Business Highlights 2 English

Business Highlights aims to communicate the research carried out by INDEM’s members and the

Institute’s activities to businesses, research centers, and other social actors. By doing so, this newsletter

strives to become a bridge between academic researchers and practitioners.

The section News summarizes the activities carried out by INDEM and its members

and reports news related to the Institute. In the section Research Abstracts we

offer a snapshot of the research work of INDEM’s members. In this issue we start

two new sections: Profiles and Featured Research.

The section Profiles will introduce INDEM’s members to

readers. In each issue, this section will describe the

research and teaching of a member of the Institute. We start the section with

a profile of Andrea Fosfuri, Professor of Management, Chair of the

Department of Business Administration at Carlos III University, and renowned

innovation scholar. In the section Featured Research we will provide an in-

depth description of a research project by INDEM’s members. In this issue we

present the project “Measuring Brand Value of Carmakers: Price premia and

Revenue Premia in Horizontal Alliances,” by Mercedes Esteban-Bravo and

Nora Lado Cousté.

I hope that you enjoy the reading of this issue of Business Highlights.

Nora Lado Cousté, INDEM Director

Presentation of the newsletter nº 2

Contents::::

• News. (Pag. 2 )

• Profiles: Andrea Fosfuri. (Pag. 4)

• Featured research: Measuring brand

value of carmakers: Price premia and

revenue premia in horizontal alliances.

(Pag. 5)

• Research abstracts:

1. The relation between price and

performance in the mutual fund

industry. (Pag. 7)

2. Properties of distortion risk

measures. (Pag. 8)

3. On the future contract quality

option: a new look. (Pag. 8)

4. Innovation, exports and

productivity. (Pag. 8)

5. Innovation activity in the hotel

industry. (Pag. 9)

6. “Why do banks promise to pay

par on demand?”. (Pag. 9)

7. Can gender parity break the

glass ceiling?. (Pág. 10)

8. Do recruiters prefer applicants

with similar ekills? Evidence

from a randomized natural

experiment. (Pag. 10)

9. Does gender matter for

academic promotion? Evidence

from a randomized natural

experiment. (Pag. 10)

Universidad Carlos III de Madrid

Avd. de Madrid, 126

28903 Getafe (Madrid)

http://www.indem.es

Email: [email protected]

Carmen Vidal Ballester Business Development Institute

Business Highlights September of 2010 EISSN 1989-9254

Newsletter Nº 2

Nora LadoNora LadoNora LadoNora Lado. Directora del Instituto

Andrea FosfuriAndrea FosfuriAndrea FosfuriAndrea Fosfuri. Director del Departamen-

to de Economía de la Empresa

INDEM

NEWS

Pag. 2 Business Highlights

Summary of INDEM’s activities for the first semester of 2010.

Research

• Co-organizer: I Madrid Marketing Workshop, held at Carlos III University of Madrid on April

9, 2010.

• Co-organizer: Industrial Economics Meeting, to be held in September 2010

(www.jei2010.com).

• Contributor: Acquisition by Carlos III University of Madrid of the databases:

• Markit

• DataStream

• Database of the “Instituto de Estudios de Automoción.”

• Organizer: Carlos Cubillo Chair Research Seminar. Presenters:

• Manuel Illueca (Universidad Jaime I de Castellón). “Disciplinary sanction and audit

quality.”

• Germán López (Universidad de Navarra). “Fair value accounting and firm

valuation.”

• Christina Dargenidou (Universidad de Exeter). “What drives the earnings quality of

firms that cross-list in the European markets?”

• Marc Badía (IESE). “Operating profit variation analysis: Implications for future

earnings and equity values.”

• Santiago Sánchez y Fermín Lizarraga (Universidad Pública de Navarra). “Do Banks

and lenders react to earnings management? A joint analysis of discretionary

accruals and the content of audit report.”

• Juan Pedro Sánchez (Universidad de Murcia). “ Accruals quality and debt matury

structure.”

• Marco Trombetta (IE). “Does mandatory auditor rotation really improve audit

quality?

• Sponsor: Research Prizes to researchers affiliated to the Institute or the Department of

Business Administration at Carlos III University of Madrid. The recipients of this year's prizes

were: Pablo Ruiz, Javier Gil, Alexandra Luzzi, Miriam Sánchez Rosa Rodríguez, Jesús David

Moreno, Flora Muiño, Juan Ignacio Peña, Juan Manuel García Lara y Lluís Santamaría.

Teaching

• Co-organizer: European Master in Management. This program is offered jointly by the

Institute and ESCP Europe Business School and has been ranked as the top Master in

Management worldwide by the Financial Times in 2010.

• Organizer: Quality in Tourism Service Program (PROCAPCA).

• Organizer: summer course “Applied Portfolio Management: Mutual Funds and Hedge Funds

in Financial Markets,” taught by Carlos III University Professor David Moreno.

(www.cursosindem.es).

• Co-organizer: Short doctoral courses, jointly with the Department of Business

Administration, Carlos III University, Madrid.

The first Madrid Marketing Workshop, entitled “Marketing and Decision-Making”, was held on April

9, 2010 at Carlos III University, Madrid.

The Madrid Marketing Workshop (MMW) is a joint initiative of the Marketing faculty of three Madrid-

based academic institutions: Universidad Carlos III de Madrid, Instituto de Empresa and

Universidad Autónoma de Madrid. This one-day research workshop on marketing issues is the first

of a series that is intended to be celebrated every year. In each workshop prominent researchers

are invited to present a paper, which is discussed by another scholar. The workshop concludes with

a round table discussion.

The first MMW was hosted, organized, and partially financed

by INDEM. The event also benefited from the financial

support of Universidad Carlos III de Madrid, the Consolider

Program (CSD2006-16), and INNOGROUP. The invited

speakers were Rajesh Chandy, from the London Business

School, Eitan Gerstner, from Technion, Israel Institute of

Technology, and Ana Valenzuela, from the Baruch College,

CUNY, currently Visiting Professor at IE. Professors Martin

Boehm (Instituto de Empresa), Mónica Gómez Suarez (Universidad Autónoma de Madrid), Nora

Lado (Universidad Carlos III de Madrid) and Ana Valenzuela participated in the round table

discussion, entitled "Current and Future Perspectives in Spanish Marketing Research".

For more information on the workshop, you can visit its web page (www.madridmarketing.org), The

videos of the first MMW can be downloaded from: http://www.madrimasd.org/InformacionIDI/

Agenda/FichaJornada.asp?jor=7670

More than 40 students, belonging to six Central American countries, have graduated as Expert in

Tourism Quality . In their professional thesis, the students have applied their knowledge to the

improvement of the provision of touristic services by

350 MSMEs, enabling these companies to achieve a

more efficient use of their human and financial

resources.

In addition to the success of the Program of Tourist

Quality Service at the regional level, we must mention

the high degree of satisfaction of the program’s

graduates with the postgraduate program taught at

Carlos III University of Madrid and designed by INDEM.

This program, which was sponsored by AECID (Spanish

International Cooperation Agency for Development) and SITCA, was evaluated as “Excellent” by the

AECID .

I Madrid marketing workshop

Graduation of the first class of experts in tourism services quality

Pag. 3 Newsletter Nº 2

Rajesh Chandy Rajesh Chandy Rajesh Chandy Rajesh Chandy en el I Madrid Marketing Workshop

In July, 2010, INDEM organized its first summer course: “Asset Management: Mutual Funds and

Hedge Funds in Financial Markets.” The course, directed by Carlos III University Professor David

Moreno, was taught by both academics (Professor David Moreno) and practitioners from the

financial markets: Juan Pablo Jimeno (BBVA Asset Management), Jorge Yzaguirre (Bolsas y

Mercados Españoles), Francisco Martinez (asset manager), Juan Laborda (Hedge Fund manager). In

the last session of the course, Carlos III alumni now working in asset management shared their

experiences with the students.

The goal of the summer course was to present the new

techniques used by professional asset managers, to discuss

some of the key problems with traditional asset management

theory, and to review the main performance measures for

mutual funds and hedge funds.

INDEM summer courses

PROFILES

Andrea Fosfuri


Andrea Fosfuri is Professor of Management and Chair of the Department of Business Administration

at Carlos III University (Madrid). He holds a Ph.D. in Economics from University Pompeu Fabra

(Barcelona). Professor Fosfuri has been Research Affiliate of INDEM and the Centre for Economic

Policy Research (CEPR), London, and has held visiting positions at

Boston University, Carnegie Mellon University and Bocconi University.

Andrea’s research lies at the intersection between industrial

organization, the economics of technical change and strategy. His

research work has been published in the top academic journals in

these areas, such as Management Science, Strategic Management

Journal, Organization Science, Journal of Industrial Economics, or

Reseach Policy. Along with Ashish Arora and Alfonso Gambardella,

Professor Fosfuri is a co-author of Markets for Technology: Economics

of Innovation and Corporate Strategy, published by MIT Press.

Currently, he is an Associate Editor ofManagement Science (Strategy Division) and sits on the

Editorial Board of the Academy of Management Review, Management Research and European

Management Review.

At Carlos III, Andrea teaches the strategy MBA core course, an undergraduate course on

international business, and a course on the management of innovation to Ph.D. students.

Andrea FosfuriAndrea FosfuriAndrea FosfuriAndrea Fosfuri

Curso de Gestión de Carteras

Andrea’s recent research seeks to understand how firms can interact with different social groups to

build a competitive advantage. A second line of research focuses on the implications and

consequences of environmental pressures upon those firms competing in polluting industries.

Finally, he has recently finished a paper on how large firms organize for managing their intellectual

property when there are well-functioning markets for technology.

Personal web page:http://www.uc3m.es/portal/page/portal/dpto_economia_empresa/profesores/

andrea_fosfuri

Horizontal alliances frequently develop identical (twin) products sold with different branding and positioning. A case in point is Ford, SEAT and Volkswagen collaborating to fabricate a multi-purposes automobile (MPV), and Ford selling it under brand name Ford Galaxy, SEAT selling it under brand name SEAT Alhambra, and Volkswagen under brand name Volkswagen Sharan. Once the alliance output is integrated into the supply chains of its allied company, each competitor focuses on the accomplishment of its marketing mix in order to maximize its own performance. Such cooperative alliances with competitors do not imply anticompetitive price collusion, for each firm can charge a price consistent with its market positioning, in that way obtaining a different market share. Marketing strategies usually have a cumulative outcome that is reflected in brand value, usually defined as the added value with which a given brand endows a product. This value is regarded as an antecedent to future revenues. In this study we consider brand value to be the economic added value of a brand, and propose two measures of brand value: (1) price premia (which is relevant for a unit sale), and (2) revenue premia (which also accounts for the premia in sales volume). Associating one brand with another (co-branding) involves a risk that should be evaluated. Researchers in the emerging body of literature on coopetition (strategic cooperation among firms in a competitive market) have been optimistic about the advantages of that strategy and have therefore dedicated little attention to its dark side. Although coopetition often has a significant overall impact on a firm's economic performance (Luo et al., 2007), it is relevant to examine this special relationship among competitors, in order to determine if it adversely affects the brand value of the partners' brands: Do horizontal alliances dilute brand values? In this article, we report the results of our study of this problem in the framework of the Spanish car industry.

Measuring brand value of carmakers: Price premia and revenue premia in

horizontal alliances.


FEATURED RESEARCH

Mercedes Esteban BravoMercedes Esteban BravoMercedes Esteban BravoMercedes Esteban Bravo

Dept. of Business Administration, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe,

Spain; [email protected]

Nora Lado CoustéNora Lado CoustéNora Lado CoustéNora Lado Cousté

Dept. of Business Administration, Universidad Carlos III de Madrid, c/ Madrid 126, 28903 Getafe,

Spain; [email protected]

Baltas and Saridakis (2009) implement a hedonic model to study price premia as indicators of brand equity in the car market. But brand value alone cannot explain all the tradeoffs between brand value determinants, because price can reflect the product's strategic positioning on the market, rather than the cumulative success of previous marketing strategies. This paper extends that work proposing revenue premium measures to analyze the impacts of strategic alliances on brand values. We apply the insights of this brand value analysis to the new automobile sector in Spain, in particular, to the multi-purposes vehicle (MPV) segment. Twin cars share common observed and unobserved attributes, as they are produced jointly in the same plant, using the same inputs, with the same workers and the same equipment. Twin cars are designed almost identically, but different versions of different brands of the same twin car may have distinctive observed attributes, which can be used to differentiate the products produced by different carmakers. The result of this alliance is a new model of car with an identical design. We analyze the MPV market during two time periods: 1997-2000 (introduction stage of the product life) and 2005-2007 (growth stage of the product life) . We apply hedonic price premium and hedonic revenue premium as a regression equation of the observable attributes of a product and its brand value. In addition, we estimate average dealer discounts using a stochastic frontier model. Our results indicate that in the introduction stage, the price premia for all the brands allied do not differ significantly (see table 1), even though their price premia differ in other market segments. In particular, we test if there are, in general, differences in price premia for the utilitarian and compact segments of the Spanish car market. In general, price premia differ across carmakers. Although partner companies do not charge a price premium for twin cars during the introduction stage of their product life cycle, (which could be a positioning strategy for the MPV segment or could be caused by myopic managerial expectations about customers’ brand mindset), they still benefit from the revenue premium. In the MPV market, we find that revenue premia are significantly different for brands of twin cars – even for those brands of twin cars with a similar range of price premium, implying that horizontal alliances do not dilute brand value.

Nevertheless, our results suggest that horizontal allies do charge different price premia during the

growth stage of the product life cycle (see table 2). In addition, during this stage, allied

manufacturers have increased twin-product differentiation (for example, the differences in the

second generation of twin Citroën - Fiat - Lancia - Peugeot are more prominent; and the second

generation of twin Ford – Volkswagen -SEAT shares only 80% of the attributes, keeping the residual

20% of the characteristics brand specific), searching for reasons to differentiate prices (at least

other reasons beyond perceived brand value). Horizontal partners have acknowledged strategies

that do not dilute brand value in intense competition mitigating the brand value diluting risk.

Figure 1: Brand Price Premium Average: Percentage change with respect to RenaultFigure 1: Brand Price Premium Average: Percentage change with respect to RenaultFigure 1: Brand Price Premium Average: Percentage change with respect to RenaultFigure 1: Brand Price Premium Average: Percentage change with respect to Renault

Period 1997-2000


Figure : Brand Price Premium Average: Percentage change with respect to RenaultFigure : Brand Price Premium Average: Percentage change with respect to RenaultFigure : Brand Price Premium Average: Percentage change with respect to RenaultFigure : Brand Price Premium Average: Percentage change with respect to Renault

Period 2005-2007

Baltas, G. and Saridakis, C. (2009). Measuring brand equity in the car market: a hedonic price

analysis, Journal of the Operational Research Society (February), 1-10.

Luo, Xueming, Rindfleisch, Da and K. Tse (2007). Working with rivals: The impact of competitor

alliances on financial performance, Journal of Marketing Research 44 (1), 73–83.

Gruber (1996) drew attention to the puzzle that investors buy actively managed equity mutual

funds, even though on average such funds underperform index funds. We uncover another puzzling

fact about the market for equity mutual funds: Funds with worse before-fee performance charge

higher fees. This negative relation between fees and performance is robust and can be explained

as the outcome of strategic fee-setting by mutual funds in the presence of investors with different

degrees of sensitivity to performance. We also find some evidence that better fund governance may

bring fees more in line with performance.

The relation between price and performance in the mutual fund industry.


RESEARCH ABSTRACTS

Authors: Javier GilJavier GilJavier GilJavier Gil----BazoBazoBazoBazo and Pablo RuizPablo RuizPablo RuizPablo Ruiz----VerdúVerdúVerdúVerdú. Published as: Gil-Bazo, Javier, and Pablo Ruiz-

Verdú, 2009, The relation between price and performance in the mutual fund industry, Journal of

Finance 64, 2153-2183.

The current literature does not reach a consensus on which risk measures should be used in practice. Our objective is to give at least a partial solution to this problem. We study properties that a risk measure must satisfy to avoid inadequate portfolio selections. The properties that we propose for risk measures can help avoid the problems observed with popular measures, like Value at Risk (VaRα) or Conditional VaRα (CVaRα). This leads to the definition of two new families: complete and adapted risk measures. Our focus is on risk measures generated by distortion functions. Two new properties are put forward for these: completeness, ensuring that the distortion risk measure uses all the information of the loss distribution, and adaptability, forcing the measure to use this information adequately.


This article provides a new method for replicating and pricing the quality options usually embedded

in many future contracts. The replicating strategies may draw on both the future contract as well as

its related calls and puts. They also yield the quality option theoretical price in perfect markets, as

well as upper and lower bounds for its bid or ask prices if frictions are incorporated. With respect to

previous literature, this new approach seems to reflect five contributions: First, the analysis does

not depend on any dynamic assumption concerning the Term Structure of Interest Rates (TSIR)

behaviour; second, it incorporates the information contained in calls and puts on the future

contract; third, it allows us to use real market perfectly synchronized prices; fourth, transaction

costs can be considered and, finally, this article shows that the quality option may be a useful

security in the portfolio of many traders. These traders will make the future contract more effective

as a hedging instrument. This article also presents an empirical test involving the German market.

Properties of distortion risk measures

Authors: Alejandro BalbásAlejandro BalbásAlejandro BalbásAlejandro Balbás, José Garrido, and Silvia Mayoral.Silvia Mayoral.Silvia Mayoral.Silvia Mayoral. Published in Methodology and Computing in Applied Probability (2009) 11, 385–399.

On the future contract quality option: a new look.

Authors: Alejandro BalbásAlejandro BalbásAlejandro BalbásAlejandro Balbás and Susana Reichardt.Susana Reichardt.Susana Reichardt.Susana Reichardt. Published in Applied Financial Economics (DOI: 10.1080/09603107.2010.482515)

Innovation, exports and productivity

Authors: Bruno Cassiman, Elena Golovko, and Ester MartínezEster MartínezEster MartínezEster Martínez----RosRosRosRos Published in: International Journal of Industrial Organization, 28 (2010) 372-376

We argue that the positive association found between firm productivity and exports in the literature

relates to the firm’s innovation decisions. Using a panel of Spanish manufacturing firms we find

strong evidence that product innovation – and not process innovation – affects productivity and

induces small non-exporting firms to enter the export market.


This paper provides evidence for different innovation activities in the hotel industry. In particular, we

explore the influence of a variety of firm and market characteristics on radical and incremental

innovations. We consider the learning of new attributes (radical) and the addition of characteristics

to existing attributes (incremental) to represent two different paces or degrees of managing the

innovation process in this specific industry. The database used in the empirical study shares the

major features of new approaches about innovation in services. A questionnaire administered to a

representative sample of hotel managers in the Balearic Islands provides the data for the discrete

regression models used to represent the innovation in these hotels. Our main conclusion is that

radical and incremental innovations appear to be interrelated. Furthermore, the main determinants

of innovation are the form of hotel management, the hotel market strategy, and the size and

location of the hotel.

Innovation activity in the hotel industry

Authors: Ester MartínezEster MartínezEster MartínezEster Martínez----RosRosRosRos (UC3M and INDEM) and Francina Orfila-Sintes (UIB). Published in: Technovation 29 (2009), pp. 632–641.

“Why do banks promise to pay par on demand?”

Authors: Gerald P. DwyerGerald P. DwyerGerald P. DwyerGerald P. Dwyer (Federal Reserve Bank of Atlanta, INDEM) and Margarita SamartínMargarita SamartínMargarita SamartínMargarita Samartín (Carlos III University, INDEM). Published in the Journal of Financial Stability 5 (June 2009), pp. 147-169.

Banks promise to pay depositors the value of their deposit on demand even though the banks hold

only fractional reserves. This practice is taken for granted by bankers and depositors all around the

world, but the reasons for this practice are not well understood. Instead of returning on demand the

amount deposited, banks could return the current value of the underlying assets. It might not

matter so much but runs on banks and banking systems cannot occur unless banks make such a

promise. There are various theories about why banks would promise to return on demand the

amount deposited while holding only fractional reserves. We survey those theories and examine

evidence in different eras: fourth century Athens, medieval Italy, Tokugawa Japan, and free banking

and money market mutual funds in the United States. Each of the theories explains some of the

observed banking arrangements and none explains all of them. Interestingly, money market funds

in the U.S., which experienced runs that were quite important at the height of the Financial Crisis of

2008, are a recent innovation that is hard to explain by any of the theories.

Can gender parity break the glass ceiling?

Authors: Manuel BaguesManuel BaguesManuel BaguesManuel Bagues (UC3M, INDEM) & Berta Esteve-Volart (York University). Published in the Review of Economic Studies, 77:4, 2010. Link: http://www.manuelbagues.com/MS%2012414%20manuscript.pdf

This paper studies whether the gender composition of recruiting committees matters. We make use of the exceptional evidence provided by Spanish public examinations, where the allocation of candidates to evaluating committees is random. We analyze how the chances of success of 150,000 female and male candidates to the four main Corps of the Spanish Judiciary over 1987-2006 were affected by the gender of their evaluators. We find that a female (male) candidate is significantly less likely to pass the exam whenever she is randomly assigned to a committee where the share of female (male) evaluators is relatively greater.


Do recruiters prefer applicants with similar skills? Evidence from a randomized natural experiment

Manuel BaguesManuel BaguesManuel BaguesManuel Bagues (UC3M, INDEM) and Maria Jose Perez Villadoniga (Universidad de Oviedo) Pub-lished as Carlos III University, Business Economics Working Paper #2009/62 Link:http://www.manuelbagues.com/do % 20recruiters % 20prefer % 20applicants % 20with %20similar%20skills%20-%20bagues%20&%20perez-villadoniga.pdf

In this paper we examine the potential existence of a similar-to-me effect in terms of skills between recruiters and applicants. Using evidence from entry exams to the Spanish Judiciary, where applicants are randomly assigned across evaluation committees, we find that committee members tend to be more demanding at those stages where they are more knowledgeable. As a result, applicants who excel in the same dimensions as recruiters are more likely to be hired.

Does gender matter for academic promotion? Evidence from a randomized natural experiment

Authors: Natalia Zinovyeva (FEDEA) and Manuel BaguesManuel BaguesManuel BaguesManuel Bagues (UC3M, INDEM) FEDEA Working Paper #2010/15 Link:http://www.manuelbagues.com/does%20gender%20matter%20for%20academic%20promotion%20-%20zinovieva%20&%20bagues.pdf

This paper analyzes whether academic promotions are affected by the gender of evaluators and candidates. The identification strategy exploits the random assignment mechanism that was used in Spain between 2002 and 2006 in order to select the members of promotion committees. Results are mixed. In competitions to associate professor positions, female applicants are significantly less likely to be promoted when they are assigned to a committee with a relatively larger share of female evaluators. On the contrary, in competitions to full professor positions the opposite is true. Information from publications data suggests that female candidates are discriminated by female evaluators when they apply to associate professor positions and by male evaluators when they apply to full professor positions. The evidence indicates that the source of these biases is preference-based.

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Business Highlights 2 English