We develop the concept of factional groups, or those in which members are representatives from a small number of (often just two) social entities. Such groups include many merger integration teams, bilateral task forces, and joint venture teams. We extend theory about group demography by arguing that factional groups possess preexisting faultlines that require a new conception of demographic dissimilarity. We propose that large demographic faultlines between factions engender task conflict, emotional conflict, and behavioral disintegration—which in turn lead to poor performance. We tested our model using data from 71 joint venture management groups. Data gathered in two waves strongly supported our propositions.

We examine interactions between investment and financing decisions in a dynamic model where the firm can alter the mix of debt and equity financing and exercise a randomly arriving and potentially short lived growth option. The firm will typically finance the exercise of the growth option with equity and may wait years before recapitalizing to a higher debt level. The lack of coordination between the timing of investment and debt financing helps explain a number of findings in the empirical literature, including violation of the financing pecking order, debt conservatism, apparent market timing of security issues, and more pronounced underperformance following equity issues than debt issues.

ABSTRACT Staggered boards (SBs) are one of the most potent common entrenchment devices, and their value effects are considerably debated. We study SBs' effects on firm value, managerial behavior, and investor composition using a quasi‐experimental setting: a 1990 law that imposed SBs on all Massachusetts‐incorporated firms. We find that relative to a matched control group of companies, for treated companies the law led to an increase in Tobin's Q, investment in capital expenditures and R&D, patents, and higher‐quality patented innovations, resulting in higher profitability. These effects are concentrated in innovating firms, especially those facing greater Wall Street scrutiny. An increase in institutional and dedicated investors also accompanied the imposition of SBs, facilitating a longer‐term orientation. The evidence suggests that SBs can benefit early‐life‐cycle firms facing high information asymmetries by allowing their managers to focus on long‐term investments and innovations.

We examine the value and efficiency of analyst recommendations through the lens of capital market anomalies. We find that analysts do not fully use the information in anomaly signals when making recommendations. Analysts tend to give more favorable consensus recommendations to stocks classified as overvalued and, more important, these stocks subsequently tend to have particularly negative abnormal returns. Analysts whose recommendations are better aligned with anomaly signals are more skilled and elicit stronger recommendation announcement returns. Our findings suggest that analysts’ biased recommendations could be a source of market friction that impedes the efficient correction of mispricing.

Overconfidence is one of the most consistent, powerful, and widespread cognitive biases affecting decision making in situations characterized by random outcomes. In this paper, we study the effects and implications of overconfidence in a competitive newsvendor setting. In this context, overconfidence is defined as a cognitive bias in which decision makers behave as though the outcome of an uncertain event is less risky than it really is. This bias unequivocally leads to a lower expected profit for a newsvendor that does not compete on inventory availability. Nevertheless, it can be a positive force for competing newsvendors. Indeed, we find that when the product’s profit margin is high, overconfidence can lead to a first-best outcome. In a similar vein, we also show that the more biased of two competing newsvendors is not necessarily destined to a smaller expected profit than its less biased competitor. This paper was accepted by Manel Baucells, decision analysis.

Abstract This study compares the predictions of institutional theory with those of the contingency perspective of strategic human resource management (SHRM) on the selection of an employment mode. Empirical data were collected from multinational enterprises, including the electronics and garment industries, that operate in China to test the relative importance of the determinants of the selection of an employment mode. The results provide greater support for the SHRM predictions than for the institutional theory predictions. The implications of the findings for researchers and practitioners are discussed. Copyright © 2007 John Wiley & Sons, Ltd.

Using a sample of Chinese A-share listed firms from 2007‐2017, we examine the impact of short sales on a firm's financial constraints. We develop three conceptual frameworks, the negative information effect, the undervaluation effect, and the deterrent effect, based on the prevailing theories and conduct an in-depth empirical analysis using the difference-in-differences, propensity score matching, and instrumental variable methods. Our findings suggest that: (1) Short sales generally worsen a firm's financial constraints by reducing its ability of raising cheap and overvalued external capital. (2) A shortable firm's financial constraints deteriorate more seriously in the case of higher credit risk or information asymmetry. (3) When a firm becomes shortable, its negative media coverage increases, external financing cost rises, and the amount of new external financing decreases. (4) The adverse impact of short sales on financial constraints is more pronounced for inefficient state-owned firms and mainly concentrates in the short term. Collectively, these results support the underlying logic of the negative information effect. However, further analysis shows that: (1) The deterrent effect also exists but is much weaker than the negative information effect. (2) The strength of the two effects will “wan and wax” with time or circumstances. Thus, the deterrent effect may outweigh the negative information effect by easing a firm's financial constraints in some cases, such as in the long term after short sales deregulation and when short sales magnitude is low or the managers are more sensitive to the decline of stock price. Our paper provides new insights into the impact of shorts sales on financial constraints, revealing some unique Chinese features compared to the US market and offering valuable lessons to other emerging markets.

Research summary : Prior research focused on cultural differences and their impact on foreign direct investment ( FDI ), neglecting other potentially relevant variables attesting to the cultural interaction between a multinational enterprise and its host environment. In this article, we draw on interpersonal attraction research to develop a positive approach to cross‐cultural interaction with the cultural attractiveness ( CA ) construct, whereby members of a focal culture view another culture as desirable. We create a CA measure and establish its predictive validity with country reputation data. Using FDI data for 41 nations from 1985 to 2012 and performance data for 8,519 cross‐border acquisitions ( CBA ) for 40 nations from 1990 to 2009, we find that CA is a predictor of FDI inflows and CBA outcomes, whose explanatory power is superior to cultural difference measures . Managerial summary : Practitioners have traditionally emphasized potential difficulties of cross‐cultural interaction when dealing with culturally distant countries. In contrast, our study addresses the positive aspects of cultural differences and suggests that a lot can be gained from dealing with attractive cultures, even when they are different. This insight can be helpful, for example, in contemplating/managing international M & A s. Managers of acquiring/merging firms can use our approach to identify whether their employees find the partner's culture desirable, and if they do, proceed with the takeover and then adopt the partner's organizational routines during post‐merger integration. This approach can help avoid conflicts, improve performance of home country expatriates, and ultimately, create value for acquiring firms . Copyright © 2016 John Wiley & Sons, Ltd.

Abstract This paper explores implications of weak identification in common ‘long memory’ and recent ‘rough’ approaches to modeling volatility dynamics of financial assets. We unveil an asymptotic near-observational equivalence between a long memory model with weak autoregressive dynamics and a rough model with a near-unit autoregressive root. Standard methods struggle to distinguish them, and conventional asymptotics are invalid. We propose an identification-robust approach to construct confidence sets that reveal the uncertainty and aid inference. Empirical studies based on realized volatility and trading volume often fail to statistically reject either model, thereby providing evidence of their potential coexistence.