Non-Market Strategy under Uncertainty
Ballesteros, Luis and Catherine Magelssen. “Institutional disruptions and the philanthropy of multinational enterprises” Organization Science (Forthcoming).
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 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
Ballesteros, Luis and Vontrese Pamphile. “Loss aversion and the impact of corporate philanthropy on labor productivity” Working Paper 2020.
This study combines the arguments that people are more motivated to avoid losses than achieve gains and that organizational prosocial behavior may increase employee motivation and, thus, labor productivity. We develop and test the argument that employees will be more willing to exert greater effort for the same level of pay when their firm engages in philanthropic giving that seeks to mitigate welfare losses than when giving promotes welfare gains. Using the setting of corporate philanthropy of large U.S. companies, we present identification strategies that consistently support our argument that the potential impact on labor depends on the target of giving. Our estimates suggest that, on average, 6.83 percent of increases in productivity are associated with company donations targeted towards reducing losses in the wake of sudden shocks–such as epidemics, natural disasters, and terrorist attacks–that highlight loss vis-à-vis donations to bettering long-standing social conditions–such as poverty and homelessness. This correlation survives accounting for structural institutional or organizational changes—including media-reported strategic hiring and technological improvement, as well as a battery of robustness checks. The findings are suggestive that the targets of philanthropic donations are important for the extent to which corporate giving acts as a non-pecuniary incentive.
Ballesteros, Luis, Michael Useem, and Tyler Wry. “Halos or Horns? Reputation and the Contingent Financial Returns to Non-Market Behavior ” (Sep 2020: Under Revision)
Studies suggests that firms benefit from acting in socially-beneficial ways. We argue that this relationship becomes contingent under conditions of high uncertainty, such as when firms donate to disaster-relief efforts. In such situations, stakeholders are unlikely to have expectations about what constitutes appropriate behavior, and are likely to interpret a firm’s actions by looking to other cues. We thus argue that reactions to disaster giving will reflect a firm’s reputation, the timing of its donation, and the behavior of other firms in its industry, rather than the amount of aid that it gives. Analysis of every corporate donation to every natural disaster worldwide from 2003-2019 supports our argument. Regardless of the amount of aid given, well-regarded firms benefit from responding first to a disaster, and this spills-over to others that match their donations; the opposite applies to firms with an unfavorable reputation, and to those that imitate their gifts.
Market Strategy under Uncertainty
Ballesteros, Luis “The Impact of Uncertainty Shocks on Innovation.” Working Paper, 2019. (Oct 2020: Under Revision)
If engaging in innovative behavior entails risk tolerance and experiencing episodes of high uncertainty can alter risk preferences, then uncertainty shocks may help explain the distribution of innovation. I present different identification strategies at the individual and county level that consistently point to this argument in a decade-long database of patents in the United States. The evidence suggests that, after a transitory fall, U.S. counties impacted by Hurricane Katrina exhibit substantial average long-run increases of patent filings vis-à-vis counterfactual counties. The differences-in-differences estimates survive a battery of fixed effects and controlling for public policy, the outpouring of external assistance, and other context-based factors. To account for the confounds of selective migration, network, and organizational effects, I construct a panel of career histories of inventors that allows me to follow the treatment effect across geographies and time. The estimates imply that shock-affected individuals not only were more likely to file patents, but became more skewed toward technology-oriented innovation. Overall, the findings align with recent studies showing that large exogenous shocks may produce enduring reductions in risk aversion and, at least partially, increase risk taking. (JEL: A12, D12, D91, O30, 031, R12)
Magelssen, Catherine and Luis Ballesteros. “Internal Allocation of Rights to Competitive Advantages: Evidence from Communication Shocks.” Working Paper, 2019 .
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 Howard Kunreuther. Organizational Decision Making Under Uncertainty Shocks. No. w24924. National Bureau of Economic Research, 2018. (March 2020: Under Second Revision )
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. “Firm’s Economic Reliance to National Markets and the Corporate Provision of Public Goods.” The Wharton School Research Series 1 (2018): 56. (February 2020: Revised)
When firms decide to engage in the provision of collective goods that benefit social welfare (i.e., to behave pro-socially), they may consider the economic relevance of such goods for their own market operation. The bigger the stake of the firm in a market is, the greater its reliance on the market’s collective goods, such as communication infrastructure. Therefore, a market’s relative importance for a firm is a major predictor of corporate pro-social behavior. I show that accounting for variation in economic reliance leads to a more accurate prediction of corporate pro-social behavior than widely invoked arguments rooted in the extant literature.
Media and recognition:
-The Washington Post: It’s bad business not to donate to Nepal
-Academy of Management Best Paper Proceedings 2015:1 19077; doi:10.5465.
-Best PhD Paper, SMS 2015.