Risks in new product development: devising a reference tool

This paper describes the development and applicability of a risk reference framework (RRF) for diagnosing risks in technological breakthrough projects. In contrast to existing risk identification strategies, the RRF centers on an integral perspective on risk (i.e. business, technological and organizational) and the assessment of risks in ongoing projects. The resulting RRF consists of 12 main risk categories and 142 connected critical innovation issues and has been developed for a globally operating company in the fast-moving consumer goods industry. Our analyses show that to some extent different project members identified the same risks and that saturation occurred in the number of new risk-issues brought to light. We conclude that the success of breakthrough innovation projects improves through formal risk-assessment.     

Market Orientation and the New Product Paradox

The extant literature shows that the strength of the market orientation–performance relationship decays as the terminal measure of performance shifts from new product success to profitability to market share. As Day (1999) concluded, a broader nomological inquiry is needed to more fully understand the nature and limits of market orientation's effects. This suggests that a broader nomological inquiry is needed to fully understand the nature and limits of market orientation's effects.
Utilizing a national sample of marketing executives, the present study's purpose is to build a fuller understanding of the effects of market orientation on firm performance. Its structural equations model includes measures of new product success, profitability, and market share.
The research reinforces a strong positive relationship between market orientation and new product success. The expanded nomological network under study, however, implies barriers to market orientation's effectiveness. First, market-orientation-inspired increases in the priority firms place on "breakthrough" learning without commensurate increases in the priority placed on "breakthrough" innovation capabilities can boomerang and negatively impact new product success. Second, market-orientation-inspired new product development programs that are unable to increase market share can negatively impact profitability. These gatekeepers to the success of market orientation underscore the need for firms to coordinate a strong market orientation with resources and capabilities that increase the effectiveness of the marketing function. Without such coordination, the positive effect of market orientation on new product success may be limited to incremental innovations, and the overall effect of successful new products on profitability may be limited.     

Bank CEO materialism: Risk controls,culture and tail risk

We investigate how the prevalence of materialistic bank CEOs has evolved over time, and how risk management policies, non-CEO executives’ behavior and tail risk vary with CEO materialism. We document that the proportion of banks run by materialistic CEOs increased significantly from 1994 to 2004, that the strength of risk management functions is significantly lower for banks with materialistic CEOs, and that non-CEO executives in banks with materialistic CEOs insider trade more aggressively around government intervention during the financial crisis. Finally, we find that banks with materialistic CEOs have significantly more downside tail risk relative to banks with non-materialistic CEOs.     

An international study of internal audit function quality

We investigate organisational and environmental factors that influence firms’ incentives to develop high-quality internal audit functions (IAFs) by using a unique international sample formed by matching proprietary data from a global internal auditor survey with public data obtained from Worldscope. Concerning organisational factors, we find that a positive relationship exists between IAF quality and firm complexity and confirm that complex firms have a higher demand for monitoring and advising and, therefore, a greater need for formal controls. In addition, IAF quality is positively related to board monitoring and audit committee diligence but negatively associated with CEO power, which suggests that IAF quality is influenced by other key players in corporate governance. Regarding environmental factors, we document that IAF quality is positively associated with industry competition, which implies that a firm’s incentive for a high-quality IAF is enhanced when confronted with greater environmental uncertainty. Furthermore, IAF quality has a significantly positive relationship with our self-constructed index of IAF requirements included in national corporate governance codes, which indicates that strong home-country corporate governance codes play a role in fostering IAF development.     

Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201

We provide a novel test of information-based theories of price clustering by examining trade, order, and the National Best Bid and Offer (NBBO) quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering. We find evidence of increased price clustering for trades, orders, and NBBO prices during short-sale restrictions. Overall, our findings indicate that short-sale restrictions harm the price discovery process and lead to a reduction in market efficiency.     

Classical meets modern in the IDEA protocol for structured expert judgement

Expert judgement is pervasive in all forms of risk analysis, yet the development of tools to deal with such judgements in a repeatable and transparent fashion is relatively recent. This work outlines new findings related to an approach to expert elicitation termed the IDEA protocol. IDEA combines psychologically robust interactions among experts with mathematical aggregation of individual estimates. In particular, this research explores whether communication among experts adversely effects the reliability of group estimates. Using data from estimates of the outcomes of geopolitical events, we find that loss of independence is relatively modest and it is compensated by improvements in group accuracy.     

Clawbacks,Holdbacks, and CEO Contracting

“Clawbacks” are much discussed in the context of senior executive compensation, yet the discussion has largely ignored the presence of holdbacks that are already in place in many firms. Holdbacks are deferred compensation that is potentially foregone in the event that the CEO leaves the firm without good reason or they are dismissed for wrong‐doing. They are explicit or written features of a CEOs employment contract. Holdbacks are already in use at 70% of S&P 500 firms and average $18.4 million each. Firms with higher CEO replacement costs, greater information asymmetry, a recent bad experience (fraud, lawsuit, or restatement), or in more certain environments are more likely to have a holdback. In contrast, clawback adoptions are mainly driven by firms' bad experiences and external pressure from shareholders. Holdbacks and incentive‐based compensation are substitutes, as termination incentives can reduce the need for incentive compensation. As managers reasonably demand a premium for accepting risky compensation, a measure of abnormal compensation is positively associated with holdbacks, but there is no significant association between clawbacks and holdbacks. These findings suggest that the holdbacks many firms already have in place could help an “ex‐post settling up” in the event of financial misconduct, or even simply misstated financials. As companies have more control over the amounts held back ex‐ante, holdbacks are potentially more efficient.