Based on research Robert E. Hoskisson, Luis R. Gomez–Mejia, Joanna Tochman Campbell, Geoffrey Martin, Marianna Makri and David G. Sirmon

• Family firms invest less in research and development than their non-family counterparts.
• When making business decisions, family firms weigh both economic and non-economic factors. These can include family prestige, emotional attachment to the firm or the legacy of a multigenerational link to the firm.
• When a family firm underinvests in R&D, it may in fact be protecting its other, intangible capital.

Family firms are publicly traded companies in which family members own at least 20 percent of the voting stock, and at least two board members belong to the family. For obvious reasons, the central principals in these firms tend to have a longer view than principals in non-family firms. Yet family firms invest less in research and development (R&D) in technology firms than their non-family counterparts. Since investments in R&D are stakes in the future, why this disparity?

Robert E. Hoskisson, an emeritus management professor at Rice Business, joined several colleagues to answer this question. Refining a sociological theory called the behavioral agency model (BAM), the researchers defined family-firm decisions as “mixed gambles”: That is, decisions that could result in either gains or losses.

Because success in high technology relies so much on innovation, it's especially puzzling when such a family owned business underinvests in R&D. So Hoskisson and his colleagues focused on the paradox of family firms in high tech.

According to previous research, family owners weigh both economic and non-economic factors when making business decisions. Hoskisson and his team labeled these non-economic factors socioemotional wealth (SEW). SEW can include family prestige through identifying with and controlling a business, emotional attachment to the firm or the legacy of a multigenerational link to the firm.

That intangible wealth (SEW) explained some of the families' R&D choices. While investment in R&D may lower future financial risk, it can threaten other resources the family holds dear. Expanded R&D spending, for instance, is linked with competitiveness. At the same time, it is associated with less family control. That’s because to invest more in R&D, businesses typically need more external capital and expertise. So when a family firm underinvests in R&D, it may in fact be protecting its socioemotional wealth.

To further understand these dynamics, the researchers looked at three factors that they expected would raise families' R&D spending to levels more like non-family counterparts.

The first factor was corporate governance. As predicted, the researchers found that family firms with a higher percentage of institutional investors invested in R&D at levels more like those of non-family firms. The institutional investors naturally prioritized economic benefits far more than the founding family's legacy wealth (SEW).

The researchers also analyzed corporate strategy. Family firms, they found, invested more in R&D when it might be applied to related products or markets. Even families bent on preserving non-economic wealth could be lured by a big economic payoff, and related business are easier to control because they are closer to the family legacy business expertise.

Finally, Hoskisson and his colleagues looked at performance. When a family firm’s performance lagged behind that of competitors, they reasoned, the owners would spend more on R&D. A higher percentage of institutional investors, the team theorized, would magnify this effect. Interestingly, the primary data (from 2004 to 2009) failed to support this hypothesis, while an alternative data set (from 1994 to 2002) confirmed it.

Further research, the investigators wrote, could shed useful light on this puzzle. They also encouraged study of how family firms conduct mergers and acquisitions. After all, while families can seem inscrutable from the outside, most run on some kind of economic system. The currency just includes more than money.

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

To learn more, please see: Gomez-Mejia, L.R., Campbell, J.T., Martin, G., Hoskisson, R.E., Makri, M., & Sirmon, D.G. (2014). Socioemotional wealth as a mixed gamble: revisiting family firm R&D investments with the behavioral agency model. Entrepreneurship Theory and Practice, 38(6), 1351-1374.

Based on research Yan Anthea Zhang, Robert E. Hoskisson (George R. Brown Emeritus Professor of Management), and Wei Shi (former Rice Business doctoral student)

• Different factors drive location choice for a state-owned enterprise investing overseas vs. location choice for other multinationals.
• When a state-owned enterprise invests abroad, the government of the home country has control rights. That means the choice of where to expand may depend on more than just economic considerations.
• Among the possible factors are geographic distance, similarity in religious beliefs and resource complementarity between an SOE’s home and a target country.

Past research assumes that multinational enterprises interested in overseas investment choose locations based on economic goals. But when a multinational firm is a state-owned enterprise (SOE), it’s a different story. The home country has control rights – which can shape strategic decisions including choices of where to focus overseas investment. The choice of where to expand thus may hinge on more than economics. Geopolitical factors, national interests, social priorities and even political missions may play a role.

Potential opposition from the target countries can also play a role. When an SOE decides to branch out abroad, what might seem like a straightforward business venture from another type of multinational may look like an incursion from foreign agents or even a threat to national security. The United States isn’t immune to such concerns. In 2005, the U.S. blocked a Chinese state-owned oil company, China National Offshore Oil Corporation, from acquiring the U.S. firm Unocal.

So what are the factors that can shape opposition toward a foreign SOE?

A former Rice Business doctoral candidate, Wei Shi, along with Rice Business professor Yan Anthea Zhang and emeritus professor Robert E. Hoskisson created a conceptual model to analyze the level of potential opposition from target countries. Their model proposes five geopolitical factors that can affect the kind of welcome an SOE can expect from its new home.

• Geographic distance

For a private multinational enterprise, hopping over to a neighboring country makes economic sense: it can be simpler and cheaper to manage overseas investment if it’s nearby. But from a geopolitical standpoint, proximity isn’t necessarily a plus. Close neighbors may pose greater threats to each other’s national sovereignty than countries that are comfortably far apart. Neighbors may also have a track record of conflict. Think of the historic conflict between China and Japan, or more recently, between Russia and Ukraine. The lesson? For an SOE, moving into the neighborhood next door may threaten the target country’s sense of sovereignty, or even national security, and spark opposition.

• Similarity between religious beliefs

Everywhere from small towns to large nations, shared religious beliefs can increase trust and dissimilar beliefs can sow suspicion and conflict. It’s no different in international investments. When an SOE’s home country and its target country share religious beliefs, the Rice professors wrote, the move may be smoother.

• Similarity between governments

The modern business world involves governments ranging from full autocracies to full democracies, with a kaleidoscope of possibilities in between. Countries with similar government forms, however, are more likely to identify with each other and agree about how governance should work. That mutual identification and acceptance can lower opposition to a foreign SOE’s investment.

• Resource complementarity

Resource complementarity between countries means the degree to which one country has resources that the other country needs. The coveted resources might be energy, technological savvy or financial muscle. If an SOE has resources that its target country wants, there’s more chance its target country will roll out a red carpet.

• Nationalist politics in the target country

For an SOE looking to move abroad, the target country’s political leaders can either muffle or amplify the first four factors in this list. For example, even if the target country sees a hopeful SOE as a threat, its political leaders might be able to propose official visits or foster economic cooperation. If these leaders can calm nationalistic friction, they can help open even the stickiest doors to the SOE. By the same token, political leaders can use nationalistic feelings to stoke opposition.

This research raises some intriguing questions. Are the factors in this model as applicable to SOEs from emerging markets such as China, India and Latin America as they are to SOEs from developed countries such as France? Are the factors equally applicable to SOEs with majority state control rights, and SOEs from countries such as Brazil, which often holds minority state control rights? And do the same factors hold for SOEs from countries with better or worse governance structures?

Whether it’s in a cow pasture or a sovereign nation, the arrival of outsiders onto home territory can kick up some dust. For an SOE, analyzing the factors in an overseas venture can determine whether it’s worth climbing over the fence.

Yan Anthea Zhang is the Fayez Sarofim Vanguard Professor of Management in Strategic Management at Jones Graduate School of Business at Rice University. 

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

Wei Shi is a former doctoral student in the strategy department in the Jones Graduate School of Business at Rice University, and now is an assistant professor at Kelly School of Business at Indiana University.

To learn more, please see: Shi, W., Hoskisson, R. E., & Zhang, Y. A. (2016). A geopolitical perspective into the opposition to globalizing state-owned enterprises in target states. Global Strategy Journal, 6(1), 13-30.

Peter Rodriguez, currently senior associate dean for degree programs and chief diversity officer at the University of Virginia’s Darden School of Business, has been named dean of Rice University’s Jones Graduate School of Business.

He will join Rice as dean of the Jones School on July 1. In addition to being dean of the business school, Rodriguez will serve on the Jones School faculty.

“Peter Rodriguez’s exceptional talent as a leader is evident from his broad impact at the Darden School,” said Rice Provost Marie Lynn Miranda. “As an accomplished scholar and educator, with a unique ability to connect with the many Jones School constituencies, Peter is exceptionally well-positioned to lead the Jones School. We are both extremely grateful to current Dean Bill Glick for his service and leadership and very excited to welcome Peter to the Rice community.”

Rodriguez is a Princeton-educated economist and specializes in the study of international business and trade, with an emphasis on understanding and alleviating the effects of corruption on economic development.

“I am thrilled to have the opportunity to join Rice as both a faculty member and as part of the leadership team at one of the country’s top business schools in one of its top cities,” Rodriguez said. “Rice is an outstanding university with a clear commitment to excellence in research, teaching and outreach at all levels.” 

He said he looks forward to working with the Jones School Council of Overseers and the Houston business community to identify areas where the business school can best serve the community while also strengthening its global engagement and stature. 

“I’m delighted that Peter is joining the senior leadership team at the university,” said Rice President David Leebron. “He brings an extraordinary breadth of experience and accomplishment. He is well positioned to lead the school to new heights in scholarly reputation, teaching excellence, global engagement and online programs.” 

Rodriguez has served in his current position at the University of Virginia since 2011, where he leads the MBA programs at the Darden School and its global, online, and diversity strategies. In this role, he helped lead Darden to the No. 2 spot in the Economist’s 2015 global ranking of full-time MBA programs, which was the highest ranking in the school’s history. For the fifth consecutive year, the Economist also named Darden the No. 1 education experience in the world. As part of this, Rodriguez was able to lead strategies for online initiatives and new Global MBA programs. He also prioritized faculty development, especially for junior faculty, and fostered a culture of leading-edge research and a deep commitment to teaching excellence. 

He teaches classes on comparative economic growth and development, international business and international macroeconomics. His research publications include theoretical explorations of international trade policies and firm behavior and empirical and practice-based studies of issues in international business and management. 

Before joining the Darden faculty, Rodriguez was on the faculty of Mays Business School and the George Bush School of Government and Public Service at Texas A&M University. He also previously taught at Princeton University. In addition, he worked for several years as an associate in the Global Energy Group at JPMorgan Chase. Rodriguez has received numerous awards for teaching excellence in classes such as international macroeconomics and business-government relations.

As dean, Rodriguez will oversee a school that is distinguished by its strong foundation in accounting, finance, marketing, organizational behavior, and management with areas of substantive excellence in energy, entrepreneurship, and health care. Degreed programs include the Rice MBA, MBA for Executives and MBA for Professionals, plus a Master of Accounting program, as well as joint MBAs in medicine, engineering, and professional science, and a Ph.D. in Business. The Jones School has also played an increasingly important role in undergraduate education at Rice. 

A native of Kilgore, Texas, Rodriguez has a B.S. in economics from Texas A&M University, where he graduated cum laude, and a master’s and Ph.D. in economics from Princeton University. 

Rodriguez succeeds William H. Glick, who led the Jones School’s growth in enrollment and programming and increased national and international reputation for the past 11 years. Glick will return to the faculty. 

“During Bill Glick’s term as dean, the Jones School experienced exceptional growth,” Miranda said. “We are grateful to Bill for his remarkable record of accomplishment over the past decade, which reflects extraordinary dedication to the Jones School and to Rice.”

Based on research Gustavo Grullon, James P. Weston and Sebastien Michenaud 

• In 2005, a Securities and Exchange Commission rule change for a randomly chosen set of stocks offered scholars a unique chance to study the causal effect of short selling on stock values and company investment decisions.
• When curbs on short selling are removed, the price of overvalued stocks tends to drop.
• Firms respond to lower stock prices by cutting investments and issuing less stock.

When a company's stock price changes due to outside factors, does the company change its standing decisions on investments and financing? In 2005, when the Securities and Exchange Commission (SEC) launched a project lifting some short-selling limits, Rice Business professors Gustavo Grullon, Sébastien Michenaud (now at DePaul University) and James P. Weston resolved to find out.

The scholars seized a unique chance to perform what's called a natural experiment: one in which the factors assigning the subjects either to the experimental group or the control group are not determined by investigators and, instead, are more like random assignments.

Since 1938, the SEC has maintained an "uptick rule," a limit on short sales of stock whose price is falling. Short selling is selling stock you don't own, hoping to buy it at a lower price and make a profit.

In 2003, the SEC decided to waive the uptick rule for a set of companies dubbed the pilot group. The commission chose the firms through a random process in June 2004 and publicly announced them a month later. The next year, the pilot group was exempted from the uptick rule, and short selling was allowed even when the stock price was sinking. Then in 2007, the SEC relaxed the rule for all companies. The measures created a kind of laboratory setting where researchers could study the effect of stock price changes on business investment choices.

Gathering data from the Center for Research on Security Prices, the three Rice professors compared numbers for the pilot group and the control group, those companies that were not chosen. Their data included stock prices, the number of security shares that investors have sold short and the following measures of company investment and financing:

• Capital expenditures
• Changes in total assets
• Capital expenditures plus R&D
• Equity issues (issuing stock)

According to theoretical models, the uptick rule, by limiting short selling, would curb the effects of negative information on stock prices. Thus the stock can get overvalued. If the constraints were lifted, it followed, the jolt of negative information was no longer buffered and stock prices would drop to a more realistic value.

Past studies after the uptick rule ended showed that short selling did increase, but stock prices for the pilot companies stayed the same. The Rice Business researchers, though, studied data from a longer period — a month before the pilot group was selected and two years afterward — and found different results. Compared to the control group, the companies in the pilot group experienced both more short selling and lower stock prices. (While these changes might have been expected after the company names were announced, they began just after the pilot companies were selected. In their paper, the authors suggest that the pilot companies' names may have been leaked before the official announcement.)

So limitations on short selling do indeed lead to overvaluation of company stock. But what effect does that have on company investments? One possibility is that company managers may issue more over-valued stock and increase their investment in real assets. Another is that the managers may perceive overly optimistic signals about the company’s prospects and therefore overinvest. In either case, company investments would be increased. On the other hand, if the limits on short selling are lifted and the stock is no longer overvalued, logic suggests that investments won't be as high.

Grullon, Michenaud and Weston confirmed the final outcome. Compared to the control group firms, the firms in the pilot group lowered their investment in fixed assets between 8 percent and 13 percent. In addition, the pilot companies cut the sale of common and preferred stock between 19 percent and 34 percent. The results were strongest for small companies, and for companies such as growth firms and companies that were more sensitive to overvaluation before the start of the pilot study.

So curbing short sales does indeed alter stock values. Loosening those rules leads to lower prices, which in turn prompt firms to alter investment and financing choices. For the scholars Grullon, Michenaud and Weston, it was a dynamic that started as theory, then played out in real life thanks to a unique laboratory supplied by the SEC.

Gustavo Grullon is a Jesse H. Jones Professor of Finance at the Jones Graduate School of Business at Rice University.

James P. Weston is a Harmon Whittington Professor of Finance at the Jones Graduate School of Business at Rice University. 

T o learn more, please see: Grullon, G., Michenaud, S., & Weston, J.P. (2015). Real Effects of Short-Selling Constraints. Review of Financial Studies, 28(6), 1737-1767 .

Rice University’s Master of Business Administration program implemented a new approach to teaching this past spring to better meet the needs of students and employers and the changing demands of the business education marketplace.

The centerpiece of the new Jones Graduate School of Business course, Critical Thinking and Strategic Decision-making, was an integrated team of faculty who focused on learning the elements critical to business leadership.

“Strategic decision-making is the process where people, instead of getting bogged down with the problem-solving aspects of a decision, actually pay attention to the strategic process,” said Vikas Mittal, the J. Hugh Liedtke Professor of Marketing and head of the school’s Energy Initiative. “They ask questions about engaging the right people, developing the right relationships, keeping personal bias out of the decision process and managing cognitive and emotional conflict. Critical thinking is the art of being able to evaluate an issue nonjudgmentally — thinking about an issue from all perspectives, evaluating different alternatives without getting wedded to any particular alternative.”

Mittal said both skills are difficult, subtle and involve rigorous thinking and adaptability in perspectives and behaviors. To better teach these skills, he developed the concept of an integrated course offering, which was taught this spring by four professors whose research and expertise brought a multidisciplinary approach to the topic. The course will be offered again in spring 2016.

Alex Butler, professor of finance, taught the part of the course about finance and econometrics; Mittal, focused on the topics of decision-making and psychology; Amit Pazgal, professor of marketing, tackled game theory and operations management; and Brent Smith, associate dean and associate professor of management and psychology, addressed leadership and change management.

Organizers said the course’s focus is particularly relevant to the energy industry, which is facing a looming shortage of executive talent as growing numbers of CEOs and other C-suite executives retire and companies are forced to confront the lack of experience in their ranks. “If you’re a junior analyst or engineer, you might be in a really good position to take advantage of that … except that your promotions are based on core skills, and you’ve never actually managed a team through conflict or organizational change,” Mittal said. “What’s a reliable way to build a more substantial knowledge base? What’s the next step?”

Thirty participants — made up of second-year professional and full-time students and one alumnus — are currently figuring out their next step with the first integrated course offering. The course, along with others launching during the summer and fall of 2015, was offered on a competitive basis. “It’s a chance for students in the MBA program to discover themselves,” said Ankur Dayal, director of the Energy Initiative at the Jones School.

It’s also chance for the energy industry to fill its pipeline of potential CEOs with the next generation prepared to lead, said Mittal, who also heads the school’s Partnership for Research Insight and Management Excellence (PRIME), which has particular interest in and focus on the energy and oil and gas industry. “PRIME increases the potential of insightful executives with technical ability by enhancing their commercial acumen and leadership ability,” Mittal said.

For more information on the Rice MBA’s integrated course offering, visit Critical Thinking and Strategic Decision-making.

By Claudia Kolker

You create a small business that expresses your dreams. Then you try to sell it, and the dream becomes a nightmare. The reason, as Rice business school professor Scott Sonenshein explained to writer Claudia Kolker, is that you can’t count on others to love what you do. You have to be willing to mix your dream with reality.

The following originally appeared in the Houston Chronicle’s Grey Matters.

Chai Carol is distraught. Clutching a cup of lemon-myrtle infusion, she winks away tears. Te House of Tea is closing Thursday after nine years in business. "There's nowhere like it," murmurs the retired nurse, nicknamed by staff for her love of Te's signature brew. "This place is sacred."*

For its many devotees, the Montrose teahouse is a place where the inner life flowers. And oddly, it didn't succumb to flighty management or lack of cash. Instead, the haven that founder Connie Lacobie built for writers, artists and other creative souls will close because no one wants to buy her own creation.

"I'm tired," Lacobie says. "I'm prediabetic, and can't be on my feet all day anymore cooking. But I can't find anyone to buy it."

Roomier than most coffee shops, lit by windows facing Woodhead and Fairview, Te is designed to nurture depth of feeling along with enjoyment of tea. The tables are wide-set, because tea drinking ought to be relaxing, not hectic like drinking coffee, Lacobie says. The soundtrack, classical, alternative, or nonexistent, ensures visitors can hear their own thoughts. And the pace moseys, because alongside stalwarts like Chai Carol, Te indulges clients who spend all day wringing dregs from one pot of Oolong.

The formula has been an elixir for all sorts of artists. When the tea-drinking day draws to a close, Te fills again: with poets and ranters on Open Mic nights, swing dancers on weekends, anime nerds once a month. Nonprofits from Community Cloth, Children at Risk, Veterans for Peace and relief groups for natural disasters file in for near-constant fundraisers.

Yet its during traditional business hours that Te may be most interesting. On the first Tuesday of every month, breastfeeding mothers descend like cooing birds, thrilled at Lacobie's invitation to bring their babies out of the house. On other days, a committed eavesdropper can hear yoga instructors swapping life stories, a model-lovely couple whispering Bible lines, a gray-haired lawyer placing calls over lentil soup. Former staffer Alyssia Dieringer, a musician, admits to cadging a forgotten journal scrap left by a tea-drinking writer. She refers to it for inspiration.

And almost every afternoon, Chai Carol – full name Carol Barden – appears. Along with her tea, she always asks for the crocheted tablecloth she stores under the counter, which she spreads out for dates with friends.

So why can't this beloved place endure?

Because, at least in business, love isn't enough. Two years ago, when Lacobie finally decided to leave, she signed on with a broker. The teahouse turns a modest profit and pays staffers more than minimum wage, Lacobie says. But potential buyers all wanted a place with bigger profits and an industrial kitchen.

It was Lacobie's choice not to build one over the years, instead whipping up Asian-tinged salads and savory crepes from a kitchen roughly the size of an SUV. "These buyers can't see it," Lacobie says vexedly. "They want this to be a Chinese restaurant." But really, they just don't see the same thing. ''My goals, '' Lacobie says, ''were to create a place for the community, and a place to appreciate tea.'' For nine years that worked. But it's hard to fault someone else for wanting to create a business with robust profits.

Small and muscular, with brown bangs and an artist-style black chef's tam, Lacobie looks from a distance like one of the artsy millennials she always hires. Now in her 50s, she grew up in Hong Kong, where her father was a postal supervisor. When Britain's lease on Hong Kong expired, Lacobie and her family were among thousands who left. She enrolled at the University of Houston, where she met her husband, an economics major who designs websites. Not that Lacobie lacks her own business sense: She worked as bank auditor before quitting to care for her young daughter.

A few years later, Lacobie began to volunteer at Ten Thousand Villages, a fair-trade crafts shop. Encouraged by her boss, Lacobie struck out for herself, armed with a knockout chai recipe and the belief that even social-minded businesses should pay their own way. And for close to a decade, Te fulfilled her vision.

She might have done herself a disservice trying to continue that vision with a traditional buyer, says Scott Sonenshein, a professor at Rice Business. Sonenshein, a management specialist, speaks about Te from experience: He often stops by for informal meetings. Although it's tough, he says, Lacobie might have found longevity by forming a hybrid, a newly popular breed of business that mixes for-profit and social missions.

"Trying to sell a social vision," Sonenshein says, "is a lot different from trying to market a space purely for money. A new owner will have to be resourceful with what she built, finding a way to make the space, equipment and location work for his or her own vision.''

Though Lacobie never heard of the hybrid concept, she ruefully agrees: If she'd built out the kitchen years ago, it's likely she would have found someone to buy now. But then she would have had to sell more aggressively and hustle poets out after one cup. Who can create in a climate like that?

In fact, more has been created at House of Te than even most staffers know. New lives, for instance.

"I am in Al-Anon, which is for families of addicts," a chic 70-year-old woman says during Te's final month. She asks that her name not be used, per AA tradition. "I've come here since this opened, with people I sponsor."

She nods at a worn table. "I can't tell you what-all has gone on at that table," she says. "Sometimes Connie would come toward us, see someone crying, and just swerve away. All of us in recovery are talking about the closing—dozens and dozens of us. I don't know where we'll go."

Chai Carol, with her crocheted tablecloth and misty eyes, was not exaggerating the emotion Te House of Tea stirs in its patrons. Years ago, after retiring as an ICU nurse, Barden trained herself to step back from trying to fix things.

"Just the other day, I was sitting here having tea and I saw a car crash out the window on Fairview," Barden says. "I was good. I didn't run out and play Nancy Nurse. Things end. People die. It's something you learn in ICU." She takes a last sip of tea. "But I thought this would go on forever."

This story appeared in the Houston Chronicle’s Gray Matters, on December 28, 2015, under the title “The Last Days of Te House of Tea.”

Based on research by Gustavo Grullon, James P. Weston and Shane Underwood

• Institutional underwriting networks create followings of loyal investors that affect asset prices and trading behavior.
• Investors who partner with the same underwriters for repeated investment rounds form long-term, influential relationships. 
• The personal network of an institution underwriting a stock can have a greater impact on its price — and who trades it — than the actual leadership of the institution.

Personal relationships matter, even in the data-driven world of investment banking. Despite the cascade of information about companies, stocks and leaders from news sources such as Google Finance, recent research shows that access to high quality, filtered information from individuals still shapes investor decisions.

Imagine preparing for the initial public offering (IPO) of your startup, one as exciting as Twitter. Your firm goes with the underwriter that has had the best record with promising tech companies. An investment bank network led by Goldman Sachs has a strong reputation for knowing how to put out the right information to generate demand for your new stocks.

Or put yourself in the shoes of a high-powered money manager. You’re going to have $24 million to invest next quarter, and you’re trying to place one or two aggressive positions in your portfolio. You pick up the phone and check with your friend from college who consistently has an ear to the pavement. His word checks out with an insightful colleague and tracks with what The Wall Street Journal has been saying over the past few weeks. When the stock goes public, you want to buy.

Gustavo Grullon and James P. Weston, professors at Rice Business, tested how institutional underwriting networks create followings of loyal corporate clients and investors that affect asset prices and trading behavior. They created two samples of all equity offerings between 1980 and 2008 from the Securities Data Corporation Platinum database. They analyzed stock price movement around IPOs and secondary equity offering (SEO) events, noting the underwriter or change in underwriter.

The researchers found that investors who partner with the same underwriters for repeated investment rounds form long-term, influential relationships. The information these underwriters offer is a key factor in equity trading, on par with geography and index inclusion and price.

For example, if Credit Suisse covers a firm’s SEO, but JP Morgan Chase does not, then their affiliated investors networks have different information at different times on which to base their buying decisions. This difference has the potential to segment the market and influence a firm’s stock price.

In fact, investors' affiliations with banking networks shape trading behaviors so much that Grullon and Weston found a correlation between firm stock prices during an IPO and SEO when the same underwriter was used for both. A coincidence?

Probably not. Grullon and Weston also found that when firms switched underwriters between IPO and SEO offerings, their pricing behaviors look more like those linked with the new bank versus the old. The change in stock movement patterns was actually greater for stocks completing a first SEO than for those whose parent firms were undergoing large changes in ownership.

This means the personal network of the institution underwriting the stock had a greater impact on its price — and who traded it — than the actual leadership of the institution.

Personal bonds, Grullon and Weston confirmed, matter in investing. Biologically, it makes sense: Before we relied on computers and the internet to learn, we based decisions on our fellow primates' actions, narratives and visual cues. When the decisions are big, it seems our brains are still programmed this way, choosing to chew data over a business lunch in addition to compiling, analyzing and synthesizing it in two dimensions.

Gustavo Grullon is a Jesse H. Jones Professor of Finance

James P. Weston is a Harmon Whittington Professor of Finance Jones Graduate School of Business at Rice University

To learn more, please see: Grullon, G., Weston, J. P., & Underwood, S. (2014). Comovement and investment banking networks. Journal of Financial Economics, 113(1), 73-89. 

By Alison Bieser

This article originally appeared in the Jones Journal, Spring 2016.

Meredith Williams was 10 years old when she started saying she wanted to be a doctor. She majored in history at Yale University and by graduation had completed her pre-med course work, written her senior thesis on the Cold War and worked a summer internship at Humana’s headquarters, where the ‘business of medicine’ first drew her in. With the U.S. health care industry growing more complex and polarizing each year, there is a rising need for trained individuals who are versed in the latest, most advanced medical practices and the fast-moving business behind the medicine.

Williams glimpsed it in 2005 during that summer internship between her junior and senior years of college, working for the vice president of corporate communications.

“I was analyzing Humana’s web presence compared with peers and learning the fundamentals of insurance,” she said. “I also started learning about Medicare and how Medicare Advantage worked. Most importantly, I met physicians with an MBA. That’s really where I was inspired to pursue the business training. I was able to see how their work within the company was striving to help make products and services better for members and have an impact at a system level.”

She realized then that she wanted to explore how the health system functioned and how different participants interacted — from physician and health plan to government and individual. Williams researched MD/MBA programs all over the country when she first began applying to medical schools. Her interview at Baylor College of Medicine was different. “It felt like home,” she said.

A Generational Pivot

When she started the MD/MBA program in 2006, Williams represented the beginning of a shift among medical students toward seeking a working knowledge of both medicine and business. “There has been a generational pivot,” she said. “It used to be that MDs got an MBA later, when they were established in their careers and needed the business side. Now it’s considered foundational learning.”

This awareness may be fueling the growth of dual-degree programs in the U.S., which now number 65 nationwide. Approximately 500 students participated in dual MD/MBA programs across the country last year. The business school at Rice was among the first group of institutions in the U.S. to pioneer the MD/MBA, joining forces in 1999 with neighboring Baylor College of Medicine to create the five-year dual-degree program. Today, it graduates three to four students a year.

“The MD/MBA was a completely integrated experience,” Williams said. “During my five years, I started learning about ways the care delivery system influenced health outcomes. We looked at health care quality and value and ways to optimize the parts of health care that are good, based on the outcomes you want to achieve.”

Career potential is cited as one of the primary benefits of the degree combination. Many who complete the MD/MBA go into non-traditional roles, such as life sciences, insurance, hospital management and practice management. Others go on to join consultancies, startups and hospitalist staffing agencies. And there may be more benefits than just an expanding job market when students approach health care in a business context.

“The dual-degree program was an opportunity to be part of the larger conversation to improve health care,” Williams said. “Change was clearly coming. Early on I thought there would be a need for people who could bridge both worlds and help physicians understand how a health plan, like Humana,

can work with them to keep members well with data and insights, and help non-clinical leaders understand the challenges of providing care and where support would be welcome and valuable. That’s why I got the MD/MBA — I wanted to be that bridge.”

Bridging Both Worlds

While at Baylor, she was drawn to emergency medicine and became involved in health policy through organized medicine serving as a trustee for both the Texas Medical Association and later the American Medical Association. Williams chose to complete her residency in emergency medicine at the University of Chicago. She also continued conversations with Humana for a number of years, and eventually the mutual interest led to a leadership position at Humana after finishing her residency.

Williams is now part of a small group driving change and innovation in a fast-moving field. As medical director at Humana’s headquarters in Louisville, Kentucky, she is spearheading a rigorous training program within the company for early-career physicians with an MBA.* Under the direction of the chief medical officer, participants — this next generation of physician leaders — rotate onto teams from other business units to provide a clinical perspective on initiatives designed to improve care coordination and delivery.

The health care industry is grappling with the evolution of its reimbursement model, the rapid pace of technology, the recent focus on quality and the patient experience, and the increasingly collaborative interactions between health care providers and insurance providers that manage population health. The importance of understanding business principles is crystal clear.

"U.S. health care is wildly complex,” Williams said. “To navigate it, you need both clinical and administrative knowledge. Having a career that combines the two disciplines is, for me, the best of both worlds …"

As we transition the health system to a value-based arrangement and begin to focus not on what was done but what the outcome was, it creates new space for health plans and physicians to work together to keep people well. That makes as good business sense as it does clinical sense. Physician business leaders will be essential members of any team trying to help change our health system for the better and do so in a financially sustainable way.”

*Williams’ role as medical director also allows her the flexibility to practice as an emergency physician mostly Friday nights — and serve her community as part of a specialty group affiliated with the Norton Hospital System, where she sees and evaluates patients for emergency care.

Based on research Prashant Kale (Rice Business), Melanie Schreiner (University of Konstanz), and Daniel Corstein (IE Business School)

Key findings:

• Companies forging a partnership must prioritize trust.
• One-on-one informal chats in the hall or impromptu coffee breaks can provide crucial information or ideas.
• Separate companies, by definition, don’t share the same cultures, skills or goals. If the firms are too much the same, adding a partner doesn’t add much spark. If they are too different, harmony can be elusive.

It’s one thing to know your firm might benefit from a partner. It’s quite another to make that relationship work. 

As experienced managers know, corporate alliances can look a lot like a marriage: a partnership that requires hard work and specific skills. And even when everyone stands to profit from the union, there are no guarantees a relationship will have what it takes to survive.

Because business alliances can be so vital, much research has gone into puzzling out exactly how the successful ones work. Among the most important steps, studies suggest, are selecting the right partner from the start and clearly defining the terms of engagement.

Emerging evidence now shows that a healthy alliance also requires a firm to focus on the relationship once the union is sealed. According to a recent study co-authored by Prashant Kale, an associate professor at Rice Business, strong alliances demand coordination, communication and bonding.  

In other words, when it comes to businesses, love at first sight isn’t enough.

In their study, Kale and his co-authors analyzed the links between major software vendors IBM, Microsoft and SAP and an array of software service providers. Among the issues surveyed: did managers think they could “intuitively feel” what their business partners needed to discuss with CEOs?

The findings showed that, much as in individual relationships, forging social bonds, managing information and sharing knowledge are critical for a full partnership to flourish.

These conclusions are particularly important since many firms see alliances can offer a competitive edge — but pay less attention to keeping those alliances strong for the long haul. That attention is key: Organizations that do a better job of this have better outcomes.

Kale and his colleagues also looked at how considerate, supportive and attentive one firm was toward another, as well as how well they respected each other’s viewpoints; how disagreements were resolved; and if they stood together in tough times. 

Far from touchy-feely details, mastering these skills equaled improved business outcomes. Here are some of their findings:

• Companies forging a partnership must prioritize trust. Executives, managers and the rank and file all benefit from open, honest sharing of information.
• As in the world of startups, it isn’t board rooms or showrooms but one-on-one informal chats in the hall or coffee breaks that can generate pivotal information or ideas.
• If the partnering firms are too similar, there won’t be much of a spark. But if they are too different, harmony can be elusive.

Successful partnerships with other companies, the researchers conclude, requires being nice, open and getting acquainted. 

The best modern business alliances, in other words, share traits with successful marriages. Social bonds may not be the first priority for the union, but in the end they can transcend economic interests, and ultimately make the firms more powerful. 

Kale, et al (2009). “What Really is Alliance Management Capability and How Does it Impact Alliance Outcomes and Success?” Strategic Management Journal.

Based on research Michelle “Mikki” Hebl (Rice Business), Enrica N. Ruggs (University of Houston) and Amber WIlliams (Washington)

Key takeaways:

• Over the past few decades, U.S. obesity rates have spiked. So has discrimination toward heavy people.
• Research about this prejudice abounds, but it centers on overweight women and overlooks overweight men.
• New research shows that obese males face significant discrimination in retail settings, both as clients and employees.

It’s an American paradox: While more and more of us are obese — one-third of U.S. adults — discrimination against heavy people has spread. Studies show just how toxic this stigma is: Overweight people are judged to be less hardworking, less attractive and less conscientious. They get shabbier treatment in practice as well, and are more likely to be discriminated against in healthcare, interpersonal relationships and the workplace.

While decades of research have anatomized these issues, it has largely focused on overweight women. There’s good reason for this. While heavy women and men report equal levels of mistreatment from friends, family and co-workers, heavy women report higher levels of mistreatment from strangers and the general public. Women are also badly treated at lower levels of heaviness than overweight men.

But overweight men face serious prejudice too, according to research by Mikki Hebl, a professor at Rice Business, and two co-authors. To measure that prejudice in the workplace, Hebl and her colleagues launched a novel study at a mall in what they describe as a large southern city. Deploying researchers who presented themselves first as ordinary-sized men and then, with the use of prosthetics, as men who were obese, the researchers tracked how obese men fare in a variety of retail settings.  

Heavy men, the researchers found, face striking mistreatment in such environments. For their study, the team asked research assistants, also called confederates, to pose first as obese job seekers and then as obese shoppers. First the men visited stores wearing size medium shirts and pants with a 30-inch average waist. Then they revisited the same stores wearing special obesity prosthetics, size extra-large shirts, and pants with 40-inch waists.

Using formal training and memorized scripts, the men arrived at 112 stores pretending to apply for a job, and 111 stores where they headed to the center and waited for service. If no employee approached, the faux-shoppers followed a script in which they sought an employee, asked for help buying a present and then asked for a second recommendation.

The results? Whether asking for jobs or customer service, the subjects faced no weight-related difference in what is called formal treatment: overt and illegal actions such as giving unequal access to resources. But when the “heavy” men applied for jobs, they faced far worse interpersonal treatment than the ordinary sized men. That is, they experienced subtle behaviors such as hostility that aren't illegal but can still drive off workers and clients.

Heavy men, in other words, “are not immune to interpersonal discrimination in retail settings,” the scholars write. These subtle aggressions, they pointed out, undercut not only people who are heavy — but the businesses that engage with them. Just as excluding women saps whole nations’ economic vitality, driving away heavier people limits businesses’ access to employee brainpower and consumer dollars.

Hebl, et al (2015). “Weight isn’t selling: The insidious effects of weight stigmatization in retail settings,” Journal of Applied Psychology.