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New research on investment banking from Harvard Business School faculty on issues including the rationale for issuing complex securities to retail investors, as well as the origins and possible outcomes of the US financial crisis.
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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.

Do Fire Sales Create Externalities?

by Sergey Chernenko and Adi Sunderam

This paper contributes to our understanding of the role of large institutional investors in securities markets, providing evidence that the structure of the mutual fund industry increases the risks of costly "fire sales."

IQ from IP: Simplifying Search in Portfolio Choice

by Huaizhi Chen, Lauren Cohen, Umit Gurun, Dong Lou, and Christopher J. Malloy

Mutual fund managers solve their complex “search problem” for superior investable returns by tracking—and trading—on very particular sets of firms and insiders. These sets are chosen strategically and remain very persistent over time, as does the outperformance these insiders’ trades afford to the given fund managers.

Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

by Erik Stafford

This paper studies the asset selection of private equity investors and the risk and return properties of passive portfolios with similarly selected investments in publicly traded securities. Results indicate that sophisticated institutional investors appear to significantly overpay for the portfolio management services associated with private equity investments.

Catering to Investors Through Product Complexity

by Boris Vallee & Claire Célérier

This paper investigates the rationale for issuing complex securities to retail investors.

Financial Crisis Caution Urged by Faculty Panel

by Martha Lagace

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.