Publications and Working Papers

Non-Market Strategy under Uncertainty

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)

The figure shows the difference in HDI growth rate between treatment nations and correspondent synthetic controls. Period (0) is the disaster year. Treated are disaster countries with a substantial share of disaster giving coming from firms with operations in the affected country [(as defined by the 75th (7.7%), 95th (24.5%), and 99th percentiles (44.4%)]. The total sample of country disasters in the period is 464.

Media and recognition:

Ballesteros, Luis. “Lead, imitiate, or deviate?: Timing advantages under high uncertainty ” Working Paper 2018. (May 2020: Under Revision)

The prevailing wisdom in the timing strategy literature is that is that higher-performing first movers are more likely, on average, to accrue performance benefits than lower-performing first movers and followers will be better off imitating the choices of the former group and deviating from the latter’s. I argue that these predictions neglect the role of stakeholders (e.g., customers, investors) who may focus on firm-specific features that are different from firm performance when evaluating firms’ choices in the face uncertainty and ambiguity. I identify firm reputation as a key feature that stakeholders use in forming beliefs about the firm’s capacity and willingness to meet their expectations. Analyses of the giving of 5,845 firms from 74 countries in the aftermath of 4,637 natural disasters affecting the world from 2003 to 2015 support my arguments. I find that firms underestimate the value of reputation and overestimate the value of financial performance. This explains the frequent imitation of first movers with bad reputations, with both the first mover and the imitators suffering performance losses. The reputation of the first mover thus, on average, overrides the reputation of the follower: a bad-reputation imitator of a reputable first mover is likely to realize performance benefits. Finally, my findings suggest that in settings where uncertainty, ambiguity, and time pressure are pervasive, performance advantages are not strongly associated with the physical characteristics of the firm or its choices, thus contradicting research suggesting that moving fast with a large and substantive action is more likely to accrue advantages than a late, small and symbolic choice.


Market Strategy under Uncertainty

Ballesteros, Luis “The Impact of Uncertainty Shocks on Innovation.” Working Paper, 2019. (May 2020: Under Review)

If engaging in innovative behavior entails risk tolerance and experiencing episodes of high uncertainty can alter risk preferences, then uncertainty shocks may explain the geographical distribution of innovation. I evaluate this argument with a decade-long database of inventor-specific patent fillings in the United States. I present evidence that U.S. counties exposed to the consequences of Hurricane Katrina experienced increases on the average likelihood of patent fillings, which are not explained by a set of alternative factors.

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. “Markets as clubs: A study of the role of firm-market reliance in the company provision of collective 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
  • Early versions:
    • The Wharton School Research Series, 2015 (1), p.56.
    • Academy of Management Best Paper Proceedins 2015:1 19077; doi:10.5465.
    • Best PhD Paper, SMS 2015.