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The Basel II Accord requires banks to establish rigorous statistical procedures for the estimation and validation of default and ratings transition probabilities. This raises great technical challenges when sufficient default data are not available, as is the case for low default portfolios. We develop a new model that describes the typical internal credit rating process used by banks. The model captures patterns of obligor heterogeneity and ratings migration dependence through unobserved systematic macroeconomic shocks. We describe a Bayesian hierarchical framework for model calibration from historical rating transition data, and show how the predictive performance of the model can be assessed, even with sparse event data. Finally, we analyze a rating transition data set from Standard and Poor's during 1981-2007. Our results have implications for the current Basel II policy debate on the magnitude of default probabilities assigned to low risk assets.

With permission of Elsevier

We study the dynamics of usage intensity of second-generation cellular telephony over the diffusion curve. Specifically, we address two questions: First, can we draw conclusions about the underlying drivers of technology diffusion by studying usage intensity? Second, what is the effect of high penetration of previous generations and competing networks on network usage intensity? Using an operator-level panel covering 41 countries with quarterly data over 6 years, we find that heterogeneity among adopters dominates network effects and that different technological generations are complements in terms of usage, but substitutes in terms of subscription.

With permission of Elsevier

The purpose of this paper is to deepen our understanding of the MBA market. Our focus lies hereby on the customers, that is, on people who are interested in attending an MBA program and who are courted relentlessly by business schools. The paper analyzes why people do an MBA and how they select their favorite business schools and MBA programs. We particularly try to understand the differences between various groups of applicants based on gender, length of work experience, level of GMAT score, type of study, and nationality. The paper shows that different segments of applicants start an MBA for different reasons and display different preferences with respect to school selection, use of information sources as well as decision-making. We hope that the insights will help business schools make their marketing approaches even more effective.

Expatriates who go to Russia encounter issues that need to be solved by adapting their leadership style. The article explores the key issues and what routes are successful in tackling them.

This short (1 page) case describes 38 year-old George Martin, who is having second thoughts about the possible 'toxic' effects of video games - the main business of the division where he is currently CFO. His concern is focused on violent video games in particular, and the widespread concern that they are easily accessible to children of all ages, some of whom may be influenceable by what they see. Apparently George may soon be offered an opportunity to take over as General Manager of the division, and on an evening out with two friends from 'B'-school days (one with responsibility for a sport utility vehicle automobile line, and the other working for a leading tobacco brand) they discuss the recent financial crisis and the 'toxic' products which triggered it. A conversation in a bar raises the question about the toxicity of their own businesses, and implicitly the issue of their own responsibility as executives, relative to that of the consumer who buys the product, or government who might provide oversight and regulation.

Greta Braun, a well respected German Professor of Management, joins the board of Infotech as one of only two non-executive directors. The first board meeting is a surprise since a 5 million euro acquisition decision is passed without any significant questioning or debate. After the board meeting she questions the board chairman about board functioning and procedures. The upshot is that she, as a newcomer and relative outsider, is asked to prepare her thoughts on these issues for the next board meeting. The board chairman suggests that two main subjects should be put on the table: First, how the board, which includes three founder-owners, should relate to the CEO (who is one of these); second, what kind of information the board should expect to get from management to do its job and fulfill its legal obligations.