to the issuing firm. We present a prospect theorymodel that focuses on the covariance of the money left on thetable and wealth changes. Our reasoning also provides an explanationfor a second puzzling pattern: much more money is left on thetable following recent market rises than after market falls.This results in an explanation of hot issue markets. We alsooffer a new explanation for why IPOs are underpriced.     

The Total Cost of Corporate Borrowing in the Loan Market: Don't Ignore the Fees

More than 80% of U.S. syndicated loans contain at least one fee type and contracts typically specify a menu of spreads and fee types. We test the predictions of existing theories on the main purposes of fees and provide supporting evidence that: (1) fees are used to price options embedded in loan contracts such as the drawdown option for credit lines and the cancellation option in term loans, and (2) fees are used to screen borrowers based on the likelihood of exercising these options. We also propose a new total‐cost‐of‐borrowing measure that includes various fees charged by lenders.     

If at First You Don't Succeed: The Effect of the Option to Resolicit on Corporate Takeovers

This article models, and experimentally simulates, the free-riderproblem in a takeover when the raider has the option to "resolicit,"that is, to make a new offer after an offer has been rejected.In theory, the option to resolicit, by lowering offer credibility,increases the dissipative losses associated with free riding.The outcomes of our experiment support this prediction and producelosses from free riding even higher than theoretically predicted.These dissipation losses reduce raider gains to less than 3%of synergy value of the acquisition