The Spring Doctoral Conference Saïd Business School, 1 April 2014 Welcome to the Fourth Annual Saïd Business School Doctoral Conference at the University of Oxford. The Doctoral Conference was established in 2010 and designed to showcase and celebrate the research of the School’s doctoral students. Previously running in Michaelmas term as a winter event, this year the conference is taking place in the spring. The Conference aims to facilitate the exchange of research ideas between students and faculty members. Today, doctoral students enrolled at the School will present their work, defend their ideas, and receive feedback from peers and academic colleagues. A panel of faculty will evaluate all the work presented and award a prize for the best paper and the audience will vote for the best presentation on the day. Both prizes will be announced at the end of the conference. Thomas Noe DPhil Programme Director and Ernest Butten Professor of Management Studies, Saïd Business School Felix Reed-Tsochas Associate Dean for Research and James Martin Lecturer in Complex Systems, Saïd Business School Thank you for joining us to support our doctoral students. Peter Tufano Peter Moores Dean and Professor of Finance, Saïd Business School 2 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 3 Timetable 09:15 Registration Reception, West Wing 09:45 welcome and opening remarks from the Dphil programme Director: Professor Thomas Noe Lecture Theatre VI West Wing Session One Chair: Dr Felix Reed-Tsochas 10:00 Yasser Bhatti innovation under institutional voids, resource scarcity and affordability constraints - the case of frugal innovation by social entrepreneurs 10:30 Tong Wu customer engagement with microblogs – the role of the social ceo 11:00 Refreshments Session Two Chair: Dr David Barron 11:30 Laurel Steinield Social stratification and the materialism label: The retention of racial inequities between black and white luxury consumers in South africa 12:00 Ali Aslan Gümüsay entrepreneurship from an islamic perspective 12:30 Stephan Gutzeit entrepreneurs and innovateurs: are they different? 13:00 Lunch 4 The Spring DocToral conference 2014 Club Room, West Wing Lecture Theatre VI West Wing Classroom 1, West Wing Session Three Chair: Dr Steve New 14:00 Alex Budzier The role and importance of outliers in (project) management 14:30 Alysia Garmulewicz additive manufacturing and material knowledge 15:00 Refreshments Session Four Chair: Professor Thomas Noe 15:30 Francesca Brusa currency risk in global equity returns 16:00 Mehmet Ihsan Canayaz is the revolving door of washington a back door to excess corporate returns? 16:30 Nicholas Sabin Social collateral: Structural embeddedness and economic performance in microfinance 17:00 Address: Professor Peter Tufano, Peter Moores Dean 17:15 Closing Remarks: Dr Felix Reed-Tsochas, Associate Dean for Research 18:45 Refreshments Club Room, West Wing 19:30 Research Dinner Pyramid Room, West Wing Lecture Theatre VI West Wing Club Room, West Wing Lecture Theatre VI West Wing www.SbS.oxforD.eDu 5 Abstracts 6 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 7 Yasser Bhatti a member of green Templeton college, Yasser is a recipient of a higher education commission Doctoral Scholarship from pakistan and various green Templeton college annual scholarships. Yasser has a bachelor’s Degree in engineering from the university of oklahoma, uSa with special distinction, and a Master’s in computer Science and Management of Technology from georgia-Tech, atlanta. 8 The Spring DocToral conference 2014 Innovation under institutional voids, resource scarcity, and affordability constraints – the case of frugal innovation by social entrepreneurs I take up the question of how actors conceptualise innovation in extreme contexts marked by resource constraints and institutional voids. We know much about how innovation differs across sectors, types of organisations, geographical locations, and across individuals such as entrepreneurs and managers. But we know little about how situated actors conceptualise and account for innovation. The focus on models of innovation and speciically on how actors understand innovation is an opportunity to study innovation out of the status quo and in unique contexts. Despite some understanding in the development literature, there is little knowledge in organisation theory and strategic management on how innovation takes place in extreme contexts marked by simultaneous challenges of institutional voids and resource scarcity. I connect this with another emerging ield of activity – research on broadly social and purposeful innovation, rather than the status quo focus on technology innovation. Social entrepreneurs are especially relevant to my thesis since we know little about how they conceptualise innovation in extreme contexts. The broad claim about social entrepreneurship is that this is market-based activity focused on societal change. And while the literature attributes social innovation to social entrepreneurs, we know little about how social entrepreneurs themselves view innovation. This qualitative descriptive study ills that gap by investigating how social entrepreneurs view or conceptualise innovation. I also study social entrepreneurs as an ideal use case because literature posits that social entrepreneurs function in extreme conditions marked by both resource constraints and institutional voids. The purpose is to reveal insights on how organisational theorists can better frame models of innovation to understand innovation among social entrepreneurs and in extreme conditions. This project opens a different direction by asking: How do social entrepreneurs conceptualise innovation broadly and speciically under extreme conditions marked by institutional voids and resource scarcity? The main thesis question is broken down into the following three sub-questions: • How do social entrepreneurs conceptualise innovation? • How do they conceptualise innovation under institutional voids? • How do they conceptualise innovation under resource scarcity? Descriptive research on management and strategy practices uses ield work, interviews, and observations to create models of understanding, theory generation and eventual paradigms. I therefore explore these three questions using qualitative www.SbS.oxforD.eDu 9 methods by studying two communities of globally networked and formally recognised social entrepreneurs, many building technology- and science-based ventures but inspired by social impact. Analysis is at meso level of innovation and value chains but observations are at micro level through business plan summaries, interviews with entrepreneurs, investors, and academics, and observations at an annual intensive social entrepreneurship and innovation ‘boot-camp’. I conducted two international trips for ieldwork spanning four months, collected 81 interviews and 163 archival innovation related documents. The study reveals perceptions, conceptual drivers and determinants, and key features of innovation as viewed among social entrepreneurs. In contrast to the coherent phenomenon of social innovation presented in current literature, I ind that innovation among social entrepreneurs is viewed as a disparate range of understandings that stem from varied motivations, means and outcomes. These motivations and means draw from social concerns but also user, eficiency, and challenge concerns. I further ind that social entrepreneurs view adopting a mix of technology, social, and institutional innovations to deal with, make use of, or overcome resource and affordability constraints and institutional voids. I reveal that these varied concerns and approaches to innovation are summarised by social entrepreneurs through use of the concept of ‘frugal innovation’. This new concept provides some cohesion to the seemingly disparate notions of innovation among social entrepreneurs. I build propositions that stem from the indings of diverse perceptions of what innovation is for and among social entrepreneurs and suggest models of innovation that help to propose a theory of frugal innovation with implications and lessons relevant for theory, policy and future research. 10 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 11 Tong Wu Tong started her Dphil in Management research at Saïd business School, university of oxford in 2012. She is a member of green Templeton college and her thesis is supervised by Dr Jonathan reynolds and professor linda Scott. She has an MSc in Management, majoring in international business from hec paris, france and a ceMS Masters in Management from the london School of economics and political Science. The working title of Tong’s thesis is: customer engagement with microblogs – the role of the social ceo. her research identifies the lack of scholarly attention to corporate executive-customer interactions in terms of both the conceptualisation and antecedents of engagement in digital marketing context. Tong responds by developing and testing a model of customer engagement through the lens of the ceo’s microblog. her thesis aims to provide marketing academics with insights into customer engagement with microblogs. hopefully the study will also draw the attention of corporate executives and strategic marketing communicators to a ‘new type of leader’, which is ‘leader-as-marketer’, by helping them design effective customer engagement strategies so as to capitalise on the capabilities of social media. Tong is a member of the committee of oxford chinese Students and Scholars association, the oxford Management Society, and the oxford university company of archers. 12 The Spring DocToral conference 2014 Customer engagement with microblogs – the role of the social CEO There is a lack of scholarly attention to corporate executive-customer interactions in terms of both the conceptualisation and antecedents of engagement in a digital marketing context. My project responds by developing and testing a model of customer engagement through one particular lens: that of the CEO’s microblog. Speciically, this thesis contributes to the current marketing literature through (1) deining customer engagement with microblogs and determining its extent and characteristics; (2) developing and implementing a measure of customer engagement with microblogs; (3) identifying and empirically testing potential irm-controlled (CEOs’ strategies) and customer-related (customer pre-conditions) antecedents of customer engagement with microblogs; and (4) investigating customers’ motivations for following CEOs on microblogs and determining their consequences for customer engagement. My combined method of statistical and content analysis of CEOs’ tweets, surveys of customers, interviews with CEOs or their agents, and qualitative and quantitative analysis of all the collected variables aims to provide marketing academics with insights into customer engagement with microblogs. It is my hope that this study will also draw the attention of corporate executives and strategic marketing communicators to a ‘new type of leader’, which is ‘leader-as-marketer’, by helping them design effective customer engagement strategies so as to capitalise on the capabilities of social media. The Web 2.0 technologies that allow users to create, edit, and distribute content, are revolutionising how people communicate and cultivate relationships. One rapidly growing application is that of microblogging on social networking sites (SNSs). The ease of interaction, the openness of networks, and the lexibility of information sharing between users afforded by such platforms have rendered microblogging an attractive marketing tool in cultivating relationships between corporate brands and consumers. Firstly, the ease of interaction on microblogs greatly facilitates two-way communications between the irm and its customers. Therefore, compared with traditional relationship marketing (RM) tactics which are often effectively one-way, such as loyalty cards, rebate offers, telephoning, emailing, etc., microblogging has the potential to transform customers from passive receivers of the irm’s RM efforts into active participants in the interactive and collaborative environment created by the irm. Secondly, microblogs are open networks, i.e., social platforms that essentially allow anyone to connect with anyone else. Unlike traditional RM tactics, which mainly focus on maintaining existing customers, microblogs enable irms to reach a larger audience, including possible customers (those interacting with the brand but not yet in the decision-making stage) and potential customers (those who may be considering the brand). Thirdly, the lexibility and immediacy of information sharing on www.SbS.oxforD.eDu 13 microblogs allows irms to raise ambient awareness (i.e., cognition) among customers, hence building relationships on a more intimate and personal (i.e., affection) level. These three distinctive features of microblogs in contrast with traditional RM tactics, have contributed to the emergence of what has been termed customer engagement (CE). Though different conceptualisations of CE exist, most practitioners and scholars agree that CE is related to (current and potential) customers’ employment and expression of self in the interactive experience with the brand and consists of cognitive, affective, and behavioural aspects. Relationship marketers attach great importance to CE as they view CE as a vehicle for creating, building, and enhancing customer relationships and a valuable predictor for future performance. Recognising the commercial power of the largest microblogs, such as Twitter, in engaging with both current and prospective customers, many irms have registered oficial Twitter accounts, usually managed by the company’s marketing specialists. The uses of such accounts range from product news release, to events announcements and complaints handling. A very recent phenomenon is that more and more CEOs are also joining Twitter. Some regularly post updates and closely communicate with their followers, with the intention of serving as a bridge between followers and the corporation or brand. Some of the big names include Jack Welch (GE), Jonathan Schwartz (Sun Microsystems), and Tony Hsieh (Zappos). With the surging interest among strategic marketing communicators in using microblogs as a customer engagement tool, academic research on the topic has struggled to keep pace. In its 2006-2008 Research Priorities, MSI – Marketing Science Institute (2006) called for a better understanding of engagement. Yet, customer engagement was still a research priority for MSI in 2010-2012. MSI (2010) identiied CE as a key research area of consumer experience and behaviour that would contribute to an enhanced academic understanding of consumer behaviour in an interactive and co-creative environment. In response to the MSI call, recent studies have tried to (1) deine CE in either an off-line or on-line context; or (2) determine the beneicial RM consequences of CE. However, there are 3 further issues worth addressing. First, there are differing conceptualisations of CE. Second, compared to the consequences of CE, scholarly enquiry into the antecedents or other moderating factors of CE is very limited. Hence, we lack a holistic model of CE. Third, little attention has been paid to the topic of CE in the context of microblogs, though such platforms possess great potential in engaging customers and have already attracted growing interest among marketers and CEOs alike. It is the intention of this thesis to address these 3 major gaps in current CE literature. Speciically, this thesis will propose and test a holistic conceptual model of CE through the lens of the CEO’s microblog. Drawing from the existent literature on RM and CE, this model provides a working deinition of CE and explores 4 irm-controlled and 3 customer-related CE precursors. The 4 irm-controlled factors can be viewed as the CEO’s strategic efforts at engaging customers, while the 3 customer-related factors concern the customer pre-conditions that may inluence their engagement level and 14 The Spring DocToral conference 2014 the associated motivations underlying their engagement with the CEO’s microblog. Therefore, this model enables us to investigate corporate leaders’ engagement strategies, customer engagement motivations and pre-conditions, and the resulting CE levels, and eventually incorporate both the corporate leaders’ messages and the voices of the customers to provide a comprehensive understanding of executivecustomer interactions in terms of customer engagement in a microblogs context. It should be noted that the study focuses upon CEOs’ microblog accounts as research subjects instead of oficial corporate accounts for two main reasons. Firstly, we consider that CEOs’ microblogs enjoy greater potential in generating high customer engagement, thus providing a landscape in which researchers can analyse CE. To elaborate, we might anticipate that having an identiiable and real person behind the microblog increases the source’s credibility, which enhances the quality of customers’ interactive experience, with the communicator. Communications from CEOs may even save customers the effort of anthropomorphising products or brands. In social media marketing, one key to building up brand-customer relationships is to imbue brands with personalities and encourage anthropomorphism on brand pages. Because the CEO is already (at least ostensibly) manifestly human, customers don’t have to undertake the psychological process of attributing such characteristics to the CEO. Instead, they can directly begin to naturally engage in an apparent two-way interaction with the CEO. And, since the identity of the CEO as the representative icon of the brand is often explicitly displayed on his microblog, customers can more easily link the two together. Thus, engagement with the CEO’s microblog may more easily lead to engagement with the brand. Secondly, by focusing on CEOs, my research would draw the attention of corporate executives and strategic marketing communicators to a ‘new type of leader’, which is ‘leader-as-marketer’. The microblog environment creates, in effect, an echo chamber between the communicator and customers, which can be observed by others, including investors. This may create legitimate challenges for the ideal type of leader to thrive in these circumstances. Yet, though more corporate leaders are recognising these challenges and embracing them – or at least confronting them, only 6 per cent of Fortune 500 CEOs are on Twitter according a survey by CEO.com earlier this year, versus 34 per cent of the U.S. population that has registered on the service. As a recent ChiefExecutive.net article put it, ‘the stakes for business leaders ignoring social media – or failing to capitalise on its capabilities – are becoming increasingly clear…Capitalising on the transformational power of social media … calls for a new type of leader’. We believe that the new type of leader is the ‘leader-as-marketer’ and we draw leaders’ attention to this by helping them design effective customer engagement strategies to capitalise on the capabilities of social media. www.SbS.oxforD.eDu 15 Laurel Steinield laurel Steinfield began her Dphil Studies at Saïd business School in 2010 within the Marketing group, under the supervision of professor linda Scott. She is a member of green Templeton college (gTc), and has received funding from both gTc and SbS to complete fieldwork, and she holds a SbS-gTc Dphil Scholarship. her thesis focuses on the conceptualisation of ‘materialism’ within the consumer research literature, and will seek to establish a deeper understanding of the driving forces of consumption and materialism. her approach includes applying an anthropological and sociological lens to the consumption of necessities and luxuries, using a mix of historical case-study analysis and present-day fieldwork conduct in emerging economies. her research interests include emerging market consumerism and private sector initiatives for poverty alleviation. She is currently involved in a research project that will develop a measurement system to gauge the impact of walmart’s ‘women empowering women’ programme, and an intervention study in uganda that seeks to measure the impact of sanitary pads on increasing a girl’s agency and tenure in education. 16 The Spring DocToral conference 2014 Social stratiication and the materialism label: The retention of racial inequities between Black and White luxury consumers in South Africa What is materialism? In consumer behaviour literature, who is materialistic, and why, and whether materialism has positive or negative implications, luctuates pending the social context. Such luidity suggests that it may be time to reevaluate the basic individual-centric concept to consider encompassing the social milieu—such as group tensions and the socio-economic context. In this research, I thus move materialism from its common form as a deeply rooted personal value to one shaped by social conditions and tensions. I begin from the observation that, in English-speaking societies, ‘materialistic’ is an epithet. The moral polarity that results – materialism (sin) versus spirituality (virtue) – is clearly relected in the early consumer behaviour literature on the topic (Belk, 1983; Pollay, 1986). Indeed, the word’s status as an insult is apparent in socially desirable responding (Mick, 1996) among research subjects. Against this backdrop, I take materialism into its modern-day use. I focus on the circumstances in which one group labels another ‘materialistic’: I ask why they are using that particular label and question whether the people being thus labelled view themselves as ‘materialistic’. Using Goffman’s (1951) work on status symbols, I look at how the application of this pejorative protects the demarcating power of goods when a threat of misappropriation occurs. Status symbols hold expressive powers (they express the cultural values, lifestyles, privileges or duties a person holds) and categorical powers (they visibly divide the social world), and so their misappropriation threatens the social distinctions that maintain hierarchy. The accusation that someone is ‘materialistic’ exempliies a set of interested moral restrictions designed to keep out-groups from acquiring the symbols of the established elite. Such moral restrictions are often guised as ‘religious scruple, cultural disdain, ethnic and racial loyalty, economic and civic propriety, or undisguised “sense of one’s place”’ (Goffman, 1951: 297). In this study, I consider how materialism acts to restrict consumption by social grouping, as well as the power agenda that the rhetoric of morality conceals. I look at the social context surrounding the use of materialism, not to discern how the meaning of materialism changes with differing value structures, but to look at whether it acts to produce judgments that protect the hierarchy. Using the luxury goods market in South Africa, I show how the term is imbued with power that maintains race-based social stratiications. I assess the reasons ‘materialistic’ people consume and show how personal justiications illuminate stratiication. In South Africa, through government and business initiatives focused on empowerment and wealth creation (such as Black Economic Empowerment www.SbS.oxforD.eDu 17 (BEE)), there is an emerging black middle class starting to challenge one of the signiicant legacies of apartheid - the racial segmentation of class and consumption. Studies being conducted on this group, popularly labelled ‘Black Diamonds’, show an increase in the proportion of black households in the upper quartile income segment. In 2006, 78.8 per cent of white households, compared to only 8.6 per cent of black households, were in the upper quartile (Statistics South Africa, 2008). Yet by 2011, black households represented 40 per cent of South Africa’s richest 10 per cent. In demonstrating their new wealth, Black Diamonds often ‘trade-up’ and emulate the respectable life of the elite White through living in White-majority posh areas, sending their children to prominent English or Afrikaans schools, and procuring the status symbols once deinitive of the white elites (UCT Unilever Institute, 2007). This study focuses on luxury consumption in South Africa, focusing on an observable status symbol with expressive potential, but with previously limited availability for blacks. Media coverage and speeches by prominent South Africans were irst analysed to understand the local discourse around luxury consumption and race. Participant observations were conducted at the boutiques where the line under study was sold. I then conducted forty interviews with luxury goods consumers and sales personnel, using pictorial stimuli and adjective checklists. I administered the industry standard materialism scale by Richins and Dawson’s (1992), but afterward showed respondents their scores and asked them whether they agreed with the outcome. As I expected, pejorative terms of ‘ostentatious’, ‘lashy’, and ‘materialistic’, were often applied to describe the luxury consumption of blacks, which did not exist to the same extent for whites. Local terms that emerged during interviews to describe ‘materialistic’ consumers, such as ‘fat BEE cats’ and ‘tender-preneurs’, are applied only to black people. The analysis of media and speeches explain how these terms linked the origins of black wealth with corruption and government nepotism, and are used to taint the legitimacy of blacks’ wealth and luxury consumption. Blacks are believed to consume luxury goods for less appropriate reasons than whites: blacks purchased products for status or brand labels, versus the white elite who are believed to purchase and truly appreciate luxury goods for their quality and craftsmanship. These beliefs were accepted and internalised by both blacks and whites, and relected in their justiications for their own materialistic tendencies. When asked about their own ‘materialism’ scores, blacks would often accept that they could be considered materialistic because they wanted to achieve and demonstrate their new wealth. For them, status symbols were ‘game changers’ in business meetings, in wedding proposals, and for their own personal sense of accomplishment. In contrast, white consumers would downplay the applicability of their materialism scores, saying they merely appreciated the iner things in life. Thus, I argue that the social dislocations resulting from the post-apartheid power shifts have given rise to moral polarities describing luxury consumption 18 The Spring DocToral conference 2014 of different races. From this perspective, ‘materialism’ is not a consumer value or trait, but instead a word with a social use: to maintain racial stratiications. These indings suggest that ‘materialism’ is used by people as a moral restriction, and as such, these indings may have relevance for other contexts with intense social dislocations or for other stratiications (gender, class, religion) in which the threat of status deprivation exists. A version of this paper was presented as part of the special session on ‘Creating & Resolving Tensions: Exploring the Different Effects Materialism Has on Consumers & Society’ at the NA Association for Consumer References Belk, Russell W. (1983) ‘Worldly Possessions: Issues and Criticisms’, in Richard P. Bagozzi and Alice M. Tybout (eds.) Advances in Consumer Research, (Vol. 10, 514-519), Ann Arbor: Association for Consumer Research. Goffman, Erving (1951), Symbols of Class Status, The British Journal of Sociology, 2 (4) 294-304. Mick, David G. (1996), Are Studies of Dark Side Variables Confounded by Socially Desirable Responding? The Case of Materialism, Journal of Consumer Research, 23 (2) 106-119. Pollay, Richard W. (1986), The Distorted Mirror: Relections on the Unintended Consequences of Advertising, Journal of Marketing, 50 (2) 18-36. Richins, Marsha L. and Scott Dawson (1992), A Consumer Values Orientation for Materialism and its Measurement: Scale Development and Validation, Journal of Consumer Research, 19 (December), 30316. Statistics South Africa (2008), South African Statistics 2008, (accessed 10 Dec 2012) [available online: https://www.statssa.gov.za/publications/SAStatistics/SAStatistics2008.pdf]. UCT Unilever Institute (2007) Black Diamond on the Move, UCT Unilever Institute of Strategic Marketing. www.SbS.oxforD.eDu 19 Ali Gümüsay ali is a Dphil candidate at the Saïd business School, lecturer at Magdalen college, and member of christ church, oxford. ali’s current research concentrates on the intersection of religion and organisations, as well as entrepreneurship in professional settings. he is supervised by professor Tim Morris and professor Sue Dopson. before joining the Dphil programme, ali worked as a strategy consultant for the boston consulting group; prior to that he completed the MSc in Management research at the university of oxford, with distinction. at that time, he was an affiliate at the institute for Science, innovation & Society. ali holds a bSc, 1st class honours, from the university of warwick and a Diplôme from the institut d’Études politiques de paris. he is head of the advisory board of the Social incubator Zahnräder network and Member of the Think Tank 30, club of rome. 20 The Spring DocToral conference 2014 Entrepreneurship from an Islamic perspective Research about the role of religion in entrepreneurship and, more broadly, management is sparse. Religion is like an elephant in the room: impossible to overlook, yet largely ignored. While entrepreneurial activities have inter alia been researched from economic (Casson, 2003), institutional (Battilana, Leca & Boxenbaum, 2009), political (Schneider & Teske, 1992), psychological (Begley & Boyd, 1987) and social (Shapero & Sokol, 1982) perspectives, religion has been largely neglected with very few exceptions (Dana, 2010). A religious perspective on entrepreneurship is distinct, as it commonly entails speciic and detailed narratives and practices, a deined scriptural source and a distinct meta-physical objective. A holistic approach to entrepreneurship research which incorporates religion may hence complement and enrich existing entrepreneurship theory and practice. Entrepreneurship from an Islamic perspective (EIP) is a composition of two individually contested concepts: Islam and Entrepreneurship. Islamic in its minimal core is the declaration of belief in the one God and that Muhammad (peace be upon him, pbuh) is the messenger of God. The word Entrepreneurship is derived from the French entreprendre and the German unternehmen. Both verbs translate to undertake. The composition EIP is more than a simple summation of Islam and entrepreneurship. It is based on three interwoven pillars. The irst pillar is the pursuit of opportunities. The second pillar is socio-economic, or ethical. Effectively, EIP is guided by a set of norms, value and recommendations. The third pillar is religiousspiritual, and links people to God with the ultimate objective of pleasing Allah. The role of Islam in entrepreneurship is based on the inter-linkage between the textual sources and contextual setting with the primary sources of Quran and Sunnah. At the micro-level, a worker sees work as a religious duty, a form of ‘wor(k) ship’ to seek Allah’s bounty as mentioned in the Quran in chapter 62 verse 10. For a Muslim, rizq (sustenance) ultimately is granted by Allah. An entrepreneur thus needs to have tawakkul, i.e. trust in Allah. In that sense, risk is ‘out-stored’ and risk taking is made easier. At the meso-level, Islam shapes the organisation in multiple ways, as all areas of a business such as strategy, organisation, human resources, inance, and marketing are impacted by an Islamic perspective. The strategy is expected to be not only proitable but also in line with worldly socio-economic welfare as well as spiritual growth. Certain products such as pork (Quran 2:173), alcohol, or gambling (Quran 5:90) are forbidden. Certain practices such as false measuring (Quran 55:9; 17:35), lying (Quran 6:152; 33:70; 17:36) or the use of interest (Quran 2:279) are not allowed and others such as fulilling contracts are obligatory (Quran 5:1). Religious activities like the ive daily prayers or fasting may shape the organisation, e.g., through www.SbS.oxforD.eDu 21 a prayer room, speciic working hours during Ramadan or festivals. At the macro level, Islam affects a variety of institutions like the state and market. Islam provides extensive guidelines for an economic system through the creation of ofices such as the Hisbah, a form of ombudsman who supervises the market, as well as certain legal and ethical implications such as inheritance or welfare regulations. EIP affects the micro, meso and macro levels of analysis in multifaceted ways by shaping the individual, the organisation, and the variety of institutions such as the states and markets. This complexity needs to be incorporated into holistic models which yield explanatory richness whilst not neglecting the value of parsimony. In fact, Islam itself may be analysed in terms of its entrepreneurial character. Both its interpretative processes of Ijtihad and its content may be called entrepreneurial. Ijtihad allows critical reasoning and contextualisation. The emphasis on hard working and the prohibition of interest, for example, strengthen entrepreneurial pursuits. While religion has a profound impact on contemporary societies, management researchers surprisingly have not engaged more comprehensively with the interrelationships between religion and management (King Jr., 2008), or religion and organisation (Tracey, 2012, Chan-Serain, Brief & George, 2013). As EIP is growing both empirically and intellectually it requires much more scholarly engagement. Research on EIP is thin and peripheral, and needs to be incorporated into mainstream management and entrepreneurship research by inter alia linking it to strategy, human resources, inances, and organisational theories. While research on EIP is sometimes very recommendatory and value-judgement is important, we nonetheless need to be methodologically rigorous and separate description from prescription. Rather than Islamizing some kind of Western knowledge, knowledge needs to be critically contextualised. In this process, EIP is not simply a peripheral phenomenon but a core activity within the global entrepreneurial landscape. It is also not a static but rather a multiple-dynamic concept transforming as context changes, our understanding of entrepreneurship progresses and the interpretation of scriptural sources advances. EIP is in need of interdisciplinary research – a very entrepreneurial pursuit indeed. 22 The Spring DocToral conference 2014 References Battilana, J., Leca, B., and Boxenbaum, E. (2009), How Actors Change Institutions: Towards a Theory of Institutional Entrepreneurship, The Academy of Management Annals 3(1): 65-107. Begley, T. M., and Boyd, D. B. (1987), Psychological characteristics associated with performance in entrepreneurial irms and small businesses, Journal of Business Venturing 2(1): 79-93. Casson, M. (2003), The Entrepreneur: An Economic Theory, 2nd ed. Cheltenham, U.K.: Edward Elgar. Chan-Serain, S., Brief, A. P. and George, J. M. (2013), How Does Religion Matter and Why? Religion and the Organizational Sciences, Organization Science 24(5): 1585-1600. Dana, L.-P. (2010), Entrepreneurship and Religion, Cheltenham, U.K.: Edward Elgar. King Jr., J.E. (2008), (Dis)Missing the Obvious Will Mainstream Management Research Ever Take Religion Seriously? Journal of Management Inquiry, 17(2): 214-224. Schneider, M. and Teske, P. (1992), Toward a theory of the political entrepreneur: Evidence from local government, American Political Science Review 86(3): 737-747. Shapero, A., and Sokol, L. (1982), The Social Dimensions of Entrepreneurship, in Kent, C., Sexton, D., and Vesper, K.H. (eds) The Encyclopedia of Entrepreneurship, Englewood Cliffs, NJ: Prentice-Hall. Tracey, P. (2012), Religion and Organization: A Critical Review of Current Trends and Future Directions, The Academy of Management Annals, 6(1): 87-134. www.SbS.oxforD.eDu 23 Stephan Gutzeit Stephan gutzeit is a doctoral student at Saïd business School. he has built organisations around new ideas in berlin since 1998, working with creative entrepreneurs as well as philanthropists and foundations. he has been the lead founder or builder of the first liberal arts college in europe, the first venture philanthropy foundation in europe devoted to early stage innovation (rather than ‘social innovation’), and the first european venture capital fund focusing on inventions from academics at one university, among other organisations. Stephan was educated at Stanford (ba with honours) and harvard (Ma), where he studied chemistry and philosophy. he began his professional career working for a global consultancy firm. at oxford, he is writing a book (aka Dphil thesis) about deep innovation, supported by a clarendon Scholarship. 24 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 25 Alexander Budzier alexander budzier is a final year doctoral candidate at the Saïd business School and works with the bT centre for Major programme Management. he is a member of green Templeton college. he began his research career around the question: what, if any, can the world of iT projects learn from construction? his research focuses on: decision-making processes; high impact, rare events; and theories of complexity and organisational fragility. prior to coming to the university of oxford, alexander worked as a consultant with McKinsey’s in Düsseldorf and chicago, and T-Mobile international, london. alexander is teaching part of the Mba and MSc for Major programme Management, a part-time executive degree at the university of oxford, as well as the Major project leadership academy, a leadership development programme for the top 300 project managers in the uK civil Service. alexander has been invited to contribute op-eds, guest lectures, and key notes to practitioner and academic audiences. The research has been featured in, among others: financial Times, forbes, bbc radio 4, MiT Technology review, computerweekly, McKinsey Quarterly, informationweek, and bbc news. his papers include: Should we build More large Dams? The actual costs of hydropower Megaproject Development, in energy policy (03/2014); iT on Steroids: The benefits (and risks) of accelerating Technology, in hbr blog network (08/2013); why Your iT project May be riskier than You Think, harvard business review (09/2011); The risk of risk registers, in Journal of information Technology (12/2011). 26 The Spring DocToral conference 2014 The role and importance of outliers in (project) management Research Question Extreme events - revolutionary change, creative destruction, economic shocks shape the nature of organisations and industries much more vigorously than the long-term nature of evolutionary improvements. The study of extreme events is complicated by long time spans and the large sample sizes needed to observe them. Moreover, most analytical tools are designed to explore and model averages but not extremes (McKelvey and Andriani, 2005). IT projects are temporary organisations of strategic importance. Companies invest large amounts of money, time, and resources into business-embedded IT projects in order to change and gain a competitive advantage (Yetton et al., 2003). Extreme cases of failure were previously only analysed as case studies, e.g., Denver Airport (Montealegre & Keil, 2000), London Stock Exchange Taurus (Drummond, 1996), London Ambulance Service (Dalcher, 1999). The research poses an important question: Can we understand extreme performance in the light of normal organisational performance? What is the risk of these extreme events? Which factors contribute to the risk of those? Literature Review The nature of extreme value distributions in performance is not a new discovery. The phenomenon was irst problematized in income distribution and spot price movements by Mandelbrot (1960). Outliers have been debated in the project management literature as well. Data for software development estimation, for example, is not only positively skewed but also highly problematic because of outliers (Kitchenham & Pickard, 1987). However, only very few studies problematized the frequency of outliers directly; reported numbers range from 33 per cent (Kulk, 2009), 10 per cent in Yoon et al. (2007), 2-5 per cent (Mitchel & Zmud, 1999; Banker & Kauffman, 1991), to as low as 0.2 per cent (Grant et al., 2006). The variation has been explained through biases in strategic planning processes of organisations (Kulk, 2009) and as an artefact of data collection (Molokken-Ostvold et al., 2004). An alternative explanation is that the true nature of IT projects contains more variation than commonly assumed. Outliers are a symptom of fat-tailed distribution. ‘An outlier is not to be thrown out (due to its unusualness), but rather might be the www.SbS.oxforD.eDu 27 clue to data behaviours that are not revealed by the rest of the information.’ (Steele & Huber, 2004:PM21.3). The question then becomes: What are the causes of outliers? A rich body of literature has analysed cases of extreme performance. The extant literature falls broadly into three schools of thought: (1) system-centric, (2) eventcentric, and (3) process-centric explanations of why outliers occurred. In short, system-centric explanations focus on the question of system design. Most prominent are theories of normal accidents (Perrow, 1981) and highreliability organisations (Roberts 1989). Event-centric explanations focus on how organisations respond to rare events that impact the organisation. Most prominent are theories of crisis management (Roux-Doufort, 2007), management of organisational turbulence (Miller and Lessard, 2000), and strategic surprises (Ansoff, 1975). Process-centric explanations focus on the role of managing uncertainty and risk over time. Most prominent are theories of man-made disaster (Turner and Pidgeon, 1997), which explains catastrophic failure as the accumulation of errors and miscommunication over time. Other theories include the escalation of commitment to a failing course of action (Staw, 1981) and the normalisation of deviance (Vaughan, 1996). Analysis and Findings The study is based on the archival research of 4,307 IT projects from 190 organisations, for which project performance could be established. The data were used to model the risk of extreme performance and to test system-centric, eventcentric, and process-centric explanations of performance. The indings show that the tail of the cost, schedule, and effort performance distributions is best itted by a power law, with overwhelming goodness of it. This refutes the hypothesis that outliers are from a different population of uncertainty. Moreover, the indings show that system-centric explanations and process-centric theories offer explanations for the thickness of the tail in the data. In particular, the thickness of the tail varies with project size and duration (commonly used proxies for project complexity), perceived uniqueness of the project (a commonly used dimension of the social complexity), the qualiication and motivation of the project team, and the effectiveness of monitoring and controlling the project (both factors in process-centric theories). Implications The research indings clearly show that outliers are a phenomenon that warrants further study. Cases of outliers have been well demonstrated; what is missing, however, is a quantitative description and analysis of the problem. This study is a irst step. More needs to follow. Moreover, the results show that outliers are not chance events; they follow patterns that are describable. Thus improved methods for analysis, abstraction, and sense-making are needed to integrate the indings in current academic methods of studying risk and performance. Lastly, the study 28 The Spring DocToral conference 2014 shows how design factors that are often conceptualised as system complexities, and execution factors that are often conceptualised as project processes, both explain the risk of project outliers. Most research focuses on process aspects and rarely at the up-front design of the organisation. More research combining both views is needed. References Ansoff, H. (1975) Managing strategic surprise by response to weak signals, California management review, 18(2), pp. 21–34. Banker, R. D. & Kauffman, R. J., (1991) Reuse and Productivity in Integrated Computer-Aided Software Engineering: An Empirical Study, MIS Quarterly, 15(3), pp. 375–401. Dalcher, D. (1999) ‘Disaster in London the LAS Case study’, in Engineering of Computer-Based Systems, 1999. Proceedings. ECBS ’99. IEEE Conference and Workshop on. pp. 41–52. Drummond, H. (1997) Escalation in Decision-Making: The Tragedy of Taurus, Oxford, UK: Oxford University Press. Grant, K. P. Cashman, W. M. & Christensen, D. S. (2006) Delivering projects on time, Research Technology Management, 49(6), pp. 52–58. Kitchenham, B. (1998) A procedure for analyzing unbalanced datasets, Software Engineering, IEEE Transactions on, 24(4), pp. 278–301. Kulk, G.P. (2009) IT Risks in Measure and Number, PhD thesis, Vrije Universiteit Amsterdam. Mandelbrot, B. (1960) The Pareto-Levy law and the distribution of income, International Economic Review, 1(2), pp. 79–106. McKelvey, B. & Andriani, P. (2005) Why Gaussian statistics are mostly wrong for strategic organization, Strategic Organization, 3(2), pp.219–228. Miller, R. & Lessard, D. (2001) Understanding and managing risks in large engineering projects, International Journal of Project Management, 19(8), pp. 437–443. Mitchell, V. L. & Zmud, R. W. (1999) The Effects of Coupling IT and Work Process Strategies in Redesign Projects, Organization Science, 10(4), 424–438. Molokken-Ostvold, K. Jorgensen, M. Tanilkan, S. S. Gallis, H. Lien, A. C. & Hove, S. E. (2004), ‘A survey on software estimation in the Norwegian industry’, in Proceedings of the 10th International Symposium on Software Metrics (METRICS’04), pp. 208–219. Montealegre, R. & Keil, M. (1998) ‘Denver International Airport’s Automated Baggage Handling System: A Case Study of De-escalation of Commitment’, in Academy of Management Proceedings (pp. D1–D9). Perrow, C. (1984) Normal Accidents: Living with High Risk Technologies, Basic Books. Roberts, K.H. (1989) New challenges in organizational research: high reliability organizations, Organization & Environment, 3(2), pp. 111–125. www.SbS.oxforD.eDu 29 Roux-Dufort, C. (2007) Is crisis management (only) a management of exceptions? Journal of Contingencies and Crisis Management, 15(2), pp. 105–114. Staw, B.M.B. (1981) The Escalation of Commitment to a Course of Action, The Academy of Management Review, 6(4), pp. 577–587. Steele, M. & Huber, W. (2004) ‘Exploring data to detect project problems’, in AACE International Transactions, 32(12), pp. PM.21.1–PM.21.7. Turner, B. & Pidgeon, N. (1997) Man-Made Disasters, Second Edition, Butterworth-Heinemann. Vaughan, D. (1996) The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA, University of Chicago Press. Yetton, P., Martin, A. Sharma, R., & Johnston, K., 2003. A model of information systems development project performance. Information Systems …, 10, 263–289. Yoon, K.-A., Kwon, O.-S., & Bae, D.-H., 2007. An Approach to Outlier Detection of Software Measurement Data using the K-means Clustering Method. First International Symposium on Empirical Software Engineering and Measurement (ESEM 2007), pp. 443–445. 30 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 31 Alysia Garmulewicz alysia garmulewicz is a doctoral student at the Saïd business School. She is a member of green Templeton college and is supervised by professor Steve rayner and Dr felix reed-Tsochas. alysia is originally from canada and prior to joining Saïd business School she completed an Mphil in geography and the environment at the university of oxford. 32 The Spring DocToral conference 2014 Additive manufacturing and material knowledge Introduction Additive manufacturing (AM) is the process of layering materials to create a threedimensional object from computerised model data. In the popular media, additive manufacturing is often called ‘3D-printing’, and the two terms are often used interchangeably. The materials, scale, and application of AM technologies vary signiicantly. Machines can now print with roughly 100 types of plastics, common metal alloys and precious metals, and ceramics. Scales include personal fabrication, community fabrication labs, small businesses, and industrial production. The quality of production has also evolved from being primarily used in prototyping to now being used for inal products in markets such as aerospace and automotive. Additive manufacturing is not just a set of new technologies. It is a method of manufacturing, combining computer aided design (CAD) software, materials, expertise, and physical hardware. The machine technology alone is of little value. It is the ‘inventions – technology, materials, new designs, and applications’ that add value. Additive manufacturing may thus be characterised as a ‘system innovation… innovations that require signiicant adjustments in other parts of the business system they are embedded in’. AM is a system-wide evolution in production. Research question and motivation As an evolution in the system of production, additive manufacturing may alter what can be produced, how production happens, at what scale, and by whom. Considering material knowledge, two aspects of AM technology are particularly important. First, the logic of the manufacturing process – additive, rather than subtractive – creates a highly interdependent relationship between product and process design and material knowledge. The technology alters how material knowledge can be encoded and transmitted through composition, microstructure, and product design between supply chain actors. Second, with additive manufacturing the relationships between the ixed and variable costs of production are altered, reducing available beneits from increasing returns to scale. This means that small-scale producers can have a lower barrier to entry, leading to the idea of decentralising production, and accordingly, decentralising material knowledge that is critical for production. This informs the following research question: www.SbS.oxforD.eDu 33 Is material knowledge becoming decentralised in additive manufacturing? The motivation for this study is to shed new light on questions around the cycling of materials in industrial systems. To date, most scholarship in this area has focused on the eficiency and content of material lows such as commercial models for product take-back and supply chain dematerialisation. I take one step back and ask how the scale of production and relations of material knowledge matter for cycling of materials. I use the technology and organisational uses of additive manufacturing as a lens through which to understand relationships between the scale of production, material knowledge, and the cycling of materials in industrial systems. Research overview After irst exploring how AM technology may impact material knowledge, I situate the technology within its many organisational contexts. This includes the community of actors who generate material knowledge, and the relations between actors who use material knowledge for production purposes. I use ‘communities of practice’ to conceptualise these groups. The importance of considering communities of practice is threefold. First, it allows me to analyse how material knowledge may be affected by the different production purposes of various communities. For example, producing aerospace parts is signiicantly different from personal fabrication of household goods, and may shape the type of material knowledge each community seeks to use and control. Second, I can explore the inluence of AM’s historical beginnings on material knowledge by analysing how its communities of practice have changed over time. Third, I can consider the relationship between material knowledge and scale by studying how communities of practice range in production scales from personal fabrication to industrial manufacturing. These themes are elaborated below. My research seeks to understand how AM technologies are altering the type and distribution of material knowledge at various scales in production and how, in turn, those who invent and use the technology source and shape material knowledge through practice. Part I Sources of material knowledge: Composition of communities I study the community of actors who have generated material innovations over time. Innovations that contribute to the technology’s capacity to encode and transmit material knowledge include new materials, material structures, technologies that adapt existing materials for AM, and software that allows material information to be manipulated. I ask whether the community of actors who generate material knowledge is becoming more or less decentralised. For example, are large private companies dominating the innovation landscape, or are small companies and/or research organisations becoming prominent? As an important inluence, I ask whether there is signiicant path dependency in the composition of actors from earlier communities of practice. 34 The Spring DocToral conference 2014 I then investigate whether the composition of the community who generates material knowledge varies with the scale of production. For example, in personal fabrication there exists a dominant open source movement in technology hardware. I ask whether this ethos extends to materials, or whether this community depends on mass-produced patented materials. Part II Relations of material knowledge: Control within communities I research how different communities of practice may shape the use of material knowledge. I focus in particular on the control of material knowledge with closed or open business models by AM service providers. Understanding the distribution and mechanisms of material knowledge control is central to the question of decentralisation. In a closed business model the AM machine platform can only use patented feedstock supplied by the machine producer, thus limiting material knowledge in the supply chain. An alternative is an open machine platform where the material is developed in cooperation with the customer. I ask how communities of practice in different industries using different materials may inluence the choice of business models. I explore the implications for lows of material knowledge in product-process supply chains. I also analyse how communities who irst commercialised AM for prototyping persist in shaping the technology’s use. I ask to what extent open or closed business models persist and shape how material knowledge is used in production. I research how the use of material knowledge may change with the scale of production. For example, are closed business models used by large industrial irms, small businesses, and personal fabricators alike? Or are there alternative business models at different scales? I focus on how the control of material knowledge within communities of practice may vary with the scale of production. References Keen, P (2013), From Bits to Pieces: Exploiting the Practical Business Innovations Opportunities of 3D Printing, North Charleston: Business Futures Press. Maula et al (2006), ‘Open Innovation in Systemic Innovation Contexts’, in Chesbrough, H., Vanhaverbeke, W and J West, (eds), Open Innovation: Researching a New Paradigm, Oxford University Press, Chapter 12. Wenger, E (1998) Communities of Practice: Learning, Meaning, and Identity, Cambridge University Press. www.SbS.oxforD.eDu 35 Francesca Brusa francesca brusa is a Dphil student in financial economics and is supervised by professor Tarun ramadorai. prior to joining the School she completed an Mphil in economics at the university of oxford, and in 2009 she graduated summa cum laude in economics and Social Sciences from bocconi university, Milan. her research interests are in international finance and empirical asset pricing with a primary focus on currency markets. francesca is a member of balliol college and is affiliated to and fully sponsored by the oxford-Man institute of Quantitative finance. in 2011, her research on carry trades was supported by the bank of italy. She was also awarded a ‘fondazione luigi einaudi’ scholarship, sponsored by ‘compagnia di San paolo’, for the first year of her Mphil studies. her MSc thesis won the ‘angelo costa’ – xiVth edition award (an italian thesis award). 36 The Spring DocToral conference 2014 Currency risk in global equity returns A long-standing question in international inance is whether international equity investors are compensated for bearing exchange rate risk. This paper proposes a novel decomposition of global equity returns and provides evidence that international equity investors are rewarded for the currency risk they take. Addressing the currency risk question is even more relevant nowadays than in the past, as the process of international inancial integration has remarkably sped up over the last three decades. The scale of the problem is non-trivial, too. The value of foreign equities is roughly a $5.9 trillion question for the United States. And the share of aggregated foreign equity holdings of developed countries over world GDP (in U.S. dollars) has increased steadily from around 3 per cent in the 80’s up to around 30 per cent in 2011 (using updated data by Lane and Milesi-Ferretti (2007)), along with the gradual dismantling of cross-borders capital low restrictions. Economic theory predicts that exchange rate risk matters. In a world in which real rigidities exist, there are frictions in the goods market that prevent perfect risk-sharing and imply deviations from purchasing power parity. On the one hand, international investors invest abroad, but consume at home. On the other hand, foreign and domestic purchasing powers differ. In turn, international investors should require a compensation for bearing the risk of a low return on their foreign investment, once this return is expressed in real domestic terms. The empirical asset pricing literature has struggled over time to provide convincing evidence that currency risk is empirically priced. One of the most successful attempts is the work by Dumas and Solnik (1995) that tests an extended version of the standard world CAPM (one risk premium based on the covariance between equity returns and the return on a world market portfolio) by adding additional terms that capture currency risk-premia. All terms are denominated in a common currency, the U.S. dollar. In a set of four countries (United Kingdom, Germany, Japan, and the United States) and for the March 1970 to December 1991 period, the authors ind that currency risk is priced once conditioning on a set of inancial instrumental variables. Instead of picking three arbitrary exchange rates as in previous literature, we propose a decomposition of the return on a world market portfolio denominated in U.S. dollars, namely the single factor in the standard world CAPM, in a pure equity component (i.e. the return in local terms on the same portfolio) and a currency component. Recent literature (Lustig, Roussanov and Verdelhan, 2011) shows that bilateral exchange rates are summarised by two global risk factors: the dollar factor, and the carry factor. The former is the average excess return earned by an investor www.SbS.oxforD.eDu 37 who borrows in the U.S. and invests in a broad portfolio of foreign currencies. The latter is the average excess return earned by an investor who goes short (long) in a portfolio of low (high) interest rate currencies. The key idea underlying our empirical speciication is to approximate the foreign exchange component of the return on the world market portfolio, denominated in a common currency, and all additional currency risk premia required by the Dumas and Solnik (1995) speciication, using these two global factors. Therefore, our speciication implies that three global factors are necessary to price equity returns expressed in a common currency. We provide evidence that conditional tests based on this empirical speciication outperform analogous tests on two major competitors (i.e., the standard World CAPM and the Dumas and Solnik (1995) speciication), using a wide set of equity excess returns over a sample period spanning from February 1976 to April 2013. We build an international equity data set with up to 225 country test assets covering 25 developed markets and 21 emerging markets. Our test assets are monthly returns on ive types of MSCI country equity indices, namely aggregate market, growth stock, value stock, big cap and small cap indices, all denominated in U.S. dollars. Using 60-month rolling windows, we show that the equity exposure to our three factors is time-varying, and varies considerably across our test assets. We show that taking this time-variation into account is crucial to successfully explain differences in average returns across assets with different characteristics. For aggregate market excess returns (i.e. computed in excess from the U.S. three month treasury bill rate), this spread is approximately 10 per cent for developed markets and 22 per cent for emerging markets, where both percentages are in annualised terms. Standard Fama-MacBeth tests based on 60-month conditional rolling betas indicate that our three factors are all priced, thus providing evidence that global investors are exposed to exchange rate risk and are rewarded for bearing it. Modelling time-variation via rolling windows rather than conditioning on instrumental variables (like in Dumas and Solnik, 1995) has a crucial advantage (Nagel, 2006): our speciication does not suffer from the popular critique that the econometrician needs to know the ’right’ set of state variables, implying that any conditional asset pricing model is not truly testable, because its implications can only hold conditional on the set of variables the econometrician observes (Cochrane, 2001). Decomposing the single factor of the standard world CAPM into three components and modelling their time-variation separately imply resurrecting the world CAPM. To conclude, this paper provides empirical evidence that international equity investors are compensated for the currency risk they take, thus supporting economic theory predictions. Indeed, the $5.9 trillion question matters. 38 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 39 Mehmet Ihsan Canayaz Mehmet is a Dphil candidate in financial economics, and has been awarded a Saïd business School foundation (SbS-SbSf) Dphil Scholarship. he also won the alastair ross goobey Memorial Scholarship and the icgn Scholarship, both granted by international corporate governance network (icgn). prior to beginning his Dphil at Saïd business School, Mehmet received an Ma in economics from new York university (nYu). he also completed a double major in Mathematics and economics at nYu. 40 The Spring DocToral conference 2014 Is the revolving door of Washington a back door to excess corporate returns? In a July 2007 campaign appearance in Manchester, N.H., then-presidential candidate Barack Obama said, ‘When I am president, I will make it absolutely clear that working in an Obama administration is not about serving your former employer, your future employer, or your bank account. It’s about serving your country, and that’s what comes irst.’ Mr Obama also said that, for two years, employees would be prohibited from working on regulations or contracts directly related to their previous employers. That ban, he said, would close a ‘revolving door’ for former and future employers.1 Candidate Obama’s campaign remarks relected a public unease with movement of individuals between legislative and regulatory government positions and jobs in the private sector affected by the legislation and regulation.2 Motivated by the aforementioned concerns, this paper looks into the relationship between revolving door movements and long-run stock returns in the U.S. We obtain data on revolving door movements from the Center for Responsive Politics’ (CRP) Revolving Door Database and data on government contracts from Bloomberg’s Government Contract Allocation (BGOV) Database, and we focus on the stock returns between 1990 and 2012. 1 excerpts taken from Zeleny (2007). The ban that passed after the elections only partially restricted the politicians that aimed to work for registered lobbying firms, but didn’t stop them from working directly for corporations in general. 2 Several revolving door movements aroused public ire in the u.S. The poster child example for the conflicts of interest created by revolving door movements is Darleen Druyun. Druyun, who oversaw the management of the air force’s weapons acquisitions program, joined boeing in 2003 as the Deputy general Manager for Missile Defence Systems. Subsequent disclosures revealed that she was negotiating the terms of her boeing employment while she was handling a proposal to lease tankers from boeing. www.SbS.oxforD.eDu 41 First, we investigate whether ‘revolvers’ add shareholder value to their current or former3 corporate employers. The differences between the four-factor alphas earned by the equally- and value-weighted portfolios of irms which employ (or used to employ) revolvers, and those earned by the equally- and value-weighted portfolios of the remaining irms, are statistically insigniicant.4 Second, we analyse whether revolvers add shareholder value to their future corporate employers while they still hold government positions.5 The four-factor alpha difference between the valueweighted portfolio of irms where current public oficials become future employees and the value-weighted portfolio of the remaining irms is a highly statistically signiicant 5.68 per cent per year.6 Firms with revolvers in the government earn 4.12 per cent excess returns over characteristics-based benchmarks per year, and excess returns increase monotonically as their number of revolvers over size ratio (i.e. potential impact of revolvers) increases. Results from our second investigation are open to an alternative causal interpretation. Rather than public oficials adding shareholder value to their future corporate employers, it may be that irms that have generated superior returns in the recent past employ public oficials as they can afford to hire more people. To assess the validity of this alternative interpretation, we look into the years that the revolvers are hired, and we match the irms that employ revolvers to a control group of irms that feature similar characteristics in number of employees, change in the number of employees, market capitalisation, book-to-market ratio and industry group in the year of hiring. The irms that employ revolvers outperform the control group of matched irms; the four-factor alpha difference between value-weighted treated and controlled portfolios is a statistically signiicant 5.04 per cent per year. This is inconsistent with the alternative view that irms that exhibit superior performance in the recent past simply hire more people (former public oficials being among them), and that revolvers add no shareholder value. We also run a placebo test, in which we hold portfolios of revolver-hiring irms before revolvers’ government tenure and after their irm tenure. The sample of irms having excess returns during 3 we define former corporate employers as the firms that used to employ revolvers, who quit their corporate jobs to work for government positions within a year. in this case we investigate firm performance during revolvers’ government tenures. 4 The four-factor alpha is the excess return with respect to the fama-french-carhart four-factor model (see carhart, 1997). we also use characteristics-based benchmarks from Daniel et al. (1997) 5 we define future corporate employers as the firms that will hire revolvers within a year after they leave their government positions. results change monotonically in our favour as we change this window. 6 we focus on the stock returns of firms up to three years right before revolvers join them and while they still hold public offices. results change monotonically in our favour as we change this window. 42 The Spring DocToral conference 2014 revolvers’ government tenure performs no better than the remaining irms in other time periods. To delve deeper into economic explanations, we follow Belo, Gala, and Li (2013) and show that irms’ return on equity increases and cash low volatility decreases during revolvers’ government employment periods. Furthermore, we show that irms receive more government contracts when a future irm employee is holding a government post. The inancial gains from these contracts are economically large i.e. $250 million yearly, and they are even larger in times of high political uncertainty i.e. $380 million in years of high political uncertainty. These results are in line with Acemoglu, Johnson, Kermani, Kwak, and Mitton (2013) indings on political connections beneiting irms primarily in times of economic turbulence. Taken together, our results provide empirical support for regulatory capture related to post-public employment, i.e. that public oficials use or abuse their power while in ofice to favour potential future corporate employers. On the other hand, we don’t ind any evidence for undue inluence (former public oficials inluencing their former government colleagues for the beneit of their new employers) or proiteering (former public oficials using conidential information to beneit their corporate employers). However, our indings do not refute the latter hypotheses, either. One key difference between the hypothesis of regulatory capture related to post-public employment and the hypotheses of undue inluence and proiteering is that the offense occurs during public employment in the former while it occurs post public employment in the latter. Provided that the stock market is eficient in incorporating information about hiring of former public oficials and is able to correctly assess these individuals’ value implications, irms that employ revolvers should not exhibit superior future returns even if the said revolvers exercise undue inluence or proiteer for the beneit of their corporate employers. There is one particular feature that distinguishes our paper from others in this literature. To our knowledge, our paper is the irst one to study the value of ‘hidden’ corporate political connections. Appointment of former public oficials to corporate board memberships or employment of them by private corporations is public information. Similarly, former corporate employment or board memberships of public oficials would be known and carefully assessed by investors in the stock market. Also, ties due to educational background or charity and foundation board memberships can be easily found out by market participants, especially in the digital age. However, general investor population would not be privy to a public oficial abusing her power in order to favour a potential future corporate employer. Our paper provides strong evidence consistent with such hidden political connections of irms generating excess returns for them. www.SbS.oxforD.eDu 43 References Acemoglu, D., S. Johnson, A. Kermani, J. Kwak, and T. Mitton (2013), ‘The value of connections in turbulent times: Evidence from the United States’, working paper. Barrington, R., M. Macaulay, and J. Scott (2010), Corruption in the UK: part one – national opinion survey, Transparency International UK. Available from: <http://www.transparency.org. uk/our-work/publications/91-corruption-in-the-uk-part-one-national-opinion-survey> Belo, F., V. Gala, and J. Li (2013), ‘Government spending, political cycles, and the cross section of stock returns’, Journal of Financial Economics, 107(2), 305-324. Blanes i Vidal, J., M. Draca, and C. Fons-Rosen (2012), ‘Revolving door lobbyists’, American Economic Review, 102(7), 3731-3748. Bloom, N. (2009), ‘The impact of uncertainty shocks’, Econometrica, 77(3), 623-685. Bunkanwanicha, P. and Y. Wiwattanakantang (2009), ‘Big business owners in politics’, Review of Financial Studies, 22(6), 2133-2168. Carhart, M.M. (1997), ‘On persistence in mutual fund performance’, Journal of Finance, 52(2), 57-82. Cingano, F. and P. Pinotti (2013), ‘Politicians at work: The private returns and social costs of political connections’, Journal of the European Economic Association, 11(2), 433-465. Cohen, J.E. (1986), ‘The dynamics of the revolving door on the FCC’, American Journal of Political Science, 30(4), 689-708. Dal Bo, E. (2006), ‘Regulatory capture: A review’, Oxford Review of Economic Policy, 22(2), 203-225. Daniel, K., M. Grinblatt, S. Titman, and R.Wermers (1997), ‘Measuring mutual fund performance with characteristics-based benchmarks’, Journal of Finance, 52(3), 1035-1058. David-Barrett, L. (2011), Cabs for hire? Fixing the revolving door between government and business, Transparency International UK. Available from: <http://www.transparency.org.uk/ourwork/publications/132-cabs-for-hire?-ixing-the-revolving-door-between-governmentand-business> Faccio, M. (2006), ‘Politically connected irms’, American Economic Review, 96(1), 369-386. Fama, E.F. and K.R. French (1993), ‘Common risk factors in the returns on stocks and bonds’, Journal of Financial Economics, 33(1), 3-56. Fisman, R. 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Available from: <http://www.nytimes.com/2007/ 06/23/us/politics/23campaign. html> www.SbS.oxforD.eDu 45 Nicholas Sabin nicholas Sabin is a Dphil candidate in Management Studies at Saïd business School, university of oxford. his research interests include microfinance, economic sociology, and complex systems. he is supervised by Dr. felix reed-Tsochas and Dr. David barron. nicholas’ research seeks to relate social structure and economic action in the context of microfinance groups in developing countries. his aim is to contribute both to the theoretical understanding of human behaviour in repeated economic exchanges, and to improve the practical implementation of poverty reduction strategies. prior to attending oxford, nicholas worked in the u.S. financial services industry as a strategy professional. he later transitioned to the microfinance field by serving as a Kiva fellow in Sierra leone, west africa. nicholas holds an MSc in Management research (Distinction) from the Saïd business School, a bachelor of Science in Systems engineering from the university of pennsylvania, and a bachelor of Science in finance from the wharton School. 46 The Spring DocToral conference 2014 Social collateral: Structural embeddedness and economic performance in microinance This study examines the use of social collateral in microinance lending. Microinance has expanded dramatically over the last four decades, now reaching over 200 million clients globally (Maes & Reed, 2012). The approach is producing extremely high repayment rates (97 per cent on average) in economic contexts where previous attempts at lending to the poor have failed (Armendáriz & Morduch, 2010). A key aspect of the microinance model is the use of joint-liability lending. Instead of offering a loan to an individual borrower, a loan is offered to a small group of borrowers such that if one of the borrowers defaults, the others are held responsible. The motivation for this type of lending is that ‘social collateral’ is used in place of conventional inancial collateral (Besley & Coate, 1995). Despite its critical role in microinance, our understanding of how social collateral actually works remains very limited. Our research is motivated by a fundamental question: If social collateral has a real impact on loan performance, then what features of a group’s structure systematically affect repayment and by what mechanisms? Prior theoretical work has suggested that the more socially cohesive a group, the more likely it will repay its loan. However, empirical studies have signiicantly lagged behind and produced inconsistent indings. Often these empirical studies have used course-grained measures of a group’s structure, e.g. binary coding of the group’s social cohesion (Wydick, 1999). The intent of this study is to provide a far better understanding of social collateral by introducing a more systematic analysis of how variation in microinance group structures can have both positive and negative effects on their economic behaviour (see Granovetter, 1985). Data and Empirical Analysis The empirical analysis draws on an unusually rich and high quality dataset from a microinance institution in Sierra Leone. The comprehensiveness of the data, covering the years from 2006-2011, is markedly greater than most prior studies on microinance. The internal validity of our indings on social collateral is enhanced through the integration of multiple types of empirical data, including: ethnographic ieldwork, social afiliation survey data, GPS spatial coordinates, and inancial loan portfolio data. Our analysis employs the following approach: First, we draw on existing theory and original ethnographic ieldwork to develop refutable propositions on how structural embeddedness within a microinance group relates to its economic performance. www.SbS.oxforD.eDu 47 73 interviews over 54 hours were conducted. Second, we construct measures of a group’s structural embeddedness based on the spatial proximity of borrowers’ residences. In this stage, we conducted a social survey on 410 microinance clients to construct a bipartite afiliation network. The social afiliation network is used to validate that a group’s spatial structure in Sierra Leone contains meaningful social information. Third, we then statistically test our propositions regarding the effect of spatial structure on loan repayment with a dataset of 1,884 microinance borrowers taking a combined 741 group loans. High-resolution GPS data was collected on all the borrowers in the sample. We it a hierarchical linear model for repeated measures (Snijders & Bosker, 2012). Extensive controls are applied to account for individual borrower characteristics, business type, sales income, business equity, and group loan features. Fourth, we further test construct validity using the subset of borrowers with bipartite afiliation data. We ind a direct measure of social transitivity produces the same effect on performance. We also test that the results are not a result of spatial autocorrelation of business performance. Summary of Findings We ind that structural embeddedness has two systematic effects on group loan repayment. (1) Spatial Density As a group’s average spatial density increases, a group’s economic performance improves up to a certain level. Then the effect reverses and performance declines. We ind that structural embeddedness enhances performance through greater ability to sanction, communicate, and build solidarity. However, contrary to most expectations in the microinance literature, we ind that groups can frequently become over-embedded. Worse economic performance results from a reduced willingness to enforce the loan. The inancial transaction can become secondary to the social relationships. (2) Spatial Fragmentation Groups that consist of multiple spatial fragments produced worse economic performance. These groups typically have a higher degree of social variation across fragments. Such structures are prone to split into factions and hinder group cooperation. Contributions and Implications This study makes three signiicant contributions, relevant to both the literature on economic sociology and the practice of microinance. First, this analysis involves an empirically rigorous approach for investigating how features of social collateral consistently relate to group performance. This study helps to move social collateral beyond an abstract theoretical concept, to one that can be operationalized and systematically tested. Second, the nonlinear effects of structural embeddedness on loan performance are not well-known in the microinance literature (Paal & Wiseman, 2011). Whereas the beneits of embeddedness are widely appreciated, the risks of over-embeddedness are not and should be considered in microinance practices. Third, microinance in Sierra Leone provides an understudied example of non-Western 48 The Spring DocToral conference 2014 economic activity and allows us to make a unique contribution to our understanding of structural embeddedness. www.SbS.oxforD.eDu 49 The Panel Many thanks to our judges and session chairs for their time and expertise 50 The Spring DocToral conference 2014 www.SbS.oxforD.eDu 51 Thomas Noe DPhil Programme Director and Ernest Butten Professor of Management Studies, Saïd Business School Thomas noe is the ernest butten professor of Management Studies at the Saïd business School, and an expert on corporate finance and corporate governance. his work has influenced the way companies are financed through the issuance of securities, contributed to the way we analyse systemic risk for firms, and provoked a reevaluation of the way senior managers are compensated. he is one of the 20 most prolific researchers in leading finance journals since the turn of the century, with his research appearing in journals such as the american economic review, Journal of finance, Journal of financial economics, review of economic Studies, and review of financial Studies. currently, he is a co-editor of the Journal of economics and Management Strategy. he has served on numerous panels, programme committees, and editorial boards, including the board of the review of financial Studies. over the span of his career, he has visited academic and research institutions on five continents, including the federal reserve bank, hong Kong university of Science and Technology, Massachusetts institute of Technology, university of auckland, universidad de chile, universidad los andes and the university of Queensland. prior to joining the Saïd business School, noe held the a. b. freeman chair in finance at Tulane university. he is a professorial fellow at balliol college, and a research associate at the oxford-Man institute and the centre for corporate reputation at oxford university, and the european institute for corporate governance. 52 The Spring DocToral conference 2014 Felix Reed-Tsochas Associate Dean for Research and James Martin Lecturer in Complex Systems, Saïd Business School with an academic background in theoretical condensed matter physics, felix reed-Tsochas’ work is being applied to a wide range of vitally important business, financial and social issues. These include modelling how interbank lending can generate contagion and instability in financial markets, with a view to understanding how regulation might contain such effects, and understanding what characteristics determine the resilience of supply chains in the face of both localised disruptions and potentially disastrous large-scale events. he is also exploring the impact on social science of the explosion of social media and mobile phone usage, and other technologies that capture human interactions and transactions, at a time of increasing computational power and novel computational techniques often imported from other disciplines. This provides, for the first time, the necessary ingredients for a more scientific exploration of individual and collective human behaviour, with implications for a broad range of business and other activities. The latter has broad relevance for Social Science research and felix is engaged in teaching a course to doctoral students across oxford university’s Social Science Division that includes some of these new techniques. as Director of the oxford Martin programme on complexity, felix is involved in research that seeks to develop new approaches for the management of systemic risk, based on an interdisciplinary perspective and comparative data analysis of systems in different domains, using tools such as complex network analysis and agent-based modelling. The scope of this work is being very significantly enhanced by the complexity economics programme of ineT oxford, a major interdisciplinary research centre at the university of oxford set up by The oxford Martin School and the institute for new economic Thinking (ineT). felix is a founding co-Director of the cabDyn complexity centre, where cabDyn stands for complex agent-based Dynamic networks. cabDyn was launched in 2003 to coordinate complex systems research activities across oxford and to build bridges between different disciplines using tools such as agent-based modelling and complex network analysis. in addition, felix is a member of the Department of Sociology, and a research associate of the networks cluster at the advanced Studies centre of Keble college. www.SbS.oxforD.eDu 53 David Barron Reader in Organisational Sociology David barron’s research is concerned with the sociology of organisations, quantitative research methods and social networks. his most recent work relates to the caring professions in the uK (including teaching, social work, nursing, medicine, child care, and nursing and care assistants). he has investigated issues that are of significant interest to the uK’s nhS, particularly in the wake of intense interest in the quality of nursing care. These include the impact of medical and nursing staffing levels on mortality rates, and the impact of different methods of obtaining patient feedback on nursing behaviour. he has also investigated the earnings of caring professions and their relationship with professional or trade union organisations. David’s research has resulted in a range of book chapters and articles, including ‘The financial costs of caring in the british labour Market: is There a wage penalty for workers in caring occupations?’ in the british Journal of industrial relations. he is on the editorial board of the american Sociological review, industrial and corporate change and organisation Studies. David is a rhodes Trust reader in organisational Sociology. after graduating in natural sciences from cambridge in 1979, he worked for several years as a social worker in Scotland and london, before taking his Ma and phD in sociology at cornell university. David was an assistant professor in Sociology at Mcgill university until 1994 when he joined the Saïd business School as university lecturer in business organisation. 54 The Spring DocToral conference 2014 Teppo Felin Professor of Strategic Management Teppo felin is a professor of Strategy at Saïd business School, university of oxford. his areas of expertise include microfoundations of organisational capabilities, the origins of new markets, entrepreneurship and innovation, complex systems, and competitive advantage. in 2013, Teppo was ranked in the top twenty most web-savvy and influential professors in the world by best online universities. Teppo’s highly acclaimed and award-winning research has been published in top journals such as academy of Management review, Managerial and Decision economics, Strategic entrepreneurship Journal and organization Science. his 2005 paper for Strategic organisation (with nicolai foss) earned him the 2010 So!whaT award for scholarly contribution. This award is based on the impact, substance and originality of research published five years earlier. Teppo was also researcher of the Year (2011-2012) and lee perry fellow at the Marriott School, bYu (20092013). he is a 2009 western academy of Management ascendant Scholar. Teppo, who strongly encourages his students to interact with technology, has also received multiple Mba outstanding Teacher of the Year awards while teaching at the Marriott School, bYu. Teppo is highly engaged with business and the wider academic community, being co-editor of the journal Strategic organization and on the editorial boards of several journals, including the academy of Management review and Journal of Management. he has also guest edited special issues of organization Science, Managerial and Decision economics, Journal of Management Studies and other journals. before joining Saïd business School, Teppo was associate professor and lee T. perry fellow of the Marriott School, brigham Young university (bYu). he has also been a Visiting professor (2004-2005) at goizueta business School, emory university in atlanta, georgia and held visiting positions at aalto university (helsinki, finland) and the hanken School of economics (helsinki, finland). Teppo currently holds a visiting professorship (non-resident) at libera universita internazionale Degli Studi Sociali (rome, italy) and is also a research fellow (non-resident) at the institute for economic research, lund university, Sweden. before entering academia, Teppo worked in the venture capital industry in Munich, germany and amman, Jordan. www.SbS.oxforD.eDu 55 Steve New Lecturer in Operations Management Steve new is university lecturer in operations Management at Saïd business School and fellow of hertford college at the university of oxford. his areas of expertise include supply chain management and process improvement. a leading authority on supply chain management, Steve’s interests lie in developing a more rigorous appreciation of how individuals and organisations construct and interpret their environment and the systems in which they operate. his research takes a multi-faceted approach analysing the meaning and interpretation of supply chain partnerships, exploring the way in which ethical and environmental issues are reflected in the chain, and on the impact of the internet and rise of b2b commerce. his current work on the concept of provenance in supply chains was the subject of a recent article, ‘The Transparent Supply chain’ in the harvard business review. Steve is one of the leading scholars investigating the enigma of the Toyota production System (TpS) and the west’s growing interest in the application of Japanese techniques to manufacturing. his research looks at the nuance and complexity of the so called ‘lean production’ or ‘just-intime’ manufacturing process, its application to different sectors and how few have managed to emulate Toyota’s model. To celebrate the thirtieth anniversary of the first english language paper describing the TpS, Steve edited a special issue of the international Journal of production research, bringing together papers from leading scholars who have attempted to understand the approach. More recently, Steve has been investigating the application of the TpS to medical care, working with the university of oxford’s nuffield Department of Surgery to explore the process and outcome of TpSstyle interventions on patient quality and safety in an acute surgical ward. papers have been published in the annals of Surgery, the british Medical Journal and bMJ Quality and Safety. Steve serves on the editorial review board for the Journal of purchasing and Supply Management, and the editorial advisory board for Supply chain Management: an international Journal. 56 The Spring DocToral conference 2014 Mungo Wilson University Lecturer in Finance Mungo wilson is a lecturer in the Department of finance at Saïd business School and an associate member of the oxford Man institute of Quantitative finance, both in the university of oxford. he specialises in asset pricing and mutual funds. Mungo’s research focuses on asset pricing. in particular, his work is centred on assessing how risk affects asset prices. he also studies mutual funds, analysing how their behaviour is affected by growth, and credit risk. having studied ppe at the university of oxford, Mungo initially trained as a solicitor and worked at Slaughter and May, before reading for an MSc in economics from the london School of economics and phD in economics from harvard university. before joining Saïd business School in 2009, Mungo held positions as assistant professor in the Department of finance at the hong Kong university of Science & Technology, and as a Visiting lecturer at the london School of economics. www.SbS.oxforD.eDu 57 Address 58 The Spring DocToral conference 2014 Peter Tufano Peter Moores Dean and Professor of Finance, Saïd Business School peter Tufano is the peter Moores Dean and professor of finance at Saïd business School. Since joining oxford in July 2011, Tufano has led the development of the new oxford 1+1 Mba programme, a two year customised management education that combines an Mba with one of oxford’s many specialised Masters programmes. Tufano’s research has focused on innovation, most recently how innovations in consumer finance can improve the delivery of services to low income families. he has developed courses on consumer finance, founded a non-profit r&D lab for new financial product development (www.d2dfund.org), and served on advisory groups in the uS (and now the uK) addressing the issue of financial inclusion. before joining oxford, Tufano spent 33 years at harvard, most recently serving as professor and Senior associate Dean at harvard business School, as well as the co-founder of the harvard university innovation lab (i-lab). www.SbS.oxforD.eDu 59 Saïd business School university of oxford park end Street oxford, ox1 1hp united Kingdom Saïd Business School Saïd business School is one of the world’s leading and most entrepreneurial business schools. an integral part of the university of oxford, the School embodies the academic rigour and forward thinking that has made oxford a world leader in education. The School is dedicated to developing a new generation of business leaders and entrepreneurs and conducting research not only into the nature of business, but the connections between business and the wider world. WWW.SBS.OXFORD.EDU © 2014 SaiD buSineSS School.