Photo of Luis Ballesteros

Luis Ballesteros

PhD Candidate

Research Interests: organizational decision-making under uncertainty, organizational learning and knowledge management, organizational responses to systemic risks, non-market strategy, firm-performance implications of corporate philanthropy, social-welfare implications of business strategy, business provision of collective goods

I am interested in the drivers and consequences of organizational decision-making under risk and uncertainty. I focus on non-market strategy in contexts of high-magnitude, low-probability shocks that disrupt the status quo in market systems, such as natural disasters. I believe that high-stake choices that affect significantly the availability of rents and business performance are often made during these time intervals. Likewise, the implications of organizational choices on society at large may be exacerbated.
Currently, I am focused on three lines of research that analyze multinational enterprises' choices at the international level: how firm-market linkages affect decision-making in the aftermath of systemic shocks, how organizations overcome information scarcity during such time spans, and how the characteristics of the organizational choice, external stakeholders' needs, and the institutional context drive firm performance and social welfare. More information on these studies can be found in my Research.

 

 

Dissertation Committee:

Mauro Guillen

Witold Henisz (Chair)

Exequiel Hernandez

Uri Simonsohn (OPIM)

Michael Useem

 

DISSERTATION

(SRF Dissertation Scholar)

 

Drivers and Consequences of Organizational Decision-making under Uncertainty:

Evidence from Global Corporate Disaster Giving

In my dissertation I contribute to the understanding of the firm-market dynamics that characterize non-market strategy under uncertainty and the consequences of those organizational choices both for the firm and for society. I do this by focusing in a growing phenomenon in non-market strategy: the corporate provision of collective goods in the aftermath of disasters.

The first chapter is a study of the drivers of corporate disaster giving. It centers on the argument that firms consider the economic relevance of collective goods for their own market operation when they decide to engage in their provision (i.e., to behave pro-socially). The bigger the stake, the greater the firm’s reliance on the market’s collective goods (e.g., communication networks, transportation infrastructure). Therefore, a market’s relative importance for a firm should be a significant predictor of corporate pro-social behavior—an association that is not explained by theories on social preferences or the extant literature on strategic considerations. Using a quasi-natural experimental design, I test this argument by constructing a measure of corporate economic reliance on market systems based on the literature on club goods. I show that accounting for variation in economic reliance leads to a more accurate prediction of the frequency and magnitude of corporate pro-social behavior after the shock of a disaster than widely invoked arguments rooted in the strategic philanthropy and institutional literatures.

The second chapter presents a comparative analysis of the economic efficiency of leading versus following or abstaining when a strategic choice that can affect firm performance is made under conditions of high uncertainty and severe time constraints. Analyzing organizational responses in the aftermath of earthquakes, I show how leading can result in first-mover advantages when the firm possesses knowledge of the market and experience making similar decisions. The first move generates a mental anchor that some market competitors imitate because they interpret it as capturing stakeholder expectations for similar organizations. Stakeholders reward the first-mover for being a catalyst of market activity and innovation, increasing the magnitude and duration of market rents. My study contributes to the first-mover advantage and timing strategy literatures by showing the conditions under which different the timing of the decision, including abstaining, in contexts of systemic shocks may derive in a benefit for the firm.

The final chapter studies the effect of corporate disaster giving on social welfare proxied by the magnitude of total aid received across different types of disasters. Almost 85 percent of the deaths from natural disasters have occurred in low-income countries, yet more than 85 percent of relief coming from firms has gone to medium- and high-income economies. Does this mean a socially suboptimal allocation of economic resources? To assess this question, I study donations by corporations from 65 countries to the relief and reconstruction fund of all major disasters that affected the world from 2003 to 2013. Using a novel quasi-experimental method, I provide evidence that corporate giving efficiently specializes in disasters where the gap between the economic cost and the available sources for financing relief and recovery is the greatest. In such contexts, the competences and routines of the firm economically connected to the affected country generate a comparative advantage for the supply of relief and recovery vis-à-vis traditional public and multilateral donors. Because of these mechanisms, corporate disaster giving increases the speed of relief and recovery and mitigates the loss of social welfare by complementing public and multilateral funding in nations that have been historically outside the focus of attention of international aid.

The main empirical instrument for studying these questions is a unique dataset comprised by all reported organizational responses (i.e., firms and foundations, non-profit organizations, national and multilateral organizations) to the relief and recovery fund of all the major sudden natural disasters that affected the world in the last 20 years. I match this dataset to data on the geographic location and sales of the more than 1.9 million affiliates of multinational corporations from 72 countries. I also use news media reports to track firm visibility one year before and after the event. In addition to taking advantage of the exogenous characteristic of the timing of sudden disasters, I contribute to the organizational literature in addressing the econometric challenge posed by endogeneity by bringing novel methods to evaluate the private and social efficiency of organizational decision-making.