Investment in organization capital

We study a firm’s investment in organization capital by analyzing a dynamic model of language development and intrafirm communication. We show that firms with richer internal language (i.e., more organization capital) have lower employee turnover, and higher diversity in skill and wages among incumbents who are promoted from within the firm. Our results also suggest that firms in rapidly changing industries are less likely to invest in organization capital, and are more likely to have high managerial turnover. Finally, our model shows that employment protection regulations lead to more investment in organization capital but less innovation.     

Are college students at greater risk of credit card abuse? Age,gender, materialism and parental influence on consumer response to credit cards

Two studies examine age, gender, parental influence and materialism effects on consumers’ credit card attitudes and behavior. Credit card commitment and use are greater among older adults than college students. Women outperform men in managing balances. Materialism heightens commitment, trust and use, but interferes with outstanding balance management. Parental influence can improve students’ commitment, trust, use and balance management while discouraging overuse. Parental influence also mediates materialism's effect on trust and balance management. Overall, findings show college students are not more vulnerable than older adults to credit card abuse, but that students who are female, materialistic and with less parental influence are at more risk.     

Return enhancement trading strategies for size based portfolios

Recent theoretical work suggests that definitions of market efficiency that allow for the possibility of time-varying risk-premia will generally lead to return sign predictability. Consistent with this theory, we show that a logit model based on the lagged value of the market risk premium is useful for successfully predicting the return sign for CRSP small decile portfolio returns, but not large ones. We additionally employ this model in market timing simulations of micro-cap mutual funds in which investment can actually be made. The results indicate that a market-timing strategy based on our return-sign forecasting model outperforms a buy-and-hold strategy for 13 of 14 micro-cap funds studied. On average, the buy-and-hold strategy produces an average compound return of 11.98% per annum versus an average of 16.60% for the market-timing strategy. Nevertheless, trading restrictions make the return-sign forecasting model more practical to employ by the micro-cap fund portfolio manager rather than the individual fund investor.

Information shares in the US Treasury market

This paper highlights the previously neglected role of the futures markets in US Treasury price discovery. The estimates of 5- and 10-year GovPX spot market information shares typically fail to reach 50% from 1999 on. The GovPX information shares for the 2-year contract are higher than those of the 5- and 10-year maturities but also decline after 1998. Relative bid-ask spreads, number of trades, and realized volatility are statistically significant and explain up to 21% of daily information shares. In roughly 1/4 of cases when public information is released, the futures market gains information share, but macroeconomic announcements rarely explain information shares independently of liquidity.     

Giving great advice. Interview by Thomas A Stewart and Gardiner Morse

Few deal makers have been at it as long, and at such a high level, as Bruce Wasserstein, the chairman and CEO of the financial advisory and asset-management firm Lazard. In this edited interview, two HBR editors explore how he creates value as a manager, as a deal maker, and as a counselor to CEOs. Wasserstein, who has been a major figure in mergers and acquisitions for more than 30 years, talks about attracting and managing talent, building and sustaining a knowledge business, sizing up industries and companies, and crafting advice to help CEOs unlock value. At the heart of his approach is a singular ability to dissect a strategy's underlying premises in order to figure out whether a plan or deal "makes sense." Part of that determination involves understanding the broader context: Where is the industry going? What external factors will affect it? Such sensemaking informs every move Wasserstein makes, and it has paid off handsomely. In his career, he has helped broker more than a thousand deals, worth hundreds of billions of dollars. His intellect, creativity, and doggedness are what allow him to pick apart the most complex problems and devise novel solutions. In an age of specialization, he recognizes the importance of connecting the dots; he draws on the knowledge and skills of creative generalists as well as industry and regional specialists when setting up and executing deals. Wasserstein studied at Harvard University's business and law schools and at Cambridge University, helped lead First Boston's M&A practice, cofounded the investment-banking firm Wasserstein Perella Group, and then joined Lazard, which he famously took public in 2005 after disassembling a century and a half of family ownership. He is the 2007 recipient of Harvard Law School's Great Negotiator Award.     

A singular chain of events

This paper presents a scenario, a written narrative that describes a series of events that could lead to the extinction of humans as a species. The scenario is built upon three blocks of events. The first contains events that could severely and rapidly reduce human population in a relatively few years. The second block of events describes the regression of human civilization and technological base and the further loss of human population. The third block encompasses global environmental events that the remaining humans are subsequently unprepared to handle. The scenario posits the death by asphyxiation of the last human being by the year 3000.     

South Africa’s transition from apartheid: The role of professional closure in the experiences of black chartered accountants

As apartheid gave way to political freedom in South Africa in the last quarter of the 20th century, chartered accounting firms began to hire black South African trainees for the first time. The study examines the oral histories of black chartered accountants within the context of social closure theory and South Africa’s changing political and ideological landscape. The evidence indicates that processes of professional closure and credentialing excluded the majority population from the ranks of the profession on basis of race and class throughout the period 1976–2000.     

An empirical analysis of audit fee price competition after the Korean 1999 Omnibus Cartel Repeal Act

This study examines the audit service market in Korea after the 1999 Omnibus Cartel Repeal Act to determine if increased competition has led to audit fee discounting. Until 19 December 2001, when the Korean government enacted The Financial Supervisory Regulations, researchers could not address questions related to price competition in the Korean audit market due to data limitations. The new regulations allow researchers to examine audit effort for the first time because both audit hours and audit fees are now recommended disclosures. We use audit fee data of Korean companies for the 6-year period 1999–2004, and find evidence that total audit fees paid have been increasing but audit fees per hour have been decreasing. We also find that Big 5 auditing firms’ fees per hour are significantly lower than non-Big 5 auditing firms and are decreasing across time. These price pressures should be of concern to regulators and investors because prior research has demonstrated that price competition leads to discounting, which can result in unrealistically low audit fees and poor audit quality. Finally, as in previous research, we also find discounting of initial audit engagements in the Korean market.     

Individual approaches to futures thinking and decision making

This paper presents results of a second international web-based survey designed to gather data about how individuals approach thinking about their futures and making decisions regarding their futures. Five hundred and five respondents from 38 countries participated in the survey. Similar to the first survey, the sample has gender, age and religious diversity but is not representative with respect to education, income and race/ethnicity. The results suggest that the external environment provides a great deal of stimuli for people to think about the future (e.g., special occasions like New Years day, birthdays, and funerals). Individuals tend to think about the future more in the morning, and just before bed. Overall, most respondents experience happiness, confidence, and lightness when thinking about the future. Respondents employ many different approaches to thinking about the future, such as relying on personal past experiences, imagining future situations, and relying on their personal intuitions. Most respondents do not pattern their futures decision making on decisions made by others or on tradition. Most respondents believe that their thinking about the future is very worthwhile; most develop plans and take decisive action as a result of their efforts. About three quarters of the respondents report that they are able to predict their personal futures at least one-half of the time. Most respondents face few barriers to thinking about the future, although many reported it would be nice to have more energy, be able to concentrate better, and be able to better organize their thoughts. Females report that thinking about the future is a more emotional experience than it is for males. Males, on the other hand, have more confidence in their futures-oriented decision making abilities. Age plays a big part in how individuals relate to and think about the future. Younger respondents think more about the future more times during the day and find thinking about the future more fearful and anxious. They also pattern their decisions more on those made by others and older individuals. Older respondents tend to rely a great deal upon their lifetime of experiences and worry less about the future. Middle-aged respondents report worrying more about financial and career issues and report that thinking about the future can be emotionally draining.