Credit ratings and the cross-section of stock returns

Low credit risk firms realize higher returns than high credit risk firms. This is puzzling because investors seem to pay a premium for bearing credit risk. The credit risk effect manifests itself due to the poor performance of low-rated stocks (which account for 4.2% of total market capitalization) during periods of financial distress. Around rating downgrades, low-rated firms experience considerable negative returns amid strong institutional selling, whereas returns do not differ across credit risk groups in stable or improving credit conditions. The evidence for the credit risk effect points towards mispricing generated by retail investors and sustained by illiquidity and short sell constraints.     

Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter

This paper analyses the robustness of the standardised framework proposed by the Basel Committee on Banking Supervision (2004b) to quantify the interest rate risk of banks. We generalise this framework and study the change in the estimated level of interest rate risk if the strict assumptions of the standardised framework are violated. Using data on the German universal banking system, we find that estimates of the interest rate risk are very sensitive to the framework's assumptions. We conclude that the results obtained using the standardised framework in its current specification should be treated with caution when used for supervisory and risk management purposes.     

Regional interdependence and forest “transitions”: Substitute deforestation limits the relevance of local reversals

Using case studies and concepts we suggest that constraints upon aggregate or global forest transition are significantly more severe than those upon local forest reversals. The basic reason is that one region's reversal can be facilitated by other regions that supply resources and goods, reducing the demands upon the region where forests rise. Many past forest reversals involve such interdependence. For ‘facilitating regions’ also to rise in forest requires other changes, since they will not be receiving such help. We start by discussing forest-transitions analysis within the context of Environmental Kuznets Curves (EKCs), for a useful typology of possible shifts underlying transitions. We then consider the historical Northeast US where a regional reversal was dramatic and impressive. Yet this depended upon agricultural price shocks, due to the Midwest US supplying food, and also upon the availability of timber from other US regions. Next we consider deforestation in Amazônia, whose history (like the Northeast US) suggests a potential local role for urbanization, i.e. spatial concentration of population. Yet inter-regional issues again are crucial. For cattle and soy, expansion of global demands may give to Amazonia a role more like the Midwest than the Northeast US. In addition, across-region interdependencies will help determine where reversal and facilitation occur. Finally we discuss the constraints upon very broad forest transition.     

University‐industry collaboration and front‐end success: the moderating effects of innovativeness and parallel cross‐firm collaboration

Collaboration with science‐based and/or market‐based partners is a promising means for firms’ R&D groups to leverage complementary expertise and resources to generate innovative results. However, R&D managers face the dilemma which partner type to choose in different innovative contexts and whether to focus on one partner type or to integrate both types in early stage R&D. Using survey data from 166 heads of R&D groups, this study investigates university–industry collaboration’s impact on front‐end success depending on the degree of innovativeness and the interaction with other industry partners. The results confirm an overall positive relationship between university–industry collaboration and front‐end success. However, innovativeness increases complexity in this relationship. Parallel collaboration with firms and universities can have a mixed impact on front‐end success depending on the degree of innovativeness. This simultaneous collaboration with firms and universities strengthens front‐end success for more radical innovations, while parallel collaboration activities for more incremental innovations do not necessarily strengthen front‐end success. These findings imply that both collaboration types should be used simultaneously in the front end of radical innovation and that firms could reduce complexity by focusing on either firms or universities as partners for incremental innovations.     

Retaining and satisfying project managers – antecedents and outcomes of project managers’ perceived organizational support

Although theory and research from the domains of organizational behavior and human resource management suggest that individuals’ perceived organizational support (POS) plays a crucial role in enhancing job satisfaction and in reducing turnover intentions, there is a lack of research applying Organizational Support Theory to the realm of project management. Project-based organizations have an increasing demand for highly qualified project managers who feel supported by their employing organization and intend to remain in their positions. Therefore, the primary objective of the present study was to investigate predictors of project managers’ POS (both from a career management and from a project portfolio management perspective) and to examine how this variable related to their job satisfaction and intention to quit their project manager position. Using a sample of 541 project managers and 135 project portfolio coordinators nested in 135 firms, the analysis revealed that POS related positively to project managers’ job satisfaction and negatively to their turnover intention. A career path for project managers was positively associated with POS, especially when it was accompanied by adequate qualification opportunities. Results further stress the significance of top management involvement and the support of project management offices for project managers’ POS.     

Big splash,no waves? Cognitive mechanisms driving incumbent firms’ responses to low‐price market entry strategies

Research Summary: Low‐price market entries, aiming for rapid sales growth, tend to prompt strong competitive reactions. This research explores whether and how firms using low‐price entry strategies can mitigate retaliatory incumbent reactions. An experiment with 656 managers shows that entrants can attenuate the strength of incumbents’ responses by fostering perceptions of high aggressiveness or low commitment. Entrants may be able to accomplish this by adjusting their entry strategy to embed (subtle) cues of aggressiveness and (lack of) commitment. A replication experiment with university students reinforces our overall theoretical argument. However, the results also indicate that the interpretation of cues embedded in the entry strategy may be affected by the experience of incumbent firm managers. Overall, these results clarify the cognitive foundations of competitive responses to market entry. Managerial Summary: What drives incumbents to respond strongly to market entries, and what can the entrant, if anything, do to mitigate those responses? This research offers empirical evidence and theoretical insights for managers faced with these questions by shedding light on the thinking processes preceding competitive responses. The study shows that while managers are motivated to respond strongly to market entries that appear to be highly consequential to their business, these responses may be mitigated if the entrant manages to foster perceptions of high aggressiveness or low commitment to the market. Managers form these perceptions in part on the basis of the entrant’s behavior, creating an opportunity for entrants to adjust their entry strategies in a manner that demotivates strong competitive responses.     

Managing Persistent Tensions on the Frontline: A Configurational Perspective on Ambidexterity

Ambidexterity research has noted that firms’ simultaneous pursuit of exploration and exploitation causes organizational tensions that are difficult to resolve. To make these tensions manageable, scholars have generally suggested that senior managers take the central role in designing organizational solutions, such as the structural separation or contextual integration of the exploratory and exploitative tasks. Yet, in an inductive study of ten corporate innovation initiatives, we find that our informants assigned far less importance to the senior managers’ initial design choices than to the frontline managers’ subsequent configurational practices. Frontline managers used these practices to constantly adapt and align their initiatives’ organizational contexts, which allowed them to cope with persistent exploration‐exploitation tensions in their daily business activities. Based on these empirical insights and drawing on paradox theory, we develop a configurational perspective on ambidexterity, where frontline managers play a more central, proactive, and strategic role than purported by the established design perspective on ambidexterity.     

The Value of Delegated Quality Control

This paper studies the case in which a firm delegates quality control to an independent monitor. In a repeated game, consumers’ trust provides incentives to acquire information about whether the good is defective, and withhold defective goods from sale. If third‐party reports are observable to consumers, delegation lessens the first and dispenses with the second moral hazard concern but also creates agency costs. Internal quality control is optimal only if trades are sufficiently frequent and consumer information is sufficiently precise. This result holds in the presence of the possibility of collusion, fully non‐verifiable presale information, and economies of scale in external quality control.