Thursday, January 29, 2015

Self-fulfilling Fire Sales: Fragility of Collateralised Short-term Debt Markets

KUONG John
Read the working paper
INSEAD Working Paper 2015/07/FIN

This paper shows that collateralised short-term debt, although optimal to reduce borrower moral hazard, can lead to systemic runs in the debt markets and create endogenous aggregate risk. This is because of a feedback loop between the risk-taking behavior of borrowers (e.g. shadow banks) and the expected price of seized collateral in the secondary market. When the re-sale price of collateral is expected to be low, lenders demand more collateral (margin) and higher debt yields (repo rates), making it more attractive for borrowers to engage in risk-taking ex-ante (due to limited liability). The riskier pool of projects will lead to more liquidation ex-post and hence more seized collateral to be sold off, justifying the expectation of low fire-sale price. I show that a government commitment to engage in asset purchases in a crisis can improve welfare, and that a ban on the exemption from automatic stay in repo nance can worsen borrower moral hazard and lead to more re sales.

Selective Attention and the Initiation of the Global Knowledge Sourcing Process in Multinational Corporations

MONTEIRO L. Felipe
Selective Attention and the Initiation of the Global Knowledge Sourcing Process in Multinational Corporations Journal of International Business Studies (forthcoming)

Multinational corporations (MNCs) frequently use their foreign subsidiaries to identify new opportunities to access external knowledge. This article builds on the attention-based view to examine how selective attention – the focus on certain issues or answers at the exclusion of others – works in the global knowledge-sourcing process in MNCs. The results reveal an intriguing paradox: while MNCs may establish foreign subsidiaries far from headquarters to identify diverse, novel knowledge, and overcome local search, headquarters’ decision makers tend to favor opportunities that are market proven and simply confirm what the MNC already knows. Subsidiary managers’ pre-selling and selling efforts, however, can play a pivotal role in overcoming that bias. This study combines detailed qualitative data with access to a proprietary database on 137 external knowledge-sourcing opportunities in one of the world’s largest MNCs in the telecommunications sector.

The Circle Chart: A Negotiation Framework for Problem-Solving in Tough Communication Environments

FALCAO Horacio
©2015 INSEAD Case Study
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The Circle Chart is a simple framework that offers users a system to think through complex, multi-party or cross-cultural negotiations, as well as written negotiations. It can also be used to structure debriefing of negotiations.

Using the Circle Chart in the Negotiation Dynamics Debrief

FALCAO Horacio
©2015 INSEAD Case Study
Get the case from INSEAD Case Publishing

The Circle Chart is a simple framework that offers users a system to think through complex, multi-party or cross-cultural negotiations, as well as written negotiations. It can also be used to structure debriefing of negotiations.

Fabindia: Branding India’s Artisanal Craft for Mass Retail

CHATTOPADHYAY Amitava, SABHANEY Prableen, CHAINANI Sunil, WEE Jean
©2015 INSEAD Case Study
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Fabindia, India’s iconic garments and home furnishings company, had come a long way from its humble beginnings as an export shop in 1960, selling handloom fabrics to overseas customers. In 1976, it had started domestic operations in India and over the next 38 years had become synonymous with quality handmade products procured from artisans all over India, with a social conscience. The business combined the twin objectives of making a profit and providing a sustainable livelihood for rural artisans. However, the winds of change were blowing. The next generation of consumers, part of a different economic environment and world order, were less tied to the Fabindia ethos and had widened their consumption habits. Given these changes, was it time to evolve? Should Fabindia broaden its positioning? If it remained niche, could it continue the phenomenal growth it had experienced? If Fabindia chose to broaden its positioning, what should that positioning be?