Research Paper Series


Departments: Tax & Law, GREGHEC (CNRS)

the purpose of this article is to shed some light on the emerging, yet largely undefined, principle of openness in EU law. After addressing the semantic confusion existing between openness and transparency, it attempts – through a textual and systemic interpretation of their respective legal basis – to identify the normative content of the EU turn to openness. It then moves to explore the principle’s potential for attaining its declared Treaty-sanctioned objectives: promoting good governance and ensuring the participation of civil society in the democratic life of the Union. It illustrates that, although openness largely maintains an instrumental rationale – aimed at enhancing the quality of the regulatory outcome rather than at promoting a more inclusive process –, the institutional, substantive and societal landscapes surrounding its operation have changed in recent times. It demonstrates that these alterations may help to shift the understanding of openness in the EU away from a specific, unidirectional, bottom-up right of access to information to a much broader, proactive and top-down duty of the EU administration to genuinely open its vault of information to the public and create new avenues of participation for civil societies and other organised interests. The changing nature of the openness rights accompanied by the growing demand for more active participation inherent to our times is set to reinvigorate civic life and, more importantly, to ensure political legitimacy grounded in democratic values.

Keywords: Open government, Transparency, Participation, Civic empowerment, Legitimacy, Accountability, Civil society, European Union, Good governance

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Departments: Strategy & Business Policy

Firms that are slow in the execution of investment projects often incur substantial revenue losses. However, accelerating investments generally results in higher investment costs. In this paper, we integrate this investment speed tradeoff in a reduced-form model of project development to create an empirical proxy for firm speed. We examine how deviations from industry-average speed in the execution of large investments in oil and gas facilities worldwide from 1996 to 2005 impact firm value, as measured by Tobin's q. We find that there is substantial variation in investment speed among firms in the oil and gas industry. Using a linear correlated random parameter model to account for unobserved firm heterogeneity, we show that faster firms have higher firm value when speed results from firms' dynamic capabilities. On average, accelerating a firm's investments by 5% (or 1 month) below the industry norm due to dynamic capabilities increases market value by $214.3 million. Additionally, we show that the effect of speed on firm value varies widely among firms and is amplified by good corporate governance but often mitigated by the level of firms' debt.

Keywords: time-based competition, dynamic capabilities, strategy dynamics, firm value, project management, correlated random parameters


Departments: Strategy & Business Policy

Studies on market entry focus on the tradeoff between commitment and flexibility: early entrants face less competition but risk costly mistakes due to limited information, whereas late entrants can benefit from information revelation and learning opportunities but risk high costs from preemption. These entry timing benefits and costs typically vary with firms’ capabilities. In this study, we empirically examine the relationship between firms’ intrinsic speed capabilities and entry timing. Speed capabilities refer to firms’ ability to execute the process of entering a new market faster than competitors when market entry is time-consuming. Since firms with intrinsic speed capabilities can complete entry faster, they face low preemption risks. The implication is that faster firms can afford to wait longer for uncertainty resolution before deciding to enter new markets than slower firms. This hypothesis is more applicable when investment is associated with higher levels of commitment and thus greater option value of waiting. A related implication is that late entrants with intrinsic speed capabilities should have greater expected post-entry performance. We find support for these hypotheses by examining the entry timing and entry performance of firms in the Atlantic Basin liquefied natural gas (LNG) industry from 1996 to 2007.

Keywords: Firm Capabilities, First Mover Advantages, New Market Entry, Strategy Dynamics, Speed, Project Management


Departments: Strategy & Business Policy

Why do some innovators freely reveal their intellectual property? This empirical puzzle has been a focal point of debate in the R&D literature. We show that innovators may share proprietary technology with rivals for free - even if it does not directly benefit them - to slow down competition. By disclosing IP, innovators indirectly induce rivals to wait and imitate instead of concurrently investing in innovation, which alleviates competitive pressure. In contrast with the classical strategy view, our paper also shows that imitators may not always benefit from interfirm knowledge spillovers. Specifically, imitators may want to limit the knowhow that they can freely appropriate from innovators. Otherwise, innovators have fewer incentives to quickly develop new technologies, which, ultimately, reduces the pace and profits of imitation. Our theoretical model contributes to the literature on competitive dynamics of R&D. The main propositions establish testable relationships between strategic variables that are empirically observable.

Keywords: R&D and technology, innovation dynamics, timing games, time compression diseconomies, firm spillovers, capabilities


Departments: Strategy & Business Policy

This article examines how leader firms should respond to the erosion of competitive advantages caused by rapid imitation and innovation in hypercompetitive environments. On the one hand, shorter-lived advantages induce leaders to develop new advantages faster. On the other hand, hypercompetition also erodes the expected returns from new advantages — reducing leaders’ incentives to accelerate investments. Since investing faster also raises costs, this article shows that leaders often prefer to renew competitive advantages more slowly in more hypercompetitive industries — thereby increasing the probability of being displaced by competitors. This phenomenon is dubbed self-displacement. Firms’ decision to self-displace themselves from industry leadership with greater probability is deliberate and rationa l — not a result of leaders’ inability to respond to competitive threats, as previously assumed in the literature. This article also shows that leaders’ rule of thumb in more hypercompetitive environments should be to accelerate the development of advantages with high competitive value but low market value. This study is based on a theoretical model and numerical analysis grounded on stylized empirical facts that govern industry competitive macrodynamics and firm investment microdynamics in most industries. Because the model builds on empirically observable constructs, its theoretical propositions are amenable to large sample testing.

Keywords: Hypercompetition, time compression, sustainable competitive advantage, industry leadership, imitation, innovation


Departments: Strategy & Business Policy

We develop a formal model of the timing of resource development by competing firms. Our aim is to deepen and extend resource-level theorizing about sustainable competitive advantage. Our analysis formalizes the notion of barriers to imitation, particularly those based on time compression diseconomies where the faster a firm develops a resource the greater the cost. Time compression diseconomies are derived from a micro-model of resource development with diminishing returns to effort. We use a continuous time model of the flows of development costs and market revenues, which allows us to integrate strategic and financial analyses of firm investment problems.We examine two dimensions of sustainability: whether the resources underlying a firm's competitive advantage are economically imitable and, if so, how long imitation takes. Surprisingly, we show that sustainable competitive advantage does not necessarily lead to superior performance. We find that imitators sometimes benefit from reductions in their absorptive capacity and that innovators should license either all or none of their knowledge. Despite recent criticisms, we reaffirm the usefulness of a resource-level of analysis for strategy research, especially when the focus is on resources developed through internal projects with identifiable stopping times.

Keywords: Sustainability of Competitive Advantage, Imitation, Timing of Resource Development, Absorptive Capacity


Departments: Finance, GREGHEC (CNRS)

We explore how financial distress and choices are affected by noncognitive abilities. Our measures stem from research in psychology and economics. In a representative panel of households, we find that people in the bottom decile of noncognitive abilities are five times more likely to experience financial distress compared to those in the top decile. Relatedly, individuals with lower noncognitive abilities make financial choices that increase their likelihood of distress: They are less likely to plan for retirement and save, and more likely to buy impulsively and to have unsecured debt. Causality is shown using childhood trauma as an instrument.

Keywords: Noncognitive abilities, financial distress, financial choices, saving, unsecured debt, behavioral finance, psychology and economics


Departments: Strategy & Business Policy


Departments: Economics & Decision Sciences

Central banks' announcements that future interest rates will remain low could signal either a weak future macroeconomic outlook - which is bad news - or a future expansionary monetary policy - which is good news. In this paper, we use the Survey of Professional Forecasters to show that these two interpretations coexisted when the Fed engaged into date-based forward guidance policy between 2011Q3 and 2012Q4. We then extend an otherwise standard New-Keynesian model to study the consequences of such heterogeneous interpretations. We show that it can strongly mitigate the effectiveness of forward guidance and that the presence of few pessimists may require keeping rates low for longer. However, when pessimists are sufficiently numerous forward guidance can even be detrimental.

Keywords: monetary policy, forward guidance, communication, heterogeneous beliefs, disagreement


Departments: Strategy & Business Policy


Departments: Strategy & Business Policy, GREGHEC (CNRS)

Non-governmental organizations (NGOs) often work with firms to facilitate the economic inclusion of the firms’ suppliers through practice improvements. Using a formal model, we examine how such NGO interventions can alleviate market failures and increase supplier economic inclusion. We account for the specific goals of the NGO and the need to induce collaboration between firms and their suppliers. We analyze the NGO’s intervention level and show how it depends on the NGO’s capabilities and the relative bargaining power among firms and suppliers. Our formal model offers testable hypotheses about NGO and firm behavior. In particular, it suggests that powerful firms are expected to match with more efficient NGOs due to sample selection and matching incentives.

Keywords: NGO; Non-Governmental Organizations; Nonprofit; Firm-NGO Collaboration; Value Creation