This paper studies philanthropy by multinational enterprises (MNEs) during institutional disruptions—the sudden and unexpected, temporary, and systemic breakdowns in economic institutions. The central argument is that, under institutional disruptions, MNEs aim to restore factors that are essential for the market to function, such as infrastructure and labor markets, and the strength of this motive rises in the economic importance of the affected country to the MNE. Analyses of donations from 2,000 MNEs headquartered in 63 countries in the aftermath of 265 major epidemics, natural disasters, and terrorist attacks affecting 129 countries suggest that the economic importance of the country to the firm strongly explains donations. Market concentration, public aid, and the country’s regulatory quality moderated this effect. These associations are robust to a matching method, a vector of firm-, country-, and event-specific time-varying and -constant variables, and alternative motives such as reputation, altruism, media salience, market standing, and poverty-gap avoidance. They offer evidence that company philanthropy in the aftermath of institutional disruptions may deviate from predicted behavior under stable conditions. Particularly, the findings contest the expectation that philanthropy rises in market competition. We find that monopolistic firms are comparatively large donors and may act as a stop-loss mechanism during large disruptions.
Media and recognition:
-CGTN America: Corporate Giving to Disasters.
-The Conference Board: When Company Tackle Great Challenges. -The Conference Board: When Company Tackle Great Challenges.
-The European Business Review: Disruption Strikes, You’re in Charge.
-Knowledge@Wharton: COVID-19 Disaster: Why Firms Should Lead the Recovery.
-Best PhD Paper, Strategy Management Society Annual Meeting 2015.
Ballesteros, Luis “Can natural disasters affect innovation? Evidence from Hurricane Katrina” (2021) Last version.
Studies of the geography of innovation have focused on how spatial proximity to human and material resources and institutions affect collaboration, knowledge flows, the demand and competition for invention, and the economic value of invention. I study a different source of the geographical determinants of innovation: exposure to large shocks. I conduct an inductive assessment, theoretically grounded on recent evidence that large exogenous shocks produce enduring fluctuations in risk aversion, to explain why Hurricane Katrina in the U.S. could have changed innovation outcomes. The difference-in-difference estimates show that, after an immediate fall, affected counties exhibit substantial increases in the growth rate of patenting and the quality of innovation compared to counterfactual counties. This correlation persists 10 years after the shock and is robust to measures of agglomeration and urbanization, firm resources, wealth, actual and expected income, education, external assistance, public policy, business cycles, and other county- and state-level factors. To account for the confounds of selective migration and network affiliation, I use narrowly georeferenced information to construct histories of inventors between 1999 and 2015 that allow me to follow the “Katrina effect” across geographies. The estimates imply that shock-affected individuals not only were more likely to patent, but became more skewed toward high-technology sectors.
We examine the effect of communication technologies on innovation within multinational enterprises (MNEs) by exploiting the staggered country-level introduction of broadband. Drawing upon property-rights theory, we expect that the allocation of R&D control rights within the firm will influence the benefits MNEs realize from communication technologies on innovation. In particular, we theorize that because of the different roles and responsibilities that headquarters and subsidiaries hold within the firm, the effect of communication technologies will depend on whether headquarters or a subsidiary has control rights over its activities. We find that post-broadband increases in patent productivity in R&D subsidiaries is contingent on whether the headquarters or another subsidiary controls the rights to the R&D subsidiary’s innovation. Only subsidiary-controlled R&D exhibit significant improvements in the quantity and quality of patents. Headquarters fails to leverage broadband to foster innovation in R&D subsidiaries. We contribute to the literature on the management of innovation by studying how intra-firm control rights affect knowledge creation and knowledge sharing within the firm. Our study highlights the importance of the internal organization of R&D to understand the implications of technology on innovation.
Ballesteros, Luis, Tyler Wry, and Michael Useem, “Punished for doing good: Heuristic-based judgement and the contingent returns to company philanthropy under high uncertainty” (September 7, 2021). Revise and resubmit. Available at https://ssrn.com/abstract=3919161 or http://dx.doi.org/10.2139/ssrn.3919161.
Companies donating in the aftermath of large-scale disasters often suffer public backlash and managers systematically fail to understand what corresponds to a donation that stakeholders perceive as contextually appropriate. We attribute this to the level of uncertainty that obscures the relative social value of a donation because accurate information about impacts is not available for months. We argue that stakeholders rely on a company’s pre-disaster reputation as a heuristic to make judgments of its philanthropy. Thus, regardless of the amount of aid given, well-regarded firms obtain rents from responding first to a disaster, and this spills over to companies in the same industry that match their donations; the opposite applies to firms with an unfavorable reputation, and to those that imitate their gifts. Analyses of donations by the largest 2,000 companies worldwide to every major epidemic, natural disaster, and terrorist attack from 2007 to 2019 support this argument and show that this heuristic effect does not transfer to firms donating different amounts. The estimates survive a battery of time-varying and joint fixed effects and tests of confounders. They confirm that reputation is a stronger rent determinant than donation amount. We discuss ways to improve managerial philanthropic decisions in similar settings.
This paper studies the societal implications of firm nonmarket choices under conditions of high uncertainty and time pressure. Due to the behavioral factors that affect the formation of preferences amid these conditions, the first mover generates a mental anchor that peer firms imitate because they interpret it as setting stakeholder expectations for similar organizations. Analyzing donations of over 10,000 multinational corporations from around the world in the aftermath of all the large epidemics, natural disasters, and terrorist attacks that occurred in the period 2000-2020, I find that the average company donation is not explained by measures of social needs, such number of victims and economics loss, but it is determined by the donation amount of the first donor.
Media and recognition:
-The Washington Post: It’s bad business not to donate to Nepal
-Best PhD Paper, SMS 2015.
Ballesteros, Luis and Howard Kunreuther. Organizational Decision Making Under Uncertainty Shocks. No. w24924. National Bureau of Economic Research, 2018. August 2021: 2nd Revise and Resubmit.
In line with the fallacy of riskification of uncertainty by which decision makers believe that the effects of unpredictable phenomena can be captured accurately by probability distributions, organizational scholars commonly treat the organizational inefficiency in dealing with uncertainty shocks—exogenous hazards whose welfare effects spread across industries and markets, such as natural disasters, terrorist attacks, and financial crises—as a problem of risk management. This is problematic because the consequences of uncertainty shocks outstrip the predictability capacity for the average manager and entail a greater complexity of internal and external factors. Moreover, their uniqueness makes translating experience into learning far more difficult. We seek to address this inadequate approach with a theoretical framework that captures the multidimensional complexity of organizations preparing for, coping with, and recovering from exogenous uncertain disruption. We bring together the literatures on cognitive psychology that suggest that biases and heuristics drive behavior under uncertainty, a Neo-Carnegie perspective that indicates that organizational structure and strategy regulate these behavioral factors, and institutional theory that points to stakeholder and institutional dynamics affecting economic incentives to invest in prevention and business continuity. Taken together, this article offers the foundation for a behaviorally plausible, decision-centered perspective on organizational decision-making under uncertainty.
Ballesteros, Luis and Vontrese Pamphile, “Is labor productivity more Sensitive to corporate philanthropy towards welfare shocks or chronic conditions?” (April 21, 2021). Available at SSRN: https://ssrn.com/abstract=3831440 or http://dx.doi.org/10.2139/ssrn.3831440.
Do increases in labor productivity that follow from corporate philanthropy depend on the societal causes to which firms donate? Integrating insights from psychological research showing that individuals respond more charitably towards beneficiaries who experience a welfare shock (e.g., those afflicted by disasters) than beneficiaries in a chronic state of low welfare (e.g., those living in poverty), we develop and test the argument that employees exert more effort at work when their firm’s philanthropy targets welfare loss than when philanthropy targets chronic conditions. Using longitudinal data on corporate philanthropy from large U.S. companies, we present identification strategies that consistently support our argument. Our estimates suggest that, on average, a 6.63 percent greater increase in marginal labor productivity occurs when companies donate towards welfare loss after sudden shocks—such as epidemics, natural disasters, and terrorist attacks—vis-à-vis donations to chronic conditions like poverty and homelessness. This correlation survives accounting for a vector of joint fixed effects and time-varying controls as well as a battery of robustness checks. The findings suggest that the targets of philanthropic donations are important for the ways in which corporate giving acts as a non-pecuniary incentive.
Magelssen, Catherine and Luis Ballesteros. “Internal Allocation of Rights to Competitive Advantages: Evidence from Communication Shocks” (2020). Last version.
This study draws on property rights theory to gain new insights into the allocation of rights to competitive advantages within the firm. We use a hand-collected confidential dataset on 102 multinational enterprises (MNEs) on the types and locations of intangible assets owned by the MNEs to examine the external and internal factors that affect the allocation of ownership rights within the firm. The findings indicate that MNEs select locations based on tax and their need for coordination and regional expertise. We find evidence that MNEs are significantly likely to locate ownership of their intangible assets in regional hubs of expertise. When intangible assets are more difficult to monitor and control, firms are less likely to separate ownership from the value-creating activities. As such, these findings imply that tax competition is not simply a “race to the bottom” in that there are factors that inhibit firms from fully being able to capitalize on tax policies.
Ballesteros, Luis and Aline Gatignon. “The relative value of firm and nonprofit experience: Tackling large-scale social issues across institutional contexts ” Strategic Management Journal 40.4 (2019): 631-657.
Nonprofit organizations (NPOs) are often identified as a natural vehicle for the engagement of firms in large‐scale social issues. We evaluate this argument by examining the conditions under which NPO experience is more valuable than firm experience in overcoming the key challenges associated with corporate disaster giving. Findings from a quasi‐experiment across the 4,396 natural disasters worldwide between 2003 and 2015 demonstrate that firms could donate more by implementing the aid through NPOs (on their own) in countries with low (high) institutional development, especially where they lack (have) market operations. However, we also observe that firms more frequently than not opted into the allocation mode that yielded comparatively low aid, raising questions about incentive alignment and communication across the business and nonprofit sectors.
Ballesteros, Luis, Michael Useem, and Tyler Wry. “Masters of disasters? An empirical analysis of how societies benefit from corporate aid.” Academy of Management Journal 60.5 (2017): 1682-1708.
Corporations have become increasingly influential within societies around the world, while the relative capacity of national governments to meet large social needs has waned. Consequentially, firms are being asked to adopt responsibilities that have traditionally fallen to governments, aid agencies, and other types of organizations. There are questions, though, about whether this is beneficial for society. We study this in the context of disaster relief and recovery; an area where companies account for a growing share of aid as compared to traditional providers. Drawing on the dynamic capabilities literature, we argue that firms are better-equipped than other types of organizations to sense areas of need following a disaster, seize response opportunities, and reconfigure resources for fast, effective relief efforts. As such, we predict that—while traditional aid providers are important for disaster recovery—relief will arrive faster, and nations will recover more fully when locally active firms account for a larger share of disaster aid. We test our predictions with a proprietary database comprising information on every natural disaster and reported aid donation worldwide from 2003 to 2013. Our analysis uses a novel, quasi-experimental technique known as the synthetic control method and shows that nations benefit greatly from corporate involvement when disaster strikes.
The Effect of Giving from Locally Active Firms on Post-Disaster Recovery (15 years pre-disaster; 10 years post-disaster)
Media and recognition:
-Responsible Research in Management Award 2019, IACMR-RRBM.
-Harvard Business Review: Giving After Disasters
-Strategy+Business: Corporate First Responders, Strategy+Business
-Knowledge@Wharton: Mastering Disaster: How Companies Can Help in Rescue and Recovery
–UNOCHA & DHL: “Leveraging Formal and Informal Business Partnerships for Disaster Relief”, How Public Private Partnerships are Making a Difference in Humanitarian Action