Briefcase

IPO Back-scratching

IPO auctions seem to work well for those willing to try them. (Think Google and Morningstar.) Yet the vast majority of U.S. companies still opt for traditional "book building": Investment banks underwrite their initial public offerings and determine who gets shares at what price. Why? A forthcoming paper called Analyst Hype in IPOs: Explaining the Popularity of Bookbuilding argues that the answer may be simply quid pro quo. Comparing the results of IPO auctions in France, which were widely used in the 1990s, with the country's more-traditional offerings, Kent Womack, a professor of business administration at Dartmouth's Tuck School of Business, and his French coauthors found an undeniable pattern: Companies willing to absorb the cost of book building received more favorable research coverage--and more of it--from their underwriters.

The Boss's Pet Project

Years of research have shown that managers often can't bring themselves to cancel failing projects--no matter how badly they may be struggling. Usually, this doggedness is attributed to leaders' public association with a project's launch. But a new article in the Journal of Marketing, called Stuck in the Past: Why Managers Persist With New Product Failures, makes a more subtle case. In a study, 142 M.B.A. students were asked to oversee an imaginary product release: Some had to publicly support the launch, while others were given glowing market research about the product's prospects but weren't asked to make a commitment. When negative feedback began pouring in, the group that had been given hyped-up information was more likely to stand by the sinking product. "What we find is it's the belief that makes the difference, not the public involvement," says William Boulding, a professor of marketing at Duke's Fuqua School of Business and coauthor of the paper with colleague Richard Staelin. Once managers have formed a positive impression of a product, changing their minds may be mighty difficult.

The Lemming Effect

Why do so many popular management techniques fail in practice? Most experts tend to finger the media for whipping executives into faddish frenzies or business leaders for their willingness to try just about anything to keep up with the Joneses. A new study argues that there is another villain at work--the $125 billion consulting industry. The paper When Fashion Is Fleeting: Transitory Collective Beliefs and the Dynamics of TQM Consulting, which appears in the Academy of Management Journal, charts the rise and fall of the huge numbers of consulting firms that jumped on the bandwagon of the "total quality management" movement in the early '90s. Authors David Strang, a professor of sociology at Cornell, and Robert David, a business professor at McGill, write that after consultants had given the program a bad name by trying to sell it to just about everyone, they moved on. TQM fizzled. Managers started looking for the next "hot" fad. And history was ready to repeat itself.

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