EVA® FOR BANKS: VALUE CREATION, RISK MANAGEMENT, AND PROFITABILITY MEASUREMENT

This article presents a complete ranking of America's 100 largest bank holding companies according to their shareholder value added. This research, the first of its kind for the banking industry, defines an EVA measurement for banks and presents evidence of EVA's stronger correlation with bank market values than traditional accounting measures like ROA and ROE. Besides developing EVA and MVA as analytical tools for viewing the economic performance of the organization from a shareholder perspective, the authors also present a framework for calculating EVA at all levels of the organization, including lines of business, functional departments, products, customer segments, and customer relationships. The implementation of an EVA profitability measurement system at the business unit (or lower) level requires methods for three critical tasks: (1) transfer pricing of funds; (2) allocation of indirect expenses; and (3) allocation of economic capital. Although solutions to the first two are fairly straightforward, the allocation of capital to business units is a major challenge for banks today. In contrast to the complex, “bottom-up” approach used by a number of large banks in implementing their RAROC systems, the authors propose a greatly simplified, “top-down” approach that requires calculation of only the volatility of a business's operating profit (or NOPAT). The advantage of using NOPAT volatility is that it allows EVA analysis at any level of the organization in a way that captures the volatility effects from all sources of risk (credit, interest rates, liquidity, or operations). While such a top-down approach is clearly not meant to take the place of a comprehensive, bottom-up RAROC analysis, it is intended to provide a complement–a high-level “check” on the detailed, bottom-up risk management procedures and controls now in place at most banks. Moreover, for those banks that have developed extensive funds transfer pricing, cost allocation, and RAROCstyle capital allocation systems, the EVA financial management system can either be integrated with those systems or serve as an independent economic assessment of the bank's business risks and returns.     

Ethical Decision Making: The Effects of Escalating Commitment

Despite the recent emergence of many new ethical decision making models, there has been minimal emphasis placed on the impact of escalating commitment on the ethical decision making process. In this paper a new variable is introduced into the ethical decision making literature. This variable, exposure to escalation situations, is posited to increase the likelihood that individuals will choose unethical decision alternatives. Further, it is proposed that escalation situations should be included as a variable in Jones's (1991) comprehensive model of ethical decision making. Finally, research propositions are provided based on the relationship between escalating commitment and the ethical decision making process.     

The linking pin role in organizational buying centers

The buying center concept has been widely accepted in the organizational buying behavior literature. Nevertheless, the application of the concept in empirical investigations has been limited in scope. Most research has examined either the composition of the buying center or the influence processes operating within it. The intraorganizational dynamics (among members of the buying center) and the interorganizational dynamics (between buying center members and outside organizations) have been ignored in buying center research. Common to these two sets of relationships is the presence of a “linking pin” or “boundary role” person.The purposes of this paper are twofold. The first is to suggest the concept of the “linking pin” role in a buying center and to highlight the conceptual importance of this role in furthering the understanding and prediction of organizational buying processes and outcomes. Explication of this role should also lead to an enriched conceptualization of the relationships between the buying and selling organizations. The second objective is to report on the results of some initial empirical investigations into the role of a designated linking pin in hospital buying centers. These results offer preliminary evidence of the value of the linking pin concept.     

What comes after the welfare state?: A post-welfare development path for the UK

One vision of post-industrial society projects a sane, humane, ecological future. Achievement of this requires societal transformation of almost unprecedented dimensions. This paper offers a preliminary exploration of how changing directions to this kind of future would affect social welfare and social services in the UK. Current community activities which may help accelerate change in local futures are outlined.     

How do school ‘report cards’ affect school choice decisions?

Abstract. We estimate the effect of information about school achievement that is disseminated to the public through websites and school ‘report cards’ on school choice decisions. We find that students are more likely to leave their school when public information reveals poor school‐level performance. Some parents’ school choice decisions respond to information soon after it becomes available. Others, including non‐English‐speaking parents, alter their school choice decisions only in response to information that has been disseminated widely and discussed in the media. Parents in low‐income neighbourhoods are most likely to alter their school choice decisions in response to new information. JEL classification: I21, D83     

Trade and expropriation

We examine the effect of international trade on expropriation in a setting where law enforcement is costly. We show that, in general equilibrium, trade liberalization can reduce expropriation activities and have a first-order effect on the gains from trade. One interpretation of our results is that unskilled-labor abundant countries facing popular militia or rebel groups will experience amplified gains from trade, as expropriation levels and cost of enforcement decline with trade liberalization. However, the model also admits the possibility that globalization causes an increase in crime, particularly for skilled-labor abundant countries.     

The economics of well-being

Gross domestic product has long been the chief measure of national success. But there's been a lot of talk lately about changing that, from economists and world leaders alike. GDP is under siege for three main reasons. First, it is flawed even on its own terms: It misses lots of economic activity (unpaid household work, for example) and, as a single-number representation of vast, complex systems, is inevitably skewed. Second, it fails to account for economic and environmental sustainability. And third, readily available alternative measures may reflect well-being far better, by taking into account factors such as educational achievement, health, and life expectancy. HBR's Justin Fox surveys historical and current views on how to assess national progress, from Jeremy Bentham to Robert Kennedy to Nicolas Sarkozy. He also looks at where we may be headed. The biggest success so far in the campaign to supplant or at least supplement GDP, he finds, is the UN's Human Development Index-on which the United States has never claimed the top spot.     

Correction to: Are two brands better than one? Investigating the effects of co-branding in advertising on audience memory

Marketing Letters - The article Are two brands better than one? Investigating the effects of co-branding in advertising on audience memory, written by Cathy Nguyen, Jenni Romaniuk, Margaret...