Finance →
- 03 Dec 2008
- What Do You Think?
Can Housing and Credit be “Nudged” Back to Health?
Did human frailty cause this crisis? Several thinkers have come forward with a suggestion for improvements to fiscal policy that are based on fostering better decisions while preserving consumer choice, says HBS professor Jim Heskett. What should be done? What do you think? (Online forum now closed. Next forum begins January 7.) Closed for comment; 0 Comments.
- 03 Dec 2008
- Working Paper Summaries
Performance Persistence in Entrepreneurship
All else equal, a venture-capital-backed entrepreneur who starts a company that goes public has a 30 percent chance of succeeding in his or her next venture. First-time entrepreneurs, on the other hand, have only an 18 percent chance of succeeding, and entrepreneurs who previously failed have a 20 percent chance of succeeding. But why do these contrasts exist? Such performance persistence, as in the first example, is usually taken as evidence of skill. However, in the context of entrepreneurship, the belief that successful entrepreneurs are more skilled than unsuccessful ones can induce real performance persistence. In this way, success breeds success even if successful entrepreneurs were just lucky. Success breeds even more success if entrepreneurs have some skill. Key concepts include: There is evidence for the role of skill as well as the perception of skill in inducing performance persistence. Closed for comment; 0 Comments.
- 05 Nov 2008
- Working Paper Summaries
The Litigation of Financial Innovations
The past 10 years have seen a profound change in the conditions under which financial innovations are pursued. Because patents fundamentally alter the way in which innovations can be used, assessing the impact of patenting is critical to understanding the future of financial innovation. Litigation is crucial to delineating the boundaries of patent awards, and this paper examines the litigation of such financial patents to gain insights into the future of financial innovation. This paper seeks to understand the litigation of financial innovations, an area where patents have only recently been granted. Key concepts include: Financial patents are litigated two to three dozen times more frequently than patents as a whole. The awards being litigated are disproportionately those awarded to individuals and to smaller, private entities. Patents with more claims and more citations are also more frequently litigated. Larger firms are disproportionately targeted in litigation. Closed for comment; 0 Comments.
- 02 Oct 2008
- What Do You Think?
Workout vs. Bailout: Should Government Take Advantage of the Buffett Effect?
The depth of the global financial crisis is becoming clearer day by day, says HBS professor Jim Heskett. Respondents to this month's column offered creative solutions, and by and large resisted the temptation to venture into the realm of ideology. (Online forum now closed.) Closed for comment; 0 Comments.
- 29 Sep 2008
- Research & Ideas
Financial Crisis Caution Urged by Faculty Panel
Dean Jay O. Light and a group of Harvard Business School faculty explored the origins and possible outcomes of the U.S. financial crisis at a recent "Turmoil on the Street" panel. Closed for comment; 0 Comments.
- 23 Sep 2008
- Working Paper Summaries
New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability
This paper proposes a set of leading indicators of macrofinancial distress that can be helpful to policymakers and regulators in preparing for, mitigating, and maybe even preventing a credit crisis. These early-warning indicators of crisis are based on modern contingent claims analysis (CCA), which are successfully used today at the level of individual banks by managers, investors, and regulators. The authors' ultimate objective is to provide new tools to help governments and central banks manage financial sector risks. Key concepts include: Traditional approaches have difficulty analyzing how risks can accumulate gradually and then suddenly erupt in a full-blown crisis. The CCA approach is well suited to capturing such "nonlinearities" and to quantifying the effects of asset-liability mismatches within and across institutions. Risk-adjusted CCA balance sheets facilitate simulations and stress testing to evaluate the potential impact of policies to manage systemic risk. Closed for comment; 0 Comments.
- 17 Sep 2008
- Working Paper Summaries
Secrets of the Academy: The Drivers of University Endowment Success
University endowments are important and interesting institutions both in the investing community and society at large. They play a role in maintaining the academic excellence of many universities that rely heavily on income from their endowments. In contrast, poor finances can undermine a school's ability to provide academic services altogether. Endowments have also received much attention recently for their superior investment returns compared with other institutional investors. In this study, the authors document the trends in college and university endowment returns and investments in the United States between 1992 and 2005. Key concepts include: Many unanswered questions remain about university endowments. Results suggest that endowment sizes are skewed, with the rich universities getting richer while other schools fall behind. Much of the growth in endowment size has been driven by investment performance. The top endowments posted impressive returns in 2005, averaging a net real return of 12.3 percent compared with 4.4 percent posted by the Standard & Poor's 500 index in the same year. Across endowments, institutional characteristics such as endowment size and admissions selectivity are better predictors of success than the allocation to risky asset classes. Moreover, top endowments seem to possess superior asset selection ability beyond their strategies for allocating funds to certain asset classes. Ordinary investors could not necessarily achieve similar results by mimicking the strategies of top endowments. Indeed, the same strategies that have worked so well for the endowments in the past two decades may not do so in the future. Closed for comment; 0 Comments.
- 25 Aug 2008
- Research & Ideas
HBS Cases: Walking Away from a $3 Billion Deal
Managers of the ABRY Fund V were so successful they had investors waiting to pour in an additional $3 billion. But to invest that much would require trade-offs that could jeopardize the chemistry that made the fund successful in the first place. Take the money or walk away? From HBS Bulletin. Key concepts include: The case highlights tensions in the private equity business between generating wealth for the firm's investment professionals and the investors in the firm—the so-called limited partners. Co-founder Royce Yudkoff declines the $3 billion investments, believing the best way to prosper over the long haul is to generate a high rate of return rather than increasing dollars under management. Closed for comment; 0 Comments.
- 30 Jul 2008
- Op-Ed
Why the U.S. Should Encourage FDI
American financial executives are courting foreign direct investors, particularly sovereign wealth funds, for new investments. Should these investments draw increased scrutiny from U.S. regulators? Harvard Business School professor Mihir Desai argues that most of these deals work out in America's best financial interest. Key concepts include: Foreign direct investors in the United States appear to systematically earn low returns on their investments in American corporate assets—less than what U.S. multinationals earn with their investments abroad. Rather than erecting barriers, America should be thanking foreign direct investors for investments that appear to be, on average, transferring wealth from abroad to the United States. Closed for comment; 0 Comments.
- 07 Jul 2008
- Research & Ideas
Innovation Corrupted: How Managers Can Avoid Another Enron
The train wreck that was Enron provides key insights for improving corporate governance and financial incentives as well as organizational processes that strengthen ethical discipline, says HBS professor emeritus Malcolm S. Salter. His new book, Innovation Corrupted: The Origins and Legacy of Enron's Collapse, is a deep reflection on the present and future of business. Key concepts include: Enron's stated purpose was too general to permit disciplined and responsible decision-making in the face of difficulty. The lessons of Enron relate to strengthening board oversight, avoiding perverse financial incentives for executives, and instilling ethical discipline throughout business organizations. Directors of public companies can adapt key aspects of the private-equity governance model to ensure that they fulfill their oversight responsibilities. Incentive systems should reward accomplishments other than economic performance, and penalize failures. Companies can take steps to help senior executives avoid the two sources of leadership failure at Enron: personal opportunism and flights to utopianism. Closed for comment; 0 Comments.
- 30 Jun 2008
- Research & Ideas
Rethinking Retirement Planning
Many of us are relying on defined contribution plans to help fund retirement. But Harvard Business School professor Robert C. Merton believes today's plans are not sustainable. So what's next? A new way to look at the problem. Key concepts include: Defined contribution plans currently offered by the majority of employers place an undue burden on workers who don't have the interest, time, or expertise to manage their finances. A new pension program focuses on an inflation-protected annuity rather than an endpoint with a lump sum of accumulated wealth. The program requires few interactions from users: "set it and forget it." Closed for comment; 0 Comments.
- 23 Jun 2008
- Working Paper Summaries
Using Financial Innovation to Support Savers: From Coercion to Excitement
This paper acknowledges the wide range of solutions to the problem of low family savings. Families, and of particular interest to the authors, low-income families, save for a wide variety of purposes, including identifiable reasons such as education and retirement and others that are more broad, like rainy days or emergencies. Given societal pressures to consume, and given the diversity among people, it is unlikely that there is a single solution to the savings problem. Yet a number of programs described by Tufano and Schneider have great promise in supporting household savings. Tufano and Schneider discuss each program from the perspectives of would-be savers as well as from that of other key stakeholders. Key concepts include: Researchers must be sensitive to the needs of low- and moderate-income families, whose concerns about having the resources to cope with short-term emergencies are just as legitimate as needs to plan for a retirement that may be decades away. The continuum of solutions highlighted in this paper ranges from those that force families to save (coercion) to others that seek to work consumers into a frenzy about savings (excitement). These varied solutions emphasize different elements of human behavior or impediments to savings. Some solutions to low savings require massive government policy, some require small changes in existing regulations, and still others are completely market oriented. Some require large subsidies, while others might be profitable on their own. Closed for comment; 0 Comments.
- 23 Jun 2008
- Research & Ideas
Innovative Ways to Encourage Personal Savings
Saving money doesn't need to be so difficult. According to HBS professor Peter Tufano, "The most interesting ideas—indeed the oldest—try to make savings a fun or satisfying experience." As Tufano describes in this Q&A, different solutions appeal to different people. Here's what government policy, the private sector, and nonprofits can do. Key concepts include: A variety of levers can be used to support people who want to save (not to force someone to save who doesn't want to). Some levers are simple changes that make the process of savings easier. Other levers involve providing various incentives, be they financial or sociological. The oldest and most interesting ideas try to make savings a fun or satisfying experience. Closed for comment; 0 Comments.
- 16 Jun 2008
- Research & Ideas
Seven Tips for Managing Price Increases
Consumers get hit with the price-increase hammer every time they drive past a gas station. John Quelch offers tips on how marketers can cope with inflation and consumer sticker shock. Closed for comment; 0 Comments.
- 02 Jun 2008
- Research & Ideas
Spending on Happiness
Money can't buy love but it can buy happiness—as long as it's spent on someone else. Research by Michael I. Norton and colleagues looks into how and why spending on others promotes happiness. Closed for comment; 0 Comments.
- 19 May 2008
- Research & Ideas
Connecting School Ties and Stock Recommendations
School connections are an important yet underexplored way in which private information is revealed in prices in financial markets. As HBS professor Lauren H. Cohen and colleagues discovered, school ties between equity analysts and top management of public companies led analysts to earn returns of up to 5.4 percent on their stock recommendations. Cohen explains more in our Q&A. Closed for comment; 0 Comments.
- 29 Apr 2008
- Research Event
Venture Capital
Professor Josh Lerner provides a summary report on the recently held HBS Centennial colloquium on venture capital. Closed for comment; 0 Comments.
- 23 Apr 2008
- Op-Ed
The Gap in the U.S. Treasury Recommendations
U.S. Treasury recommendations for strengthening the regulation of the financial system are a good start but fall short, says Harvard Business School professor emeritus Dwight B. Crane. Here's his suggestion for bringing regulation into the 21st century. Key concepts include: The Treasury proposal recognizes that fundamental change in the regulatory structure is required for managing risk in the financial system. The difficulty with the approach is that the risk in the financial system will not disappear—it will simply move to the non-prudentially regulated firms. The United States should include all financial service firms under the regulatory authority of the new prudential regulator. Closed for comment; 0 Comments.
- 09 Apr 2008
- Research & Ideas
The Matchmaker of the Modern Economy
In the wake of World War II, Georges Doriot helped found the world's first public venture capital firm, American Research and Development. Doriot (1899–1987) was also a professor at Harvard Business School for 40 years. Our book excerpt from Creative Capital: Georges Doriot and the Birth of Venture Capital (HBS Press) describes how ARD first came to "marry" investors and innovators. Key concepts include: A decorated brigadier general, favorite professor, and quirky personality, Georges Doriot shepherded many companies to life before launching American Research and Development (ARD) in 1946. The idea of venture capital was still so new in 1946 that ARD's founders were forced to reengineer aspects of various financial regulatory structures in order to make it viable. World War II was a watershed for entrepreneurialism. Closed for comment; 0 Comments.
Thinking Twice About Supply-Chain Layoffs
Cutting the wrong employees can be counterproductive for retailers, according to research from Zeynep Ton. One suggestion: Pay special attention to staff who handle mundane tasks such as stocking and labeling. Your customers do. Closed for comment; 0 Comments.