Friday, August 29, 2014

Alternative Information Sources and Information Asymmetry Reduction: Evidence from Small Business Debt

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Journal of Accounting and Economics (forthcoming)

We examine whether more sophisticated accounting methods (in the form of accrual accounting) interact with other information sources to reduce information asymmetries between small business borrowers and lenders, thereby lowering borrowers’ probability of loan denial and cost of debt. We find that higher third party credit scores, but not the use of accrual accounting, decrease the likelihood of loan denial. However, firms using accrual accounting exhibit statistically lower interest rates after controlling for many factors associated with the cost of debt. Further, the interest rate benefits from accrual accounting are greatest when the borrower's credit score is low and/or the length of its banking relationship with the lender is short. This evidence indicates that accrual accounting can benefit small business borrowers, but that the information contained in third-party credit scores and obtained through ongoing banking relationships can substitute for the incremental information provided by accrual accounting in some cases.

Thursday, August 28, 2014

Is Sustainable Luxury Fashion Possible?

GODART Frederic, SEONG Sorah
Is Sustainable Luxury Fashion Possible? in Sustainable Luxury: Managing Social and Environmental Performance in Iconic Brands, Miguel Angel Gardetti, Ana Laura Torres (Eds.), Greenleaf Publishing (forthcoming)

Can eco-sustainable fashion (i.e. fashion that is friendly to the environment during and after the production process) be also fashionable? While fashion is generally conceived as a process of recurrent change, eco-sustainable fashion implies fashion that lasts. This apparent contradiction in definitions is most salient in the fashion industry’s luxury segments, where change itself is considered an element of luxury and thus upheld by consumers. This chapter unfolds the challenges and opportunities specifically faced by luxury fashion brands in pursuing the eco-sustainability agenda. We take a theory-informed, action-oriented approach towards the six core principles of fashion, based on which we investigate how each principle can be utilised in favour of practising eco-sustainable fashion at the individual and brand levels. We contend that the institutionalisation of eco-sustainability paradigms in luxury fashion can be realised without negating the core principles of fashion. 

Tuesday, August 26, 2014

This Number Just Feels Right: The Impact of Roundedness of Price Numbers on Product Evaluations

WADHWA Monica, ZHANG Kuangjie
This Number Just Feels Right: The Impact of Roundedness of Price Numbers on Product Evaluations Journal of Consumer Research (forthcoming)

This research proposes that since rounded numbers are more fluently processed, rounded prices (e.g., $200.00) encourage reliance on feelings. In contrast, since non-rounded numbers are disfluently processed, non-rounded prices (e.g., $198.76) encourage reliance on cognition. Thus, rounded (non-rounded) prices lead to a subjective experience of “feeling right” when the purchase decision is driven by feelings (cognition). Further, this sense of feeling right resulting from the fit between the roundedness of the price number and the nature of decision context can make positive reactions toward the target product more positive and negative reactions more negative, a phenomenon referred to as the rounded price effect in the current research. Results from five studies provide converging evidence for the rounded price effect. Findings from the current research further shows that merely priming participants with rounded (non-rounded) numbers in an unrelated context could also lead to the rounded price effect. Finally, this research provides process support by showing that the rounded price effect is mediated by a sense of feeling right. This is the first research examining the differential impact of roundedness of prices on product purchase decisions, based on whether the purchase decision is driven by feelings versus cognition.

Monday, August 25, 2014

The New Lyrics of the Old Folks: The Role of Family Ownership in Corporate Innovation

HSU Po-Hsuan, HUANG Sterling, MASSA Massimo, ZHANG Hong
Read the working paper
INSEAD Working Paper 2014/51/FIN

According to conventional wisdom, family ownership, which signals a lack of social capital and trust in an economy, may impede innovation. This argument, however, fails to recognize that modern family firms can benefit from capitalist institutions that promote innovation. Using a comprehensive sample of U.S. family-owned public firms and patents for the period from 2000 to 2010, we show that family ownership promotes innovation and that this positive effect can be attributed to reduced financial constraints, a greater commitment to long-term value, and improved corporate governance. Causality is confirmed by an instrumental variable analysis using the state-level divorce rate and a difference-in-difference analysis based on changes in estate taxes (the Economic Growth and Tax Relief Reconciliation Act of 2001).

Alliance Portfolios and Resource Competition: How a Firm’s Partners’ Partners Influence the Benefits of Collaboration

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INSEAD Working paper 2014/49/EFE

This study examines the performance implications of competition for access to the resources of a firm’s alliance partners. Partner time and attention may be non-scale free resources, with their use in particular contexts constrained when applied across multiple relationships. Consequently, the other relationships in which a firm’s alliance partners are engaged can influence the firm’s returns to its alliance collaborations. Using a panel dataset of biotechnology start-ups I find that greater overlap in the R&D function between a start-up’s alliances and its partners’ other relationships can reduce start-up innovation output. I theorize that this stems from a reduction in knowledge spillovers from the partners, and I investigate the contingencies moderating this effect, as well as the conditions under which such effects may be less salient.