George Serafeim Articles — HBS Working Knowledge

The High Risks of Short-Term Management

Published:	April 11, 2012
Feature:	Research & Ideas
Forum:	open for comment; 3 Comments posted

A new study looks at the risks for companies and investors who are attracted to short-term results. Research by Harvard Business School's Francois Brochet, Maria Loumioti, and George Serafeim.

The Stock Selection and Performance of Buy-Side Analysts

Authors:	Boris Groysberg, Paul Healy, George Serafeim, Devin Shanthikumar, and Gui Yang
Published:	March 20, 2012
Paper Release Date:	February 2012
Feature:	Working Papers

Important differences between buy- and sell-side analysts are likely to affect their behavior and performance. While considerable research during the last twenty years has focused on the performance of sell-side analysts (that is, analysts who work for brokerage firms, investment banks, and independent research firms), much less is known about buy-side analysts (analysts for institutional investors such as mutual funds, pension funds, and hedge funds). This paper examines buy recommendation performance for analysts at a large, buy-side firm relative to analysts at sell-side firms throughout the period of mid-1997 to 2004. The researchers find evidence of differences in the stocks recommended by the buy- and sell-side analysts. The buy-side firm analysts recommended stocks with stock return volatility roughly half that of the average sell-side analyst, and market capitalizations almost seven times larger. These findings indicate that portfolio managers (buy-side analysts' clients) prefer that buy-side analysts cover less volatile and more liquid stocks. The study also finds that the buy-side firm analysts' stock recommendations are less optimistic than their sell-side counterparts, consistent with buy-side analysts facing fewer conflicts of interest. This and future studies may help sell-side and buy-side executives to allocate their financial and human resources more strategically.

Causes and Consequences of Firm Disclosures of Anticorruption Efforts

Authors:	Paul Healy and George Serafeim
Published:	March 9, 2012
Paper Release Date:	February 2012
Feature:	Working Papers

Academic research on corruption has typically focused on its macro causes and consequences. While the country level is certainly important to understand, it is at the firm level where many questions remain unanswered. This study examines 480 of the world's largest companies, using ratings by Transparency International of firms' public disclosures of strategy, policies, and management systems for combatting corruption. Professors Paul Healy and George Serafeim find that firm disclosures are related to enforcement and monitoring costs, such as home country enforcement, US listing, big four auditors, and prior enforcement actions. Disclosures also reflect industry and country corruption risks. Meanwhile the financial implications of fighting disclosure are more nuanced.

Short-Termism, Investor Clientele, and Firm Risk

Authors:	Francois Brochet, Maria Loumioti, and George Serafeim
Published:	March 2, 2012
Paper Release Date:	February 2012
Feature:	Working Papers

In recent decades, commentators have argued that many corporations exhibit short-termism, a tendency to take actions that maximize short-term earnings and stock prices rather than the long-term value of the corporation. The authors develop a proxy for short-termism at the company level using conference call transcripts and then examine whether companies with more short-term horizons have (i) an investor base that is more short-term oriented, (ii) higher stock return volatility, and (iii) higher equity beta. The authors find that short-term oriented firms have more short-term oriented investors and higher risk. This paper contributes to the literature on the capital market effects of managerial and investor horizons.

What Impedes Oil and Gas Companies' Transparency?

Authors:	Paul Healy, Venkat Kuppuswamy, and and George Serafeim
Published:	December 6, 2011
Paper Release Date:	November 2011
Feature:	Working Papers

Oil and gas companies face asset expropriations and corruption by foreign governments in many of the countries where they operate. In addition, most of these companies operate in multiple host countries. What determines their disclosure of business activities and hence transparency? Paul Healy, Venkat Kuppuswamy, and George Serafeim examine three forms of disclosure costs that oil and gas managers could potentially consider. Both the US government and the European Union are currently considering laws that would require oil and gas companies to disclose information about operations in host countries.

The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance

Authors:	Robert G. Eccles, Ioannis Ioannou, and and George Serafeim
Published:	November 14, 2011
Paper Release Date:	November 2011
Feature:	Working Papers

Robert G. Eccles, Ioannis Ioannou, and George Serafeim compared a matched sample of 180 companies, 90 of which they classify as High Sustainability firms and 90 as Low Sustainability firms, in order to examine issues of governance, culture, and performance. Findings for an 18-year period show that High Sustainability firms dramatically outperformed the Low Sustainability ones in terms of both stock market and accounting measures. However, the results suggest that this outperformance occurs only in the long term. Managers and investors who are hoping to gain a competitive advantage in the short term are unlikely to succeed by embedding sustainability in their organization's strategy. Overall, the authors argue that High Sustainability company policies reflect the underlying culture of the organization, where environmental and social performance, in addition to financial performance, are important, but these policies also forge a strong culture by making explicit the values and beliefs that underlie the mission of the organization.

Market Interest in Nonfinancial Information

Authors:	Robert G. Eccles, Michael P. Krzus, and George Serafeim
Published:	October 21, 2011
Paper Release Date:	September 2011
Feature:	Working Papers

During the past two decades, there have been many ideas for improving business reporting of nonfinancial information such as on a company's environmental, social, and governance (ESG) performance. Using data from Bloomberg, authors Robert G. Eccles, Michael P. Krzus, and George Serafeim provide insights into market interest in nonfinancial information at a level of granularity not available until now. They identify exactly what information is of greatest interest, contrasting both the global and U.S. market across the full spectrum of ESG information and for each component of ESG, as well as Carbon Disclosure Project metrics. They also show variation in interest across asset classes and firm types, and present preliminary explanations for these differences.

Market Competition, Government Efficiency, and Profitability Around the World

Authors:	Paul M. Healy, George Serafeim, Suraj Srinivasan, and Gwen Yu
Published:	October 13, 2011
Paper Release Date:	May 2011
Feature:	Working Papers

Understanding whether and how corporate profitability mean reverts across countries is important for valuation purposes. This research by Paul M. Healy, George Serafeim, Suraj Srinivasan, and Gwen Yu suggests that firm performance persistence varies systematically. Country product, capital, and to a lesser extent labor market competition all affect the rate of mean reversion of corporate profits. Corporate profitability exhibits faster mean reversion in countries with more competitive factor markets. In contrast, government efficiency decreases the speed of mean reversion, but only when the level of market competition is held constant. The findings are useful to practitioners and scholars interested in understanding how country factors affect corporate profitability.

Corporate Social Responsibility and Access to Finance

Authors:	Beiting Cheng, Ioannis Ioannou, and George Serafeim
Published:	July 22, 2011
Paper Release Date:	June 2011
Feature:	Working Papers

Corporate social responsibility may benefit society, but does it benefit the corporation? Indeed it does, according to a new study that shows how CSR can make it easier for firms to secure financing for new projects. Research was conducted by George Serafeim and Beiting Cheng of Harvard Business School and Ioannis Ioannou of the London Business School.

Leading and Lagging Countries in Contributing to a Sustainable Society

Published:	May 23, 2011
Feature:	Op-Ed
Forum:	open for comment; 11 Comments posted

To determine the extent to which corporate and investor behavior is changing to contribute to a more sustainable society, researchers Robert Eccles and George Serafeim analyzed data involving over 2,000 companies in 23 countries. One result: a ranking of countries based on the degree to which their companies integrate environmental and social discussions and metrics in their financial disclosures.

Corporate Sustainability Reporting: It's Effective

Published:	May 23, 2011
Feature:	Research & Ideas
Forum:	open for comment; 11 Comments posted

In a growing trend, countries have begun requiring companies to report their environmental, social, and governance performance. George Serafeim of HBS and Ioannis Ioannou of London Business School set out to find whether this reporting actually induces companies to improve their nonfinancial performance and contribute toward a sustainable society.

The Consequences of Mandatory Corporate Sustainability Reporting

Authors:	Ioannis Ioannou and George Serafeim
Published:	May 17, 2011
Paper Release Date:	March 2011
Feature:	Working Papers

The number of firms reporting sustainability information has grown significantly in the past decade, both due to voluntary actions and to mandates from several national governments and stock exchange authorities. In this paper, London Business School's Ioannis Ioannou and Harvard Business School's George Serafeim investigate whether mandatory sustainability reporting has any effect on a company's tendency to engage in socially responsible management practices.

HBS Faculty Comment on Environmental Issues for Earth Day

Published:	April 26, 2011
Feature:	Op-Ed
Forum:	open for comment; 4 Comments posted

Harvard Business School faculty members offer their views on the many business facets of "going green."

Does Mandatory IFRS Adoption Improve the Information Environment?

Authors:	Joanne Horton, George Serafeim, and Ioanna Serafeim
Published:	September 30, 2010
Paper Release Date:	September, 2010
Feature:	Working Papers

Created by the International Accounting Standards Board, the International Financial Reporting Standards (IFRS) comprise several principles designed to help public companies increase transparency in their financial reports. But are they worth the hefty compliance costs associated with them? This paper investigates whether adopting the IFRS improves the information environment for firms in which the standards are legally required. Research was conducted by Joanne Horton at the London School of Economics, George Serafeim at Harvard Business School, and Ioanna Serafeim at the Greek Capital Market Commission.

The Impact of Corporate Social Responsibility on Investment Recommendations

Authors:	Ioannis Ioannou and George Serafeim
Published:	September 10, 2010
Paper Release Date:	August 2010
Feature:	Working Papers

Security analysts are increasingly awarding more favorable ratings to firms with corporate socially responsible (CSR) strategies, according to this paper by Ioannis Ioannou and HBS professor George Serafeim. Their work explores how CSR strategies can affect value creation in public equity markets through analyst recommendations.