Knowledge that Transforms

Firms are exposed to varying levels of supply chain risk and engage in efforts to resolve such risk. This paper examines how disclosures of supply chain risk and resolution during earnings calls affect firms’ stock returns. Using natural language processing, we develop measures of supply chain risk and resolution from quarterly earnings call transcripts for a total of 129,981 firm-quarter observations between 2008 and 2019. We find that higher levels of supply chain risk are associated with lower stock returns around earnings calls, while disclosures of supply chain risk resolution attenuate these negative effects. In particular, stock returns of firms in the highest supply chain risk quintile are 1.07% lower compared to the stock returns of firms in the lowest quintile, and regression analyses indicate that a one-standard-deviation increase in supply chain risk is associated with a 0.56% decline in stock returns. The stock returns of firms in the highest supply chain risk resolution quintile are 0.12% higher compared to the stock returns of firms in the lowest quintile. A one-standard-deviation increase in resolution increases stock returns by 0.08%, and to 0.29% for the subsample of observations where the resolution measure is positive. Exploratory analyses indicate that the effect of supply chain risk on stock returns is significantly greater for smaller firms than for larger firms. In addition, when there is evidence that larger firms’ resolution-related statements are mere rhetoric, the effect of resolution on stock returns is diminished.

The increasing prevalence of patent infringement litigation in recent decades has imposed significant costs on firms. This paper empirically examines how this legal risk influences a key operational decision: vertical integration. Drawing on the real options theory (ROT), we argue that managers reduce the extent of vertical integration to preserve flexibility and make operational adjustments in anticipation of unfavorable outcomes from patent lawsuits. Using a dataset of public firms and a text-based measure of vertical integration, our findings show that firms facing higher patent litigation risk are less vertically integrated. At the same time, these firms maintain broader supplier networks and product market scopes, consistent with a preference for leveraging market mechanisms to reduce the costs of exercising switch and exit options. The negative relationship between litigation risk and vertical integration is particularly pronounced in durable goods sectors and declining industries, where the ability to divest or halt operations is highly valued. Additionally, we find that firms diversify their supplier base and product and technology portfolios after facing patent lawsuits. However, more vertically integrated firms are slower to make these adjustments, suggesting that they encounter greater friction in exercising real options. Overall, our study highlights the significant role that intellectual property disputes play in shaping corporate vertical integration strategies.

Can generative AI serve as an on-demand business adviser? A field experiment with hundreds of small business owners in Kenya found that AI access boosted revenues and profits by 15% for high performers — but caused a nearly 10% decline for those who had already been struggling. The culprit: Weaker performers followed generic or misleading AI advice because they lacked the judgment to filter it out. Leaders deploying AI at scale must design their rollouts carefully to avoid widening performance gaps.

In negotiations, first offers act as powerful psychological anchors — and even skilled negotiators struggle to escape them. New research published in the Journal of Experimental Social Psychology finds that adopting a choice mindset when you receive a first offer can reduce anchoring: The simple act of reminding yourself that you can choose any counteroffer expands the range of options you consider, helping you negotiate on your own terms.

Studies of the airline industry show that resilience does not have to come at the cost of efficiency. Managers in a variety of industries can meet both objectives by ensuring that operational performance metrics reflect true customer priorities; using predictive analytics and data-driven insights to allocate system buffers where they generate the most meaningful resilience benefits; and shaping the options offered to customers to improve their company’s resilience to disruptions.

Companies shouldn’t wait until quantum computing technologies have reached maturity to invest in them. As an enabling technology, quantum requires hands-on experimentation, feedback loops that support incremental learning, and co-invention cycles between producers and users — over time — to identify practical use cases. Investments in quantum today may see near-term payoffs, but the focus should be on active learning and the potential for breakthrough innovations over the longer term.

Marketing research traditionally costs tens of thousands of dollars and takes months. Large language models are changing this by compressing timelines from months to days. LLMs enable synthetic consumer “digital twins” for rapid concept testing, AI-moderated interviews for qualitative research at scale, and powerful analysis of unstructured data. These tools allow smaller research teams to conduct larger studies while maintaining quality, thus enabling more frequent testing and experimentation.

Leaders who have successfully managed crises in governments and large organizations aren’t innately better at it. Interviews with high-level leaders in a variety of industries found that people with strong crisis management skills have invested time and effort to develop maturity in seven key areas, dubbed the 7C’s: contingency planning, cross-functional coordination, transparent communication, compassion, confrontation of hard truths, control, and continuity.