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Jo-Ann Stores is posting impressive sales and earnings numbers and is an example of a retail sector on which Walmart doesn't have a steel grip.
Even smart people make financial moves that are downright illogical. Emotions and superstitions have a sneaky way of keeping you from rational financial decisions. But dumb choices can have serious, real-world consequences. Here are some of the biggest blunders we all make, plus tips from the experts on how to keep cool.
HBS Working Knowledge
Harvard Business School Working Knowledge offers business practitioners afirst look at cutting-edge research and thinking from more than 200 HBSfaculty.
- The Global Networks of Multinational FirmsPublished:December 23, 2009Paper Released:December 2009Authors:Laura Alfaro and Maggie Chen
Executive Summary:
When and why do multinationals group together overseas? Do they agglomerate in the same fashion abroad as they do at home? An answer to these questions is central to the long-standing debate over the consequences of foreign direct investment (FDI). It is critical to understand interdependencies of multinational networks and how multinationals influence one another in their activities at home and overseas. HBS professor Laura Alfaro and George Washington University professor Maggie Chen examine the global network of multinationals and study the significance and causes of multinational agglomeration. Their results provide further evidence of the increasing separation of headquarters services and production activities within multinational firms. The differential specialization of headquarters and subsidiaries leads to distinct patterns of agglomeration. Key concepts include:
- Recent decades have witnessed an explosion in the activities of multinational corporations, but little is understood about global patterns of multinational agglomeration.
- Examples of this trend include firms that agglomerated in Silicon Valley and in Detroit now having subsidiaries clustered in Bangalore (termed "the Silicon Valley of India") and in Slovakia ("the Detroit of the East").
- A new data set provides detailed location, ownership, and activity information for establishments in more than 100 countries.
- Multinational subsidiaries with knowledge spillovers, among other factors, tend to agglomerate to one another. The importance of these agglomeration economies is, however, different across headquarters, subsidiary, and employment networks.
- Many factors play a role in the location decisions of firms, so it may not be possible for a country to duplicate the circumstances that led to agglomeration in other nations.
- Policymakers need to consider the interdependence of multinational firms when making decisions about FDI.
Abstract
In this paper we characterize the topology of global multinational networks and examine the macro and micro patterns of multinational activity. We construct indices of network density at both pairwise industry and establishment level and measure agglomeration in a global and continuous metric space. These indices exhibit distinct advantages compared to traditional measures of agglomeration including the independence on the level of geographic aggregation. Estimating the indices using a new worldwide establishment dataset, we investigate both the significance and causes of multinational firm co-agglomeration. In contrast to the conventional emphasis of the literature on the role of input-output linkages, we assess the effect of various agglomeration economies. We find that, relative to counterfactuals, multinationals with greater factor-market externalities, knowledge spillovers, and vertical linkages exhibit significant co-agglomeration. The importance of these factors differs across headquarters, subsidiary, and employment networks, but knowledge spillovers and capital-market externalities, two traditionally under-emphasized forces, exert consistently strong effects. Within each macro network, there is a large heterogeneity across subsidiaries. Subsidiaries with greater size and higher productivity attract significantly more agglomeration than their counterfactuals and become the hubs of the network. 59 pages.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: December 2009
- HBS Working Paper Number: 10-043
- Faculty Unit: Business, Government and International Economy
- First Look: Dec. 22
Research this week leans towards defying expectations. Common wisdom, for example, might suggest that a CEO who has risen through the ranks of her company would favor her former divisions in budget choices, as opposed to divisions in which she has little to no experience. Instead, "reverse-favoritism" seems the order of the day, according to HBS professor Yuhai Xuan. Writing in the December issue of the Review of Financial Studies, Xuan found that "after CEO turnover, divisions not previously affiliated with the new CEO receive significantly more capital expenditures than divisions through which the new CEO has advanced. [...] The results suggest that new specialist CEOs use the capital budget as a bridge-building tool to elicit cooperation from powerful division managers in previously unaffiliated divisions." Xuan's article is titled "Empire-Building or Bridge-Building? Evidence from New CEOs' Internal Capital Allocation Decisions."
This week also sees a comprehensive look at how and why multinationals vary in size from country to country. Contrary to popular expectations, "corporate headquarters in the U.S. are about twice the size of European counterparts," HBS professor David Collis and coauthors write in the working paper "International Differences in the Size and Roles of Corporate Headquarters: An Empirical Examination" [PDF]. Whether your own HQ is bloated or lean 'n' mean, there is as yet no perfect model for headquarters size, the paper continues. "The size and role of corporate headquarters vary widely both between countries and within countries.[...] [T]here is more variation within each country than there is between countries," the authors observe.
— Martha Lagace
Working Papers
International Differences in the Size and Roles of Corporate Headquarters: An Empirical Examination
Authors:David Collis, David Young, and Michael Goold AbstractThis paper examines differences in the size and roles of corporate headquarters around the world. Based on a survey of over 600 multibusiness corporations in seven countries (France, Germany, Holland, U.K., Japan, U.S., and Chile), the paper describes the differences among countries and then applies a model of the factors determining the size of corporate headquarters (Young, Collis, and Goold, 2003) to systematically examine those differences. The data shows that there are significant differences among countries in the size and role of corporate headquarters and strongly suggests the existence of a developing country model, a European model, a U.S. model, and a Japanese model of corporate headquarters. Contrary to popular expectations, corporate headquarters in the U.S. are about twice the size of European counterparts. Headquarters there exert a higher level of functional influence and have larger staffs in certain key areas, such as IT and R&D. U.S. managers are generally more satisfied than their European counterparts with their larger more powerful headquarters, which suggests that, at least in the U.S. context, large corporate headquarters can create value.
Download the paper: http://www.hbs.edu/research/pdf/10-044.pdf
Publications
Intra-Industry Foreign Direct Investment
Authors:Laura Alfaro and Andrew Charlton Publication:American Economic Review 99, no. 5 (December 2009) AbstractWe use a new firm-level dataset that establishes the location, ownership, and activity of 650,000 multinational subsidiaries. Using a combination of four-digit-level information and input-output tables, we find the share of vertical FDI (subsidiaries that provide inputs to their parent firms) to be larger than commonly thought, even within developed countries. Most subsidiaries are not readily explained by the comparative advantage considerations whereby multinationals locate activities abroad to take advantage of factor cost differences. Instead, multinationals tend to own the stages of production proximate to their final production, giving rise to a class of high-skill, intra-industry vertical FDI.
Measuring and Managing Macrofinancial Risk and Financial Stability: A New Approach
Authors:Dale F. Gray, Robert C. Merton, and Zvi Bodie Publication:In Central Banking, Analysis, and Economic Policies. Central Bank of Chile, forthcoming AbstractThis paper proposes a new approach to improve the way central banks can analyze and manage the financial risks of a national economy. It is based on the modern theory and practice of contingent claims analysis (CCA), which is succes