Research Paper Series

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Year RPS # Title Author/s
2008 2008-009 (BP) TOWARDS A COMPLEXITY BASED VIEW OF THE FIRM Sai Yayavaram

This study examines the role of computational complexity in the organization of economic activity. The complexity perspective suggests that the goal of economic organization is to manage the complexity that is associated with achieving coordination between the interdependent components of an economy. To manage this complexity, it is necessary to couple the decision-making across the nodes using a structural approach that involves use of design rules. We discuss how various structural features of economic organization such as scale, scope, organization structure, the hierarchy-market continuum and intermediation increase manageable complexity.
 
Keywords: Firm Scope; complexity; coupling; interdependence

2008 2008-008 (MKTG) ESTIMATING THE EFFECTS OF DIRECT-TO-CONSUMER ADVERTISING FOR PRESCRIPTION DRUGS: A NATURAL EXPERIMENT Surendra Rajic, Prokriti Mukherji & Shantanu Dutta

In August 1997, the FDA allowed brand specific advertising on TV. Since then Direct-to-Consumer (DTC), as well as total sales of these drugs have gone up substantially. This simultaneous rise in DTC spending and prescription drug sales has resulted in a heated debate among medical practitioners, in the US Congress, and the popular press. One side claims that DTC advertising creates demand for the advertised brand while the other side claims that DTC advertising increases consumer knowledge and information. If DTC advertising is creates demand for a specific brand then price elasticity of demand will decrease while if it informs patients then price elasticity will increase. In this paper we ask whether DTC advertising increase price elasticity or reduce it?
 
To address this issue we compare price elasticity before and after the 1997 FDA policy change. We build a structural model in order to study the impact of this regime change. In the model we start with an individual’s choice between competing brands and aggregate up to market demand. Using monthly data on four Statins (cholesterol reducing drugs) we test the impact of the FDA’s policy change. We find that DTC advertising increases price elasticity of demand. Thus, our results suggest that DTC advertising seem to be increasing consumer knowledge and information.     
 
Keywords: DTC Advertising; Price elasticity; Pharmaceutical Markets; Structural Econometric Modeling; Choice Models

2008 2008-007 (MKTG) RISK-AVERSION AND DYNAMIC BRAND CHOICE Surendra Rajiv, Srinivas Prakhya & Kannan Srinivasan

A simple model of dynamic brand choice that takes into account the quality uncertainty faced by the consumer and the consequent information value associated with choice is developed in this paper. The model is formulated in a dynamic programming framework using Neumann-Morgenstern expected utility and Bayesian updating rules. The consumer, on each occasion, chooses from the brands available so as to maximize expected utility over a finite horizon based on preferences that are dynamically updated with consumption experience. Preference persistence arises due to the consumer’s uncertainty about quality levels. In uncertain environments, choice experiments can be undertaken to produce information through reduction of uncertainty. Hence, a forward-looking risk-averse consumer could recognize the possibility of current choice leading to modification of future behavior. Prior research has examined dynamic choice in uncertain environments but information value of choice has not been explicitly considered. Also, uncertainty has been incorporated at a category level although brand choice is a function of differences in attributes of brands. In this paper, brands are allowed to vary in the perceived uncertainty associated with quality, resulting in brand-specific information value of choice. Also, brands differ in their ability to influence preferences with consumption experience.
 
The dynamic model is estimated on scanner panel data using the conditional choice probability (CCP) estimation procedure, proposed by Hotz and Miller [1993], which considerably simplifies the estimation and computation difficulties associated with dynamic models. Results support the hypothesis that the consumer is not perfectly informed and is forward looking. Models that explicitly consider information value and forward looking behaviour fit the data better than myopic models.
 
Keywords: Quality Uncertainty; Consumer Learning; Expected Utility; Risk-Aversion; Dynamic Choice; Bayesian updating; Information Value; CCP Estimator; Valuation Function

2008 2008-006 (MO) CEO SUCCESSION AND FIRM PERFORMANCE: IS IT THE SAME IN EMERGING ECONOMIES? Chi-Nien Chung

Almost all the existing studies about CEO succession and firm performance are conducted in the US. Our study is driven by the lack of research on CEO succession in emerging economies where the institutional contexts diverge significantly from mature markets such the US. We argue that the contexts in emerging economies moderate the effects of three mechanisms-- firm-specific knowledge, social network resources, and information asymmetry--that link CEO succession and firm profitability. By using Taiwanese listed firms as research setting, our results show that CEO succession in general has a negative impact on firm performance in emerging economies where the governance and leadership structure tend to be relatively stable and less market-oriented. Insider successors, including family successors, are positively associated with firm performance while outsider successors are negatively related to profitability. Furthermore, the positive impact of family successors is indistinguishable from that of non-family insider successor. These results reflect insufficiency of many market institutions in emerging markets. Our results not only help advance the CEO succession literature by incorporating the new contexts of emerging economies but also have important implications to family business literature and the emergent literature on the strategies and performance of firms in emerging economies
 
Keywords: CEO succession, Firm performance, emerging economies, family successors
 

2008 2008-005 (DS) E-LEARNING IMPLEMENTATION: LESSONS FROM SOUTH KOREA Thompson S. H. Teo & Li Jiang

South Korea is highly successful in transforming its public education with e-learning. This paper proposes that the success of e-learning implementation involves policies and efforts that address and manage both the e-learning technology’s effectiveness and its social legitimacy (appropriateness). Based on a theoretical framework that integrates both effectiveness and legitimacy perspectives, this paper examines the lessons from e-learning implementation in South Korea. Our analysis reveals that South Korea systematically addresses both e-learning effectiveness and legitimacy during its e-learning implementation. E-learning effectiveness is enhanced by building an efficient e-learning infrastructure, continuous standardization effort, and raising public awareness while e-learning legitimacy is gained through establishing a sound regulatory system, applying socially appropriate online pedagogy, and building e-learning communities. The results provide important lessons for other countries that intend to implement e-learning in the educational sector.
 
Keywords: e-learning, Korea, effectiveness, legitimacy, lessons, implementation

2008 2008-004 (MO) POS AND OBSE: REDUNDANT OR COMPLEMENTARY? Daniel J. McAllister, Issac Lim & Kelvin Pang

We investigate the substantive overlapping between the concepts of perceived organizational support (POS) and organization-based self esteem (OBSE). Similarities notwithstanding, based upon insight from organizational support and self-consistency theory, we argue that POS should be a stronger predictor (than OBSE) of workplace attitudes (e.g., job satisfaction and commitment), and that OBSE should be a stronger predictor (than POS) of workplace behaviors (e.g., task performance and citizenship behavior). Our findings, based upon integrative insights from a meta-analytic study of the POS and OBSE literatures, are consistent with this understanding. We address the practical and theoretical implications of our findings.

2008 2008-003 (F) ANALYSTS’ PERCEPTION AND PERFORMANCE OF GOVERNMENT LINKED COMPANIES Joseph Y. S. Lim, Ruth S. K. Tan & S. Y. Ow

This paper seeks to reconcile the financial performance, analysts’ perception and stock market performance of government linked companies. In terms of financial performance, GLCs are able to outperform most companies but not companies of comparable size. In terms of analysts’ perception, the majority do not feel that GLCs have better performance and corporate governance practices compared to non-GLCs.  Regression results show that GLC stocks are neither more liquid nor followed by more analysts than non-GLC stocks. More significantly, GLCs are found to have underperformed large non-GLCs in terms of returns. 
 
JEL Classification:  G12; G18; G28; G32; G38
 
Keywords:government linked companies, analysts’ perception, financial performance, control group, corporate governance.

2008 2008-002 (F) WHY DO FIRMS HEDGE SELECTIVELY? EVIDENCE FROM THE GOLD MINING INDUSTRY Tim R. Adam, Chitru S. Fernando & Jesus M. Salas

We examine why firms engage in selective hedging even though prior research has shown that such speculative activities do not generate positive returns. We find that smaller firms speculate more than larger firms. Furthermore, firms with a higher probability of bankruptcy speculate more than firms with a lower probability of bankruptcy. These findings are the opposite of what a theory of selective hedging based on shareholder value maximization would predict, that larger and financially more stable firms are the ones most likely to be successful in selective hedging. Finally, we find that selective hedging is negatively correlated with managerial stock and stock option holdings, contradicting the possibility that convexity in managerial compensation is a motivation for managers to speculate.
 
JEL Classification: G11; G14; G32; G39
 
Keywords: Corporate risk management; selective hedging; speculation; managerial compensation; bankruptcy.

2008 2008-001 (DS) A TALE OF TWO TECHNOLOGIES IN INDIAN RAILWAYS: CASE OF IS IMPLEMENTATION IN A DEVELOPING COUNTRY Thompson S.H. Teo & Shirish C. Srivastava

From the comparative case study of Passenger Reservation System (PRS) and Freight Operation Information System (FOIS) implementation in Indian Railways (IR), we observe that despite having almost similar technological, organizational, national and other contexts, the implementation progress for the two initiatives are quite different. The traditionally used perspectives in information systems (IS) literature namely, rational economic perspective and intra-organizational power and politics perspective may not adequately explain IS implementations in developing countries. We propose an integrated framework, which in addition to the two traditional perspectives, has symbolism and powerful stakeholder perspective and an intertwined contextualist perspective. This framework is used to analyze and identify the reasons for differences in the implementations of the two IS initiatives (PRS and FOIS) at IR. Our analysis reveals that considering symbolism and powerful stakeholder perspective, which takes into account the influence of extra-organizational stakeholders for IS implementation, helps in explaining many of the unanswered questions. Similarly, our analysis reveals the importance of considering the ‘perspectives’ in relation to their intertwined context. Using the perspectives for analyzing the case without considering the context may provide an incomplete picture. The case also demonstrates that technological symbolism is dynamic and dependent on the ‘emergent context’ leading to an increased importance of different perspectives at different points in time. From the case study, personal and political interests of stakeholders take precedence over the economic rationality of the projects, when there are no ‘survival pressures’. This leads to a greater stress on PRS till 1998 after which the deteriorating financial health of IR causes a significant change in the technological symbolism. IS implementation is started to be seen as a tool for organizational survival, leading to an increased focus on FOIS (the rational economic option). Implications of the results for researchers and practitioners are discussed.
 
Keywords: Interpretive, Symbolism, Stakeholder, Power and Politics, Passenger, Freight, Indian Railways, Context
 

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