MIT Sloan School of Management News Briefs

News Briefs offers you timely leads about research and other work by MIT Sloan faculty that can help you with stories you are developing now — or might be developing in the future. Please contact us if you'd like further information about either a topic or its author.

November 2009

Reining Chen on the unintended consequences of the SEC's fair disclosure rule
An SEC rule requiring equal access to company information was meant to protect small investors but has had the effect of causing companies to increase their debt

Adopted in August 2000, the SEC's Regulation Fair Disclosure ended the practice some companies had engaged in of selectively disclosing company information, typically to favored analysts or institutional investors. The rule was intended to curb insider information and promote democratization of investing. Chen analyzed 10 years of data on over a thousand publicly traded companies and found that when firms needed capital after the rule went into effect, they tended to avoid detailed public disclosure by going to banks or other lenders. "The SEC wanted to affect the information environment for companies," says Chen. "While the agency may have done so, it actually affected the capital structure of companies as well. It had the effect of making companies more leveraged." More >>

Rajkamal Iyer on how banks must win back customer loyalty
Develops program for MIT Sloan MBAs to directly work with small firms

Many banks, especially smaller ones, face a continuing challenge to regain customers who fled to larger, seemingly more secure institutions during the financial crisis. One effective way to regain such business, he says, is for banks to offer depositors a wide range of products and services. "Our research finds that the length and depth of relationships between depositors and their banks can act as a dampening factor on the depositors' propensity to run" to another institution, he says, adding that maintaining such relationships can be very important to local economies. More >>

Otto Scharmer on seven Acupuncture Points for Shifting Capitalism
"Acupuncture points" could help create new economic system

There are a lot of conversations going on these days about crises. Whether it's the financial crisis, the climate change crisis, the food crisis, the education crisis, or the security crisis, each topic has its own conferences, Web sites, programs, and funding mechanisms. What is missing from the discourse, according to Scharmer, is a conversation about how the crises are interconnected in terms of systemic root issues and innovating solutions. He maintains that the problem today is that we are trying to solve "3.0 challenges" with "2.0 frameworks and response patterns." More >>

Erik Brynjolfsson on what makes a successful digital organization
"Wired for Innovation" identifies seven characteristics for profitable IT investment

Companies with the highest levels of return on their technology investment are not just buying computers and smart phones — rather, they are putting money into 'organizational capital,' according to a new book by Brynjolfsson. "They're investing in job training and education, and making changes to the way their business interacts with customers," he says. "It's costly but these investments help them become streamlined digital organizations." More >>

Christa Bouwman on the value of capital to banks
Capital helps all weather a financial crisis, but at other times, the benefit to large banks is small

In a financial crisis like the one in 2008, a healthy supply of capital is good for all banks, according to Bouwman, who analyzed a quarter century of data on performance and capital positions of 18,000 US banks. More capital helps any bank survive, boost profits, and gain market share in a crisis. But in normal times, whether more capital helps a bank depends on the bank's size. Small banks benefit from more capital under any conditions. Since they typically can't issue stock, small banks have trouble raising capital, so having a supply on hand helps them compete. But raising capital is usually not difficult for a large bank in normal times, so having a big reserve is not an advantage, according to Bouwman. "And holding more capital is more expensive than financing your activities with more deposits or other sources of financing," she notes. More >>

Tavneet Suri on economic empowerment in Kenya
Mobile banking helps Kenyans manage assets, avoid crises

M-PESA, the new mobile payment system, has spread faster than any other technological innovation in Kenya's history, faster indeed than the mobile phone itself. Suri's research suggests that as more people use the service to gain access to modern banking services, the effects of deeper, stronger financial markets could accrue to many Kenyans who have in the past been deprived of their benefits. More >>

Renée Richardson Gosline on Brand Value
Counterfeits don't necessarily hurt legitimate brands

Counterfeit products have become increasingly common in recent years, representing 7% of worldwide trade. However, despite the pervasiveness of the problem, Gosline says that counterfeits don't hurt the legitimate brands so long as consumers feel confident in their ability to distinguish between the real and the fake. "I was surprised to find that they can co-exist," she said, noting that the presence of "wannabes" can even verify the desirability of the brand. She also found that counterfeits are not viewed as substitutes for the real thing. Instead, they are often used as trial versions with 40% of consumers subsequently purchasing the real brand. More >>

Joshua Ackerman on cooperation and dating
For both men and women looking to succeed on the dating scene, bringing along a friend can be a very good idea

Friends will try to help you find partners to your liking, weed out undesirables, and support you in various other ways, according to Ackerman, a social psychologist and marketing expert who conducted a series of studies on cooperation and romance. In his research, Ackerman quizzed volunteer subjects on dating attitudes and behavior and presented them with hypothetical scenarios. He also staged a television-style dating game. His findings: Women help other women by creating barriers to discourage undesirable men or to help female friends evaluate potential partners. Men help other men by breaking down barriers that block friends from desirable women. "Courtship is often framed as a game, and researchers who study courtship behavior tend to focus on competitive aspects of this game," says Ackerman. "Sometimes, though, the mating game is a team sport." More >>

Cynthia Rudin on Preventing Electrical Fires and Explosions
Ranking of manholes prioritizes repairs and maintenance for Con Edison

With over 31,000 miles of underground cable running along the streets of Manhattan accessible by 51,000 manholes, maintaining the electrical system that was built over a century ago is a huge challenge for Con Edison, New York City's electrical utility. Add to that rising costs, limited budgets, and a new mandated inspection program and it is clear that a system for prioritizing manholes in need of repairs and upgrades is critical. Rudin and her colleagues recently took on this challenge by creating a statistical model of manhole vulnerability to help Con Edison prioritize maintenance and repairs. More >>

Dan Shapiro on the expression of emotions in business
Repressing feelings can be bad for the bottom line as well as the psyche

If there is one well-established business principle that needs to be scrapped, it's the idea that emotions must be kept in check, according to Daniel I. Shapiro, a visiting professor at MIT Sloan School of Management and a trained clinical psychologist. Expressing emotions in a thoughtful and directed way can unlock the potential of individuals and organizations, Shapiro has discovered in his research. "People in the corporate world become aware of emotions and get scared and try to get rid of them," says Shapiro. "But in my research and consulting, I've found that emotions can be your most effective lever in your interactions with other people." An expert in negotiating and conflict resolution, Shapiro has found that all people are motivated by the same core emotional concerns, and paying attention to those concerns and respecting them promotes beneficial relationships in a business setting. More >>