Subprime governance: Agency costs in vertically integrated banks and the 2008 mortgage crisis

Research summary: This study uses the 2008 mortgage crisis to demonstrate how the relationship between vertical integration and performance crucially depends on corporate governance. Prior research has argued that the vertical integration of mortgage origination and securitization aligned divisional incentives and improved lending quality. We show that vertical integration improved loan performance only in those firms with strong corporate governance and that this performance‐integration relationship strongly decreases and actually reverses as governance quality decreases. We interpret these findings as suggesting that the additional control afforded by vertical integration can, in the hands of poorly monitored managers, offset gains from aligned divisional incentives. These findings support the view that corporate governance influences the strategic outcomes of a firm, in our case, by influencing the effectiveness of boundary decisions. Managerial summary: One of the unanswered questions of the 2008 mortgage crisis is why some firms produced toxic mortgages and others did not. Many have argued that vertically integrated banks—banks that both originated and securitized mortgages—had incentives to monitor themselves and thereby avoid overaggressive lending and outright fraud. Yet many of the worst lenders, such as Washington Mutual and New Century Financial, were in fact integrated. This study shows that the behavior of these firms critically depended on their corporate governance. We find that poorly monitored executives used their additional control over the integrated businesses to issue low quality loans that supported short‐term growth. Our results suggest that governance is a crucial prerequisite for financial services, particularly for firms whose managers control multiple, interrelated businesses. Copyright © 2015 John Wiley & Sons, Ltd.     

Profiling employees online: shifting public–private boundaries in organisational life

Profiling involves the collection and use of online information about prospective and current employees to evaluate their fitness for and in the job. Workplace and legal studies suggest an expanded use of profiling and significant legal/professional implications for HRM practitioners, yet scant attention has been afforded to the boundaries of such practices. In this study, profiling is framed as a terrain on which employees and employers assert asymmetrical interests. Using survey data from large samples in Australia and the UK, the study investigates the prevalence and outcomes of profiling; the extent to which employees assert a right to privacy versus employer rights to engage in profiling; the extent to which organisations codify profiling practices; and employee responses in protecting online information. The findings contribute to a small and emerging body of evidence addressing how social media conduct at work is reconstituting and reshaping the boundaries between public and private spheres.     

Saltatory Ontogeny and the Life-History Model: Neglected Processes and Patterns of Evolution

A single cell – an egg – cannot be in the same stabilized state as a differentiated multicellular embryo or reproducing adult. The entire ontogeny must, therefore, consist of a sequence of stabilized states. Ontogeny of a phenotype cannot progress gradually but is a saltatory homeorhetic system, proceeding via natural thresholds from one self organized state to the next, hierarchically ever more complex and specialized. The natural boundaries of ontogeny – the far-from-stabilized thresholds – represent also states when changes can be easiest inserted or induced, and especially in the early ontogeny, from the intervals where evolution (change) can occur. As a result, ontogeny can also be divided into distinct life-history intervals called periods, be it embryo, larva (infant, pup), juvenile, adult and senescence, each divided in turn into phases, and each of these into natural steps. It is left to the imagination of scholars in social sciences to find parallels of saltation in economics and history.     

Reformulation and assessment of the inventory approach to urban growth boundaries

Based on the theoretical framework, in this article we demonstrate how Decision Network can be used to formulate the inventory approach to urban growth boundaries (UGBs) as an application of the planning tool to a general case. In particular, in the inventory approach expansions of UGBs are considered as decision situations, land consumptions as problems, and order sizes of UGBs as solutions. We compare the time- and event-driven systems of the inventory control problem based on the decision network framework. The former in the framework is considered as making single, independent decisions in time, whereas the latter as making multiple, linked decisions in time. Our numerical example shows that the event-driven system is more effective than the time-driven system in that the former incurs less total cost than the former in the UGBs context. The implication is that making multiple, linked decisions, as manifested by Decision Network, would yield more benefits, such as lowering the total cost, to the planner than making these decisions independently.     

Reassessing the fundamentals and beyond: Ronald Coase,the transaction cost and resource‐based theories of the firm and the institutional structure of production

In this paper, three points are argued. The first is that Ronald Coase, best known as the forefather of transaction cost theory, foresaw many of the critical questions that proponents of the resource‐based view are concerned with today. The second is that resource‐based theory plays a potentially much more critical role in economic theory and in explaining the institutional structure of production than even many resource‐based scholars recognize. The last point is that a more complete understanding of the organization of economic activity requires a greater sensitivity to the interdependence of production and exchange relations. The arguments presented in this paper highlight important, but relatively ignored, elements in Coase's work that inform strategy research. More importantly, this paper makes the case for a triangular alignment between the triumvirate of governance structure, transaction, and resource attributes and demonstrates how the identity and strategy of a particular firm influences how its resources interact with the transaction and how the firm chooses to govern it. The general argument is then applied to the context of interfirm collaborative relations, where the key focus is broadened from just cost to also include skills/knowledge and the interdependence between cost and skills with respect to firm boundaries, both in terms of choice and nature. Such a broadening of focus enables us to additionally examine the transacting process as a productive endeavor, which underpins the co‐evolution of the competencies of partner firms. Copyright © 2002 John Wiley & Sons, Ltd.     

Sequential American Exchange Property Options

Property development activities often occur in stages, which are appropriately modeled as sequential American exchange property options, where there are interim expenditures required in order to keep the property development options “alive”. Normally American exchange options require a numerical solution, but herein there is a new closed-form approximate solution, which is computationally efficient and accurate. This method combines repeats of Margrabe European exchange and Geske compound option solutions with tight upper boundaries of either American perpetuities or European exchange options with a high volatility. Illustrations are provided of the sensitivity of the real sequential options and optimal timing to changes in several parameters, which provide a framework for property policy (tax, subsidy and regulatory) guidelines and for property development strategy evaluation. There are several plausible applications of these real option models in commercial and residential property development, within commercial property leases, with regard to switching tenants, and agricultural alternatives.     

Know-how transfer: the role of social,economic/competitive,and firm boundary factors

Using policy capture methodology, this study examines the effect of different contextual cues upon the know-how transfer efforts reported by 79 biotechnology R&D scientists. Theoretically, these different cues are believed to affect the scientists' expectation of reciprocity, and thus their know-how transfer behavior. Three types of contextual cues between the know-how source and recipient were studied: competitiveness, social relationship, and within or across firm boundaries. We find these cues are associated, in the expected directions, with know-how transfer effort. The findings support a general theory of reciprocity whereby social, competitive, and firm boundary cues have a summative effect upon the expectation of reciprocity and know-how transfer. This is the first study to examine how these cues taken together influence the know-how transfer decision. Copyright © 2008 John Wiley & Sons, Ltd.     

Boundary-crossing and the localization of capabilities in a Japanese multinational firm

We conducted a case study to explore the challenges encountered by a foreign subsidiary of a Japanese multinational firm when localizing its organizational capabilities in China. Drawing on the concepts of boundaries and boundary-crossing, we identify pragmatic and cultural knowledge boundaries, which denied opportunities for the host-country employees to contribute their local expertise to augment the firm's core capabilities within the domains of research and development and operational protocols. However, within those domains that were regarded as complementary to or peripheral to the firm's core capabilities, host-country employees were granted more scope to cross the associated pragmatic boundaries.     

THE SOCIAL PRODUCTION OF SPACE IN TOURISM ENCLAVES: MAYAN CHILDREN’S PERCEPTIONS OF TOURISM BOUNDARIES

This paper adopts an interpretive approach to investigate children’s perceptions of their socio-spatial surroundings. It focuses on two tourism service towns, Akumal Pueblo and Chemuyil, and two major tourism centers, Akumal Playa and Bahia Principe, all located in the Mexican Yucatan Peninsula. Drawing on scholarship related to tourism’s role in demarcating and segregating space and Lefebvre’s trialectics of space production, this inquiry focuses on ways in which Mayan children residing in Akumal Pueblo and Chemuyil render their surrounding spaces intelligible, while reproducing or challenging the boundaries, symmetries and inclusions/exclusions created by the tourism industry. Tourism scholarship has tended to ignore children. By contrast this study engages the geographies of childhood to understand the lived socio-spatial experiences of this demographic group.     

AN EPISTEMIC COMMUNITY AS INFLUENCER AND IMPLEMENTER IN LOCAL GOVERNMENT ACCOUNTING IN AUSTRALIA

This paper explicates the dual role of epistemic communities as influencers of accounting policy within regulatory space and as implementers who effect change within the domain of accounting. Set within the context of New South Wales in Australia, and the challenge of the financial sustainability of its local councils, the study was informed by documentary sources, and used data from interviews and a survey. Accounting and finance professionals, as an epistemic community, played a pivotal role in formulating accounting policy and in embedding fair value measurement of infrastructure assets.