Does anti-bribery enforcement deter foreign investment?

This article presents the first empirical evidence that bilateral fixed capital flows fall in response to anti-bribery enforcement actions. We hand-collect data on individual enforcement actions initiated by the US Department of Justice (DOJ) and show that anti-bribery enforcement in a country is followed by a 40% reduction in foreign fixed capital investments made by US companies in that country.     

Systematic noise

We analyze trading records for 66,465 households at a large discount broker and 665,533 investors at a large retail broker to document that the trading of individuals is highly correlated and persistent. This systematic trading of individual investors is not primarily driven by passive reactions to institutional herding, by systematic changes in risk-aversion, or by taxes. Psychological biases likely contribute to the correlated trading of individuals. These biases lead investors to systematically buy stocks with strong recent performance, to refrain from selling stocks held for a loss, and to be net buyers of stocks with unusually high trading volume.     

The risks and rewards of design investment

Cutbacks in design investment are often made in a time of recession because managers, when faced with competing demands, are unaware of the commercial value of such investment The research reported in this paper investigated the risks and rewards of investing in professional design expertise at a project or product level and found that such investment involves relatively low risks and can yield substantial rewards by opening up new markets and enhancing profitability However, management skills are needed to fully exploit design expertise Proper briefing of designers, regular communication between marketing, design and production, and effective project management can make the difference between success and failure     

Misallocation and productivity effects of the Smoot–Hawley tariff

Using a newly created microeconomic archive of US imports at the tariff line level for 1930–1933, we construct industry-level tariff wedges incorporating the input–output structure of US economy and the heterogeneous role of imports across sectors of the economy. We use these wedges to show that the average tariff rate of 46% in 1933 substantially understated the true impact of the Smoot–Hawley (SH) tariff structure, which we estimate to be equivalent to a uniform tariff rate of 70%. We use these wedges to calculate the impact of the Smoot–Hawley tariffs on total factor productivity and welfare. In our benchmark parameterization, we find that tariff protection reduced TFP by 1.2% relative to free trade prior to the Smoot–Hawley legislation. TFP fell by an additional 0.5% between 1930 and 1933 due to Smoot–Hawley. We also conduct counterfactual policy exercises and examine the sensitivity of our results to changes in the elasticity of substitution and the import share. A doubling of the substitution elasticities yields a TFP decline of almost 5% relative to free trade, with an additional reduction due to SH of 0.4%.     

Derivative use,fund flows and investment manager performance

Prior literature which examines the use of derivatives by investment managers does not discern between different types of derivative trading strategies. This study is the first to examine and gather data on a particular type of derivative trading strategy undertaken by investment managers. We examine the extent to which equity fund managers use index futures to manage fund flows and the effect this has on their alpha and market timing measures of performance. Our results show that funds that do not use derivatives exhibit lower returns and negative market timing skills when they experience fund flow. The performance of funds that use derivatives, however, is independent of investor’s liquidity demands. In fact, the unconditional performance of the average user fund is statistically equivalent to the performance of the average non-user fund conditional on zero fund flow. Our results provide evidence that derivatives can be beneficial for mutual fund holders under certain conditions.     

Opinion Divergence Among Professional Investment Managers

Abstract:  We find that opinion divergence among professional investment managers is commonplace, using a large sample of transaction-level institutional trading data. When managers trade together, future returns are similar regardless if they are all buying or selling, inconsistent with the notion that professional investment managers possess stock picking ability or private information that is of investment value. However, when managers trade against each other, subsequent returns are low, especially for stocks that are difficult to short. This U-shaped disagreement-return relationship is consistent with Miller's (1977) hypothesis that, in the presence of short-sale constraints, opinion divergence can cause an upward bias in prices.     

Creativity and dysfunction in strategic processes: The case of scenario planning

This paper attempts to open up a new line of enquiry into the dysfunctions of creativity within strategic processes. Generally, the impact and results of introducing creativity (and innovation) into organisational life are perceived to be wholesome and beneficial. But recent research in the area of organisational psychology has documented a ‘dark’ side to its introduction, e.g., low employee morale, stress, theft, sabotage, destructive conflict. Learning from this work and shifting the domain to strategic management, this paper focuses on scenario planning—a strategy process widely regarded by participants and facilitators as creative and innovative in structure, content and output. First, the creative credentials of the process are established with reference to the literature and definitions from the creative and cultural industries. Second, the process is deconstructed into activities and each is examined for the extent of its embedded creativity. Third, informed by case evidence, four dysfunctions of the scenario planning process are conjectured: creativity layered on fantasy; heightened expectations and confusion; pride and passion; and creativity leading to excess. The paper concludes by suggesting four options for handling these potential dysfunctional effects and, in the light of the dialogue presented, re-interprets the definition of scenario planning presented earlier in the text.