Does Social Performance Really Lead to Financial Performance? Accounting for Endogeneity

The empirical relationship between a firm’s social performance and its financial performance is still not well established in the literature. Despite more than 30 years of research and more than 100 empirical studies on the issue, the results are still mixed. We argue that the heterogeneous results found in previous studies are not due exclusively to problems related with the measurement instruments or the samples used. Instead, we posit that a more fundamental problem related with the endogeneity of social strategic decisions could be driving most of the empirical findings. We show that, using a panel data of 658 firms from 1991 to 2005, how some of the results found in previous research change, and some are even reversed when endogeneity is properly taken into account.     

CONSTRUING THE BUSINESS PORTFOLIO: A COGNITIVE MODEL OF DIVERSIFICATION[1]

In investigating the concept of diversification and its link to performance, strategy researchers have tended to emphasize economic, technological, or market characteristics that distinguish or relate one business to another. However, by ignoring the mental maps corporate-level managers use to understand and manage strategic variety among their firm's businesses, strategy research has failed to produce an overall theory that links diversification to performance. Although the literature has begun to reaffirm the importance of developing a cognitive concept of diversification, researchers have been frustrated by the paucity of methods that are suitable for operationalizing the subjective characteristics of managerial mental maps into quantitative and reproducible measures. In addressing this deficit, this article proposes the use of the Repertory Grid, a set of procedures that facilitates elicitation and quantification of top managers' mindsets towards the firm's mix of businesses. After outlining the theoretical and methodological foundations of the Repertory Grid, the paper defines indices of grid structure and content and demonstrates the utility of grid data for assessing diversification.     

The political economy of seigniorage

While most economists agree that seigniorage is one way governments finance deficits, there is less agreement about the political, institutional and economic reasons for relying on it. This paper investigates the main political and institutional determinants of seigniorage using panel data on about 100 countries, for the period 1960–1999. Estimates show that greater political instability leads to higher seigniorage, especially in developing, less democratic and socially-polarized countries, with high inflation, low access to domestic and external debt financing and with higher turnover of central bank presidents. One important policy implication of this study is the need to develop institutions conducive to greater political stability as a means to reduce the reliance on seigniorage financing of public deficits.     

Problems in Launching the Mobile Internet: Evidence From a Pricing Experiment

Commercialization of innovations frequently stumbles. A prominent recent example are the early (i.e., pre‐3G) mobile phone‐enabled Internet services, whose European take‐up was slower than expected. To determine why, we build a structural model of demand for such services and estimate it using consumer‐level panel data from a pricing experiment. The experiment allows a decomposition of the number of wireless connections into the number of needs—instances where a consumer would establish a connection if the price were zero—and the conditional probability of establishing a connection. We find that needs were plenty and potential consumer surplus several magnitudes higher than that attained. We find that pricing reduced usage substantially and explore potential reasons for the high prices.     

2022 KLEIN LECTURE PARENTAL EDUCATION AND INVENTION: THE FINNISH ENIGMA

Why is invention strongly positively correlated with parental income not only in the United States but also in Finland, which displays low income inequality and high social mobility? Using data on 1.45 M Finnish individuals and their parents, we find the following: (i) the positive association between parental income and off-spring probability of inventing is greatly reduced when controlling for parental education; (ii) instrumenting for the parents having an MSc degree using distance to nearest university reveals a large causal effect of parental education on offspring probability of inventing; and (iii) the causal effect of parental education has been markedly weakened by the introduction in the early 1970s of a comprehensive schooling reform.