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New research on finance from Harvard Business School faculty on issues including corporate investment, governance, and accounting management.
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Why CalSTRS Chooses to Engage with the Gun Industry

Should large institutional investors divest or engage if they have an issue with a company? In a recent case study, Vikram Gandhi discusses how CalSTRS, the $200 billion pension plan for California public school teachers, chose to engage with gun makers and retailers. Open for comment; Comment(s) posted.

Gender Bias Complaints against Apple Card Signal a Dark Side to Fintech

by Karen G. Mills

The possibility that Apple Card applicants were subject to gender bias opens a new frontier for the financial services sector in which regulators are largely absent, argues Karen Mills. Open for comment; Comment(s) posted.

Shareholder Activism and Firms’ Voluntary Disclosure of Climate Change Risks

by Caroline Flammer, Michael W. Toffel, and Kala Viswanathan

Shareholder resolutions typically fail, and often by a wide margin. So why do active investors bother? It turns out that resolutions nonetheless can influence corporate transparency. Specifically, after being targeted with shareholder resolutions on environmental topics, this research shows that companies are more likely to publicly disclose their climate change risks—and that such disclosure increases these companies’ valuation.

The Economic Effects of Private Equity Buyouts

by Steven J. Davis, John Haltiwanger, Kyle Handley, Ben Lipsius, Josh Lerner, and Javier Miranda

Private equity buyouts are a major financial enterprise that critics see as dominated by rent-seeking activities with little in the way of societal benefits. This study of 6,000 US buyouts between 1980 and 2013 finds that the real side effects of buyouts on target firms and their workers vary greatly by deal type and market conditions.

Decarbonization Factors

by Alex Cheema-Fox, Bridget LaPerla, George Serafeim, David Turkington, and Hui (Stacie) Wang

This paper contributes to a growing knowledge base about how climate change impacts investor expectations, capital allocations and thereby pricing and returns. It provides actionable insights into how to decarbonize portfolios and evaluate the likely performance and carbon exposure differences across strategies.

Core Earnings? New Data and Evidence

by Ethan Rouen, Eric So, and Charles C.Y. Wang

Using a novel dataset of earnings-related disclosures embedded in the 10-Ks, this paper shows how detailed financial statement analysis can produce a measure of core earnings that is more persistent than traditional earnings measures and forecasts future performance. Analysts and market participants are slow to appreciate the importance of transitory earnings.

Undisclosed Debt Sustainability

by Laura Alfaro and Fabio Kanczuk

Presenting a scenario in which non-Paris Club lending and borrowing is fully disclosed, this study illustrates that transparency has potential effects of decreased debt sustainability for investors such as China, and significant welfare gains for recipient countries. Effects are particularly strong if the debt is large.

WeWork—The IPO That Shouldn’t?

by Nori Gerardo Lietz

WeWork's IPO has been one of the most debated in recent memory. But the real controversy, says Nori Gerardo Lietz, is what is contained in the company's prospectus. Open for comment; Comment(s) posted.

Germany May Have the Answer for Reducing Drug Prices

by Danielle Kost

In Germany, drugmakers must prove that a new medication’s benefits merit a higher price than existing drugs. Ariel Dora Stern asks whether "value-based pricing" should become the standard elsewhere. Open for comment; Comment(s) posted.

The Value of Intermediation in the Stock Market

by Marco Di Maggio, Mark Egan, and Francesco Franzoni

Despite the rise of alternative trading platforms, high-touch broker trading remains prominent in institutional equity markets. The authors analyze how fees, research, quality of execution, and information can help explain how execution decisions and preferences vary across investors.

Should a Pension Fund Try to Change the World?

Re: Rebecca M. Henderson, George Serafeim

Can inclusivity, sustainability, and better governance boost economies? Rebecca Henderson and George Serafeim discuss the impact investing efforts of GPIF, Japan’s government pension fund. Open for comment; Comment(s) posted.

Varieties of Outward Chinese Capital: Domestic Politics Status and Globalization of Chinese Firms

by Meg Rithmire

Most popular and scholarly writing about China’s global push overemphasizes the power of the state. This paper explains how three types of domestic Chinese capital—state capital, private capital, and crony capital—differ in political vulnerability and pursue globalization in different ways. All prefer capital openness, but they do so for different reasons.

Many Executives Are Afraid of Finance. Here's How They Can Gain Confidence

by Dina Gerdeman

Mihir Desai explains how managers can increase their understanding of how finance works. EXCERPT: Three valuation mistakes to avoid. Open for comment; Comment(s) posted.

Infrastructure and Finance: Evidence from India's GQ Highway Network

by Abhiman Das, Ejaz Ghani, Arti Grover, William R. Kerr, and Ramana Nanda

In India, the Golden Quadrilateral highway network connects four major cities. This study of the relationship between the infrastructure project and development of the local financial sector finds that, in districts along and near the GQ, initial levels of financial development shaped how, and where, infrastructure investment could jumpstart real economic activity.

The Effect of Payment Choices on Online Retail: Evidence from the 2016 Indian Demonetization

by Chaithanya Bandi, Toni Moreno, Donald Ngwe, and Zhiji Xu

Online sellers in many emerging markets are in the early stages of a shift from cash-based payments to digital payments. Findings from this study of a leading Indian online retailer show that firms may enjoy gains from consumer demand on top of operational gains resulting from payment digitization.

Going Digital: Implications for Firm Value and Performance

by Wilbur Chen and Suraj Srinivasan

More and more nontechnology companies are adopting digital technologies like AI, data analytics, and machine learning. This study of the economic performance of nontech firms adopting new digital technologies finds a persistent future increase in valuation. However, investors only slowly incorporate the value implications of digital activities into prices. Nontech companies with senior executives with tech talent improve performance more than those without.

Reflexivity in Credit Markets

by Robin Greenwood, Samuel G. Hanson, and Lawrence J. Jin

Investors’ biases and market outcomes affect each other in a two-way feedback loop. This study develops a model of a credit market feedback loop, finding that when investors become more bullish this can predict positive returns in the short run, even if expected returns become more negative at longer horizons.

If Your Customers Don't Care What You Charge, What Should You Charge?

by Kristen Senz

Consumer inertia is the tendency of some customers to buy a product, even when superior options exist. Alexander J. MacKay discusses how that habit affects competitive strategy and even regulatory oversight. Open for comment; Comment(s) posted.

Investor Lawsuits Against Auditors Are Falling, and That's Bad News for Capital Markets

by Martha Lagace

It's becoming more difficult for investors to sue corporate auditors. The result? A weakening of trust in US capital markets, says Suraj Srinivasan. Open for comment; Comment(s) posted.

Forgiving Student Loan Debt Leads to Better Jobs, Stronger Consumers

by Dina Gerdeman

Without the burden of student loan debt, people seek higher-paying careers, stabilize their finances, and contribute to the economy, says Marco Di Maggio. Open for comment; Comment(s) posted.