Correlation risk

Investors hold portfolios of assets with different risk-reward profiles for diversification benefits. Conditional on the volatility of assets, diversification benefits can vary over time depending on the correlation structure among asset returns. The correlation of returns between assets has varied substantially over time. To insure against future “low diversification” states, investors might demand securities that offer higher payouts in these states. If this is the case, then investors would pay a premium for securities that perform well in regimes in which the correlation is high. We empirically test this hypothesis and find that correlation carries a significantly negative price of risk, after controlling for asset volatility and other risk factors.     

One-to-One and One-to-Many Business Relationship Marketing: Toward a Theoretical Framework

ABSTRACT

Purpose. This work addresses mixed findings in relationship marketing literature regarding the importance of micro-level (interpersonal) relationships on firm outcome.

Methodology/Approach: The article leverages impression formation theory to advance a framework to understand one-to-one and one-to-many marketing relationships to better predict firm outcome.

Findings: The authors suggest that 5 framework moderators—the type and consistency of the encounters, relationship age, purchase frequency, relationship interruptions, and two customer side characteristics (i.e., need to evaluate [NTE] and need for cognitive closure [NFCC]”)—can qualify the relationship building process and impact the effectiveness of interpersonal and/or group relationships on firm outcome.

Practical Implications: The framework suggests that (1) highly consistent sales team behaviors reduce the risk of losing business in case of a sales team member leaving; (2) low frequency purchases are better suited for one-to-many selling relationships; (3) temporarily suspending relationships by individual salespeople is more harmful than suspending relationships by sales teams; (4) involving the customer in the acquisition process facilitates team selling; and (5) a positive first impression is more important for high (vs. low) NFCC and high NTE customers.

Originality/Value. The theoretical framework (1) distinguishes between individual-to-individual and individual-to-group relationships, (2) suggests a distinction between micro-level individual-to-individual and individual-to-group relationships and macro-level individual-to-firm relationships, (3) analyzes the impact of micro-level relationships under the influence of context-related and customer-related factors, and (4) provides managerially relevant guidelines for strategic sales planning.     

Organizational Adoption of Web 2.0 Technologies: An Empirical Analysis

While Web 2.0 technologies such as blogs, wikis, and social networks have been popular in the consumer space, there is significant variation in adoption of Web 2.0 technologies in business. Yet, little is known about why firms adopt Web 2.0 technologies. There is a paucity of empirical research examining the antecedents of the use of Web 2.0 technologies in organizations. Drawing on the Technological-Organizational-Environmental theoretical framework, our study presents and empirically tests a model of factors associated with organizational adoption of Web 2.0 technologies. We find that importance to open standards is positively associated with the propensity for adoption of Web 2.0 technologies. Further, larger organizations are found to have a higher propensity for adoption. Finally, industry knowledge intensity is found to be positively associated with a higher propensity for adoption. Our results suggest that open architectures, firm size, and industry knowledge intensity play pivotal roles in Web 2.0 technology adoption. The study sheds light on antecedents of organizational adoption of Web 2.0 technologies and can help researchers and practitioners build an understanding of what factors are likely to motivate firms to adopt Web 2.0 technologies.     

为教育设计一份全球契约

现在全世界的教育处在无声的紧急状况中——超过10亿的正处于应该接受基础教育年龄阶段的儿童失学了；15亿在上学的儿童在完成基础教育以前极有可能辍学；在非洲和南亚，只有不到1／3的儿童能够读和写。然而，尽管每天都有儿童死于艾滋病、营养不良以及其他一些只要他们的母亲完成过优质的基础教育就有可能被预防的疾病，但是CNN绝对不会捕捉到一个儿童因缺少教育而死亡这样的镜头。     

Estimating the determinants of stock price changes

I develop an approach for estimating the determinants of stock price changes that uses all eligible trade data and other observable parameters of market activity. This approach backs out the unobserved continuous price change distribution from the observable discrete price changes, and does not constrain the determinants to be proportions of the traded bid-ask spread. I show that theoretically impermissible results and skewed estimates of cost components are obtained when the model used for estimating the determinants of stock price changes does not attempt to uncover the mapping between the observed price changes and the underlying unobserved continuous price change process, and does not effectively use all eligible trade data.     

Audit Quality and the Market Valuation of Banks’ Allowance for Loan Losses*

The recent banking crisis has led market participants to focus on the adequacy and quality of banks’ balance sheet items such as the allowance for loan losses. Beaver and Engel (1996) document that the capital market prices the nondiscretionary component of loan loss allowance negatively and the discretionary component less negatively. Using data from the pre‐crisis period and three measures of audit quality, auditor type (i.e., Big 5 versus non–Big 5), auditor industry specialization/expertise, and audit and nonaudit fees paid to auditors, we examine the effect of audit quality on the market valuation of the discretionary component of the allowance for loan losses. We find that, relative to the nondiscretionary component, the market valuation of the discretionary component of loan loss allowance is higher for banks audited by Big 5 auditors than for banks audited by non–Big 5 auditors. We also find that the relative market valuation of the discretionary component of loan loss allowance is increasing in auditor expertise. Regarding the impact of fees paid to auditors, we find that banks paying higher audit fees have higher relative market valuation of the discretionary component of the allowance for loan losses, but banks that pay higher nonaudit fees do not.     

Transcending Transformation: Enlightening Endeavours at Tata Steel

It is indeed a challenge for corporations to insulate themselves from the adverse conditions around and foster an organizational culture that ensures ethical behaviour. In their effort to foster and maintain such an organizational culture, corporations through various endeavours try to institutionalize ethics. A successful strategy that aims to institutionalize ethics starts with developing/adopting and implementing codes of conduct and duly complements with ethics education and management. This paper captures the enlightening endeavours of Tata Steel relating to institutionalizing ethics and its impact on transformation within the corporation and its transcendence beyond. Anwar HashmiS Elankumaran is OCL Visiting Asst. Professor at Management Centre for Human Values, Indian Institute of Management Calcutta, Kolkata, India. He may be reached at kumaran@iimcal.ac.in & elankumaran@hotmail.com. Ms. Rekha Seal is Ethics Counsellor at Tata Steel, Jamshedpur, India. She may be reached at ethics.counsellor@tatasteel.com & rekhaseal@lot.tatasteel.com Anwar Hashmi is Senior Manager – Ethics at Tata Steel, Jamshedpur, India. He may be reached at anwarhashmi@tatasteel.com