An explanation of why shareholders' losses are so large after drug recalls

Recent studies show firms suffering drug recalls experience security losses many times larger than any reasonable measure of their direct cost. We discover that the implied standard deviation of stock returns from the Black-Scholes option pricing model significantly increases after a drug recall. The implied standard deviation provides a good proxy for the stock's ex ante beta. The higher systematic risk after a product recall must raise the discount rate used by investors. After a recall, stock prices are reduced in line with the lower expected future earnings and are further reduced because of a higher discount rate.     

Leadership integrity and the role of human resource management in Greece: Gatekeeper or bystander?

With ethical misconduct commonplace in organizations and with the touting of competitive advantage associated with ethical organizational practices, considerable attention has turned to leadership integrity. Leaders are uniquely situated to influence the behavior of organizational members, and integrity has been shown to be instrumental in supporting ethical behavior and decision‐making. This article explores the role and influence of human resources management (HRM) in supporting leadership integrity among a group of large organizations operating in crisis‐stricken Greece. Although the institutional and cultural context of Greece appears to exacerbate role tensions confronted by human resources (HR) professionals, its forces are not deterministic; findings from in‐depth interviews with 12 HR directors indicate that the HR potential to secure ethical influence at the top level is primarily contingent on the nature of the organization's culture. Cultures of integrity enable HR executives to influence integrity and ethical behavior in top management teams (TMTs). In contrast, compliance‐based organizational cultures appear to breed a fickle HR presence: fostering integrity and ethical behavior for the middle and lower levels of an organization, while turning a blind eye to integrity violations at the top.     

WHAT DO CITIZENS THINK ABOUT PUBLIC ENTERPRISES? SUBJECTIVE SURVEY DATA ON THE LEGITIMACY OF THE ECONOMIC ACTIVITIES OF THE GERMAN PUBLIC SECTOR

We analyse the legitimacy of public enterprises that perform economic activities by focusing on the citizens’ subjective preferences, i.e. determining their political legitimacy. Using data from a representative survey conducted among 318 citizens of the German state of Rhineland‐Palatine, we explore determinants for the support of either privatisation efforts or the instrumental thesis, a widespread principle in German‐speaking countries, which considers public enterprises solely as instruments to fulfil economic policy objectives. Our results indicate that the respondents’ perception of the efficiency of public enterprises as well as their personal economic situation are important factors for the support of privatisation. The influential factors for the use of public enterprises as policy instruments are political ideology, the perception of a higher security of supplying goods and services as well as opinions regarding corporate social responsibility. The subjective preferences of a (democratic) country's citizens are thus an important reason why the public sector should or should not play an active part in providing goods and services. This can play an important role when decision makers from the public sector are keen to take into account the citizens’ approval or disapproval of privatisation measures.     

The dialectics of competency acquisition: pollution prevention in electric generation

Strategy researchers now recognize that distinctive competencies are critically important for sustained competitive advantage. The processes by which such competencies are acquired, however, has only started to be examined. Connections between macro-industrial system level properties and micro-developments in proprietary technology at the firm level need to be made. This paper argues that system-wide properties, such as long-standing elementary and opposing logics in societal forces like governments and markets, and micro-developments, such as the firm's capacity to search for talent, technology, and ideas and to harmonize what it learns internally, can contribute in significant ways to the creation and acquisition of new competencies. Based on the case of pollution prevention in electric generation, it shows how the system-wide properties channel and direct the paths that the acquisition of new competencies take and how they interact with micro-developments at the firm level. © 1998 John Wiley & Sons, Ltd.