Corporate Governance: 04-13-09 Triggering a Poison Pill

via The Harvard Law School Corporate Governance Forum by Charles M. Nathan, Latham & Watkins LLP, on 4/11/09

(Editor’s Note: This post is based on a client memo by Mark Gerstein, Bradley Faris, Joseph Kronsnoble and Christopher Drewry of Latham & Watkins LLP.)

Stockholder rights plans, commonly referred to as “poison pills,” were developed more than 25 years ago to fend off opportunistic “hostile” offers and other abusive takeover transactions. Poison pills traditionally have been designed to deter unauthorized share accumulations by imposing substantial dilution upon any stockholder who acquires shares in excess of a specified ownership threshold (typically 10 percent–20 percent) without prior board approval, rendering the unauthorized share acquisition prohibitively costly. More recently, rights plans with a lower trigger threshold of 4.99 percent have been deployed to protect a corporation’s net operating loss carry forwards, commonly referred to as “NOLs,” against the threat that changes in share ownership could inadvertently limit the corporation’s ability to use the NOLs to reduce future income taxes.

Until the end of 2008, the risk of economic dilution created by the poison pill had its intended deterrent effect. No stockholder had ever swallowed a modern poison pill, and the mechanics of a poison pill trigger were purely an academic exercise.

This is no longer the case. In December 2008, Versata Enterprises, Inc. and certain affiliates triggered an NOL poison pill adopted by Selectica, Inc. in what appears to have been a calculated effort by Versata to obtain leverage in an unrelated business dispute. Selectica’s board used its poison pill to dilute Versata’s position (exercising the feature that allows the board to exchange rights held by stockholders other than Versata for common stock on a one-for-one basis). Due to uncertainty regarding the issuance and ownership of Selectica shares following the rights exchange, trading in Selectica’s common stock was suspended for more than four weeks while the important “back-office” mechanics to implement the exchange were developed and implemented by Selectica and its advisors. In addition, the case of Selectica, Inc. v. Versata Enterprises, Inc. pending in the Delaware Court of Chancery presents for the first time the question of the validity of the NOL poison pill and the board’s decisions to use the poison pill against Versata. These events provide lessons applicable to all forms of rights plans.

In our memo entitled “Lessons from the First Triggering of a Modern Poison Pill: Selectica, Inc. v. Versata Enterprises, Inc.,” we provide an overview of NOL poison pills, outline the events leading to the triggering of Selectica’s NOL poison pill discuss several important lessons for corporations and their advisors arising from these events.

The memo is available here.

Luc Renneboog: 03-31-09 Economist of the Day

We  choose Professor Luc Renneboog, of  Tilburg University as Economist of the Day.

Luc Renneboog

Contact Information

T: +13 31 466 8210
luc.renneboog(at)uvt.nl

Luc’s SSRN page can be found here.

Short Biography

Before joining the department of Finance at Tilburg University, Luc Renneboog taught at the Catholic University of Leuven (Belgium) and at Oxford University. He was also a visiting lecturer/researcher at the London Business School, HEC Paris, Venice University, Colegio Universitario de Estudios Financieros (CUNEF, Madrid), and European University Institute (Florence).

He graduated from the University of Leuven with a BSc/MSc in commercial engineering and with a BA in philosophy, from the University of Chicago with an MBA, and from the London Business School (University of London) with a PhD in Financial Economics. He is also a research member of CentER for Economic Research, TILEC (Tilburg Law and Economics Center) and ECGI (European Corporate Governance Institute, Brussels).

He has published in the Journal of Finance, Journal of Financial Intermediation, Journal of Law and Economics, Journal of Corporate Finance, Journal of Banking and Finance, Journal of Law, Economics & Organization, Cambridge Journal of Economics, Oxford Review of Economic Policy, European Financial Management and others. His research interests are corporate finance, corporate governance, initial public offerings, mergers and acquisitions, rights issues, pricing anomalies, law and economics, the economics of sports, ethical investing, financial distress, and the economics of art.

Teaching

• Executive Master in Finance: Mergers and acquisitions, and corporate governance, taught in English to 18 students. Teaching rating: 4.3 on scale of 5 (2004-05), 4.2 (2005-06), 4.5 (2006-07), 4.0 (2007-08).
• Executive Master in Finance: Advanced Corporate Finance, taught in English to 18 students. Teaching rating: 4.4 and 4.5 on scale of 5 (2004-05); 4.2 (2005-06); 4.6 (2006-07), 3.8 (2007-08).
• MSc in Financial Management/ MSc in Investment Analysis: Corporate restructuring and governance. 4.7 on scale or 5 (2007-8).
• MSc in Business Economics: Mergers and Acquisitions, taught in English to about 250 students; Teaching rating: 4.1 on a scale of 5 (2003-04); 4.6 on scale of 5 (2004-05).
• MSc in Business Economics: Real Options 1998-99, 1999-2000, 2000-01: taught in Dutch to 60 final year students. Teaching rating: 4.0 on scale of 5 (1998-99), 4.5 (2000-01), 4.8 (2001-02),4.8 (2002-03), 4.6 (2003-04).
• BSc in Business Economics: Corporate Finance II – 1998-99, 1999-2000, 2000-01, 2001-02: Taught in English to four streams of 60 International Business students.Teaching rating: 3.0 on scale of 5 (1998-99)4.0 (1999-2000), 4.7 (2000-01), 4.0 (2001-02), 4.2 (2002-03).
• Executive Course Co-ordinator and lecturer (kerndocent) in finance of Financial Management the Master in Agribusiness (Bedrijfskundige advisering in de agrarische sector) in Tias Business School, 1999-2000, 2000-01; Executive education program (MBA-type) for 25 consultants, accountants and bankers dealing with the Dutch agricultural industry. Teaching rating 7.6 on scale of 10.

Teaching Awards

• Teaching Award for Best Lecturer, Faculty of Economics and Business Administration, Tilburg University, 2000/01.
• Philips Innovation Award for teaching quality, Tilburg University, 2002/03.
• Nominee for Best Teacher Award, Faculty of Economics and Business Administration, Tilburg University, 2003/04.
• Award for Teaching Excellence, Master in Finance programme, Tias Business School, Tilburg University, 2004/05.
• Teaching Award for Best Lecturer, Faculty of Economics and Business Administration, Tilburg University, 2004/2005.
• Award for Teaching Excellence, Master in Finance programme, TiasNimbas Business School, Tilburg University, 2006/07.

Published and forthcoming papers

• Why are the French so different from the Germans? Underpricing in IPOs on the Euro New Markets (with M. Goergen and A. Khurshed), International Review of Law and Economics, forthcoming, 2009.
• The Performance of the European Market for Corporate Control: Evidence from the 5th Takeover Wave (with M. Martynova), European Financial Management, forthcoming, 2009.
• Information salience, investor sentiment, and stock returns: the case of British soccer betting, (with F. Palomino and C. Zhang), Journal of Corporate Finance, forthcoming, 2009.
• What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems, or the Means of Payment?, (with M. Martynova), Journal of Corporate Finance, forthcoming.
• The dividend policy of German firms: A dynamic panel data analysis with partial adjustment models (with C. Andres, A. Betzer and M. Goergen), Journal of Empirical Finance 16 (2), 2009, 175-187.
• A century of corporate takeovers: What have we learned and where do we stand?, (with M. Martynova), Journal of Banking and Finance 32 (10), 2008, 2148-77.
• Is the German System of Corporate Governance Converging Towards the Anglo-American Model? (with M. Goergen and M. Manjon), Journal of Management and Governance 12, 2008, 37-71.
• The price of ethics and stakeholder governance: The performance of socially responsible mutual funds (with J. Ter Horst and C. Zhang), Journal of Corporate Finance 14, 2008, 302-322.
• Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions( with M. Martynova), Journal of Corporate Finance 14, 2008, 200-223.
• Contractual Corporate Governance (with M. Goergen), Journal of Corporate Finance 14, 2008, 166-182.
• Socially Responsible Investments: Institutional Aspects, Performance, and Investor Behaviour (with J. Ter Horst and C. Zhang), Journal of Banking and Finance 32, 2008, 1723-1742.
• Do UK institutional investors monitor the firms they invest in? (with J. Ter Horst and C. Zhang), Journal of Corporate Law Studies 8, 2008, 39-56.
• Corporate Restructuring and Bondholder Wealth (with P. Szilagyi), European Financial Management14 (4), 2008, 792-819.
• Recent developments in German corporate governance (with M. Manjon and M. Goergen), International Review of Law and Economics, 2008, 28, 175-193.
• Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation (with T. Simons and M. Wright), Journal of Corporate Finance 13 (4), 2007, 591-628.
• The incentive to give incentives: on the relative seniority of debt claims and managerial compensation, (with R. Calcagno), Journal of Banking and Finance 31 (6)2007, 1795-1815.
• Does ownership matter? A study of German and UK IPOs, (with M. Goergen), Managerial Finance 33 (7) 2007, 368-387.
• Control structures and payout policy, with (G. Trojanowski), Managerial Finance 33 (1) , 2007, 43-64.
• Management Buyouts in the UK and Europe: retrospect and prospect, (with L. Scholes, T. Simons and M. Wright), Journal of Applied Corporate Finance 18 (3), 2006, 38-55.
• Insider trading, news releases and ownership concentration (with J. Fidrmuc and M. Goergen), Journal of Finance 61 (6), 2006, 2931-2973.
• Explaining the diversity of shareholder lockup agreements, (with M. Goergen and A. Kurshed), Journal of Financial Intermediation 15, 2006, 254-280.
• Do corporate control and product market competition lead to stronger productivity growth? Evidence from market-oriented and blockholder-based governance regimes, (with J. Köke), Journal of Law and Economics 48, 2005, 475-516.
• Is investment-cash flow sensitivity caused by agency costs or asymmetric information? (with Greg. Pawlina), European Financial Management Journal 11 (4), 2005, 483-513.
• Corporate governance convergence: Evidence from takeover regulation reforms in Europe, (with M. Goergen and M. Martynova), Oxford Review of Economic Policy , 21 (2), 2005, 1-27.
• When do German firms change their dividends? (with M. Goergen and L. Correia da Silva), Journal of Corporate Finance 11 (1-2), 2005, 375-399.
• Shareholder wealth effects of European domestic and cross-border takeover bids, (with M. Goergen), European Financial Management Journal 10 (1), 2004, 9-45. Award winning paper.
• The impact of stock exchange regulation on corporate performance of the European New Markets, (with M. Goergen and J. McCahery), Journal of Corporate Law Studies 3 (2), 2003, 379-400.
• Why are the levels of control (so) different in German and UK companies? Evidence from initial public offerings, (with M. Goergen), Journal of Law, Economics and Organization 19 (1), 2003, 141-175.
• The monetary appreciation of art: from realism to Magritte, (with T. Van Houtte), Cambridge Journal of Economics 26 (3), 2002, 331-357.
• Managerial remuneration: the indirect pay-for-performance relation, (with J. McCahery), Journal of Corporate Law Studies 1 (2), 2001, 317-332.
• Investment policy, internal financing and ownership concentration in the UK, (with M. Goergen), Journal of Corporate Finance 7 (3), 2001, 257-284.
• Who disciplines the management of poorly performing companies?, (with. J. Franks and C. Mayer), Journal of Financial Intermediation 10, 2001, 209-248. Award winning paper.
• Do managerial remuneration schemes reduce agency costs? Evidence from blockholder and market-oriented corporate governance systems (with R. Crespi and C. Gispert), Quarterly Journal of Economic Research 70 (2), August 2001, 234-247.
• Corporate investment, asymmetric information and agency costs, (with M. Goergen), Quarterly Journal of Economic Research 70 (2), August 2001, 248-260.
• Comparative corporate governance: convergence and diversity of national regimes (published in French: Gouvernance corporative: Convergence et diversité des régimes nationaux), (with J. McCahery), Gouvernance Revue Internationale 1 (3), 2000, 51-84.
• Ownership, managerial control and the governance of poorly performing companies listed on the Brussels stock exchange, Journal of Banking and Finance 24 (12), 2000, 1959-1995. Award winning paper.
• Insider control by large investor groups and managerial disciplining in Belgian listed companies. (with M. Goergen), Managerial Finance 26 (10), 2000, 22-41.
• From realism to surrealism: investing in Belgian art, (with T. Van Houtte), Cahiers Economiques de Bruxelles 165 (1st trim.), 2000, 69-106.
• Strong managers and passive institutional investors in the UK, (with M. Goergen), Nota di Lavora 21.99, Fondazione Eni Enrico Mattei, 1999.
• Corporate governance systems: the role of ownership, external finance and regulation (part II), Corporate Governance International 2 (1), March 1999, 4-20.
• Corporate governance systems: the role of ownership, external finance and regulation (part I), Corporate Governance International 1 (4), Dec. 1998, 37-48.
• The role of large share stakes in poorly performing companies in the U.K., (with J. Franks and C. Mayer); Nota di Lavoro 1.96, Fondazione Enrico Mattei, Milan, 1996, 1-28.

Publications in non-refereed journals:

• Do Differences in Corporate Governance Standards in Cross-Border Mergers and Acquisitions create synergy value?, (with M. Martynova), New Modes of Governance Policy Brief Nr 29, European University Institute, 1-5.
• Takeovers in Europe, VITE International magazine, October Issue, 2007, 7-11.
• Leveraged and Management Buyouts in Europe: are target firms overvalued?, MCA – Tijdschrift voor Organisaties in Control 11 (3), 2007, 16-28.
• Why do firms go private?, Defacto Magazine 21 (2), 2007, 29-32.
• Managerial disciplining, in R. van Frederikslust: Corporate Governance and Corporate Finance: A European Perspective, RSM Erasmus University, March 2007, 31-42.
• Does corporate governance matter?, Inaugural lecture, University of Tilburg, December 2005.
• Dividends and Corporate Governance (with M. Goergen), Eclectic: The magazine of the Banking and Finance Faculty, Institute of Financial Services, 2004, Issue 16, 16-21
• Corporate restructuring, Faces 2002 (1), 38-47.
• De geconcentreerde aandeelhoudersstructuur en de rol van referentie-aandeelhouders in goed vennootschapsbeheer, Alma Mater, August 1998, 151-166.

Published and forthcoming book chapters:

• Blockholders, (with I. Dherment), in: H. K. Baker and R. Anderson (eds.) Corporate Governance, John Wiley & Sons, forthcoming, 2009.
• Corporate takeovers and wealth creation (with M. Martynova), in: H. K. Baker and R. Anderson (eds.) Corporate Governance, John Wiley & Sons, forthcoming, 2009.
• Executive Compensation, Incentives and Prerequisites (with P. Geiler), in: H. K. Baker and R. Anderson (eds.) Corporate Governance, John Wiley & Sons, forthcoming, 2009.
• Going private, Finance: The Ultimate Resource, Bloomsbury Publishing, forthcoming, 2009.
• The performance of socially responsible investment funds, Finance: The Ultimate Resource, Bloomsbury Publishing, forthcoming, 2009.
• Corporate Restructuring and Bondholder Wealth (with P. Szilagyi), reprint of publication in European Financial Management in A. Pacces, Changing Perspectives on Corporate Law and Economics, Edward Elgar, forthcoming, 2009.
• Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation (with T. Simons and M. Wright), reprint of publication in Journal of Corporate Finance, in J. McCahery (eds.), Activist Investors, Hedge Funds and Corporate Governance, forthcoming 2009..
• Socially responsible investment funds (with J. Ter Horst and C. Zhang), in: G. Aras and D. Crowther (eds.), The Gower Handbook of Corporate Governance and Social Responsibility, Gower publishers, forthcoming 2009.
• The Social Responsibility of Major Shareholders (with M. Goergen), in: G. Aras and D. Crowther (eds.), The Gower Handbook of Corporate Governance and Social Responsibility, Gower publishers, forthcoming 2009.
• Insider trading, news releases and ownership concentration, (with J. Fidrmuc and M. Goergen), reprint of publication in the Journal of Finance, in Paul U Ali and Greg N Gregoriou (eds.), Insider Trading: Regulation and Analysis , CRC Press/Chapman & Hall, 2008, 279-340.
• Dividend policy in a global perspective, (with M. Goergen), forthcoming in: The Blackwell Companion to Dividends and Dividend Policy , H. Kent Baker (Ed.), Companions to Finance series, Blackwell, 2009.
• The catering theory of dividends (with M. De Rooij), forthcoming in: The Blackwell Companion to Dividends and Dividend Policy , H. Kent Baker (Ed.), Companions to Finance series, Blackwell, 2009.
• Renneboog, L., T. Simons, and M. Wright, 2008, Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation, reprint of a publication in the Journal of Corporate Finance, in: M. Wright and H. Bruining (eds), Private equity and management buy-outs, Edward Elgar, 101-150.
• Do corporate control and product market competition lead to stronger productivity growth? Evidence from market-oriented and blockholder-based governance regimes, (with J. Köke), reprint of a publication of the Journal of Law and Economics, in M. Ricketts (ed.), The Economics of Modern Business Enterprise (volume 3), The international library of critical writings in economics, Edward Elgar, 2007, 550-591.
• Understanding mergers and acquisitions: Corporate governance and regulatory issues, (with G. Gregoriou), forthcoming in Corporate Governance and Regulatory Impact on Mergers and Acquisitions: Research and Analysis on Activity Worldwide Since 1990 , G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 2007, 1-18.
• Understanding mergers and acquisitions: An overview of the recent research, (with G. Gregoriou), in International Mergers and Acquisitions Activity since 1990: Recent Research and Quantitative Analysis , G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 2007, 1-20.
• The long-term operating performance of European mergers and acquisitions, (with M. Martynova and S. Oosting), in International Mergers and Acquisitions Activity since 1990: Recent Research and Quantitative Analysis , G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 2007, 79-116.
• How do bondholders fare in mergers and acquisitions? (with P. Szilagyi), in International Mergers and Acquisitions Activity since 1990: Recent Research and Quantitative Analysis, G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 2007, 117-134.
• Who disciplines the management of poorly performing companies?, (with J. Franks and C. Mayer), reprint of a publication in the Journal of Financial Intermediation in: R. van Frederikslust, J. Ang and S. Sudarsanam, Corporate Governance and Corporate Finance: A European Perspective, Oxford: Routledge, forthcoming 2006.
• Ownership, managerial control and the governance of companies listed on the Brussels stock exchange, reprint of a publication in the Journal of Banking and Finance, in: R. van Frederikslust, J. Ang and S. Sudarsanam, Corporate Governance and Corporate Finance: A European Perspective , Oxford: Routledge, forthcoming 2006.
• Why are the levels of controls so different in German and UK companies? Evidence from initial pubic offerings (with M. Goergen), reprint of a publication in the Journal of Law,Economics and Organization, in: R. van Frederikslust, J. Ang and S. Sudarsanam, Corporate Governance and Corporate Finance: A European Perspective, Oxford: Routledge, forthcoming 2006.
• Shareholder lock-in contracts: Share priceand trading volume effects at the lock-in expiry (with P.P. Angenendt and M. Goergen), in L. Renneboog (ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, 235-276.
• Mergers and Acquisitions in Europe, (with M. Martynova), in L. Renneboog (ed.),Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, 13-75.
• Corporate restructuring and governance, valuation and asset pricing, in L. Renneboog (ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, 1-11.
• The life and works of Piet Duffhues, (with J. Grazell), in L.Renneboog (ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam: Elsevier, 2006, forthcoming.
• Corporate governance and shareholder value (with M. Goergen), in David Lowe and Peter Fenn (eds.), Commercial management of complex projects: Defining the discipline, 2005, 100-131.
• Insider retention and long-run performancein German and UK IPOs, (with M. Goergen), in I. Filatotchev and M. Wright (eds.), The Corporate Governance Life-Cycle, Edward Elgar, 2005, 123-143.
• The impact of corporate governance on firm performance and growth potential: an analysis of three different European governance regimes, (with C. Gispert, A. de Jong and R. Kabir), in I. Filatotchev and M. Wright (eds.), The Corporate Governance Life-Cycle, Edward Elgar, 2005, 233-252.
• Investment policy,internal financing and ownership concentration in the UK, (with M. Goergen), reprint of publication in Journal of Corporate Finance; in Corporate governance in the new global economy, Kevin Keasey, Steve Thompson and Mike Wright (Eds.), Cheltenham: Edward Elgar, January 2005, 518-545. ISBN 1 84376 831 3.
• Corporate governance in Germany, (with M. Goergen and M. Manjon), in K. Keasey, S. Thompson and M. Wright (eds.), Corporate Governance: Accountability, Enterprise and International Comparisons, John Wiley, 2005, 285-326.
• The economics of takeover regulation, (with Joe McCahery), in Reforming Company and Takeover Law in Europe, G. Ferrarini, K. Hopt, J. Winter and E. Wymeersch (eds.), Oxford University Press, 2004, 575-646.
• Venture capital financing of innovative firms (with J. McCahery), in Venture capital contracting and the valuation of high tech firms, J. McCahery and L. Renneboog (eds.), Oxford University Press, 2003,1-25.
• Lock-in agreements in venture capital-backed UK IPOs, (with S. Espenlaub, M. Goergen and A. Khurshed), in Venture capital contracting and the valuation of high tech firms, J. McCahery and L. Renneboog (eds.), Oxford University Press, 2003, 396-436.
• The rise and fall of the European New Markets: on the short and long-term performance of high tech initial public offerings (with M. Goergen, A. Khurshed and J. McCahery), in Venture capital contracting and the valuation of high tech firms, J. McCahery and L. Renneboog (eds.), Oxford University Press, 2003, 464-492.
• Corporate control concentration measurement and firm performance (with Y. Crama, L. Leruth and J.P. Urbain), in Social Responsibility: Corporate Governance Issues, series Research in International Business and Finance (Vol. 17), J. Batten and T. Fetherston (eds.), Oxford: JAI Press (Elsevier Science ltd.), 2003, 123-149.
• Value creation in large European mergers and acquisitions, (with M. Goergen) in Advances in Mergers and Acquisitions, Volume 2, A. Gregory (ed.), Oxford: JAI Press (Elsevier Science ltd), 2003, 97-146.
• Prediction of control concentrationin German and UK IPOs (with M. Goergen),in Convergence and Diversity of Corporate Governance Regimes and Capital Markets, McCahery et al. (eds.), Oxford University Press, 2002, 251-267.
• Managerial disciplining and the market for (partial) corporate control in the UK (with J. Franks and C. Mayer), in Convergence and Diversity of Corporate Governance Regimes and Capital Markets, McCahery et al. (eds.), Oxford University Press, 2002, 441-456.
• Recent developments in corporate governance (with J. McCahery), in Convergence and Diversity of Corporate Governance Regimes and Capital Markets, McCahery et al. (eds.),Oxford University Press, 2002, 1-22.
• Share price reactions to CEO resignations and large shareholder monitoring in listed French companies (with I. Dherment), in Convergence and Diversity of Corporate Governance Regimes and Capital Markets, McCahery et al. (eds.), Oxford University Press, 2002, 297-324.
• Cash-based executive compensation in Spain and UK (with R. Crespi and C. Gispert), in Convergence and Diversity of Corporate Governance Regimes and Capital Markets, McCahery et al. (eds.), Oxford University Press, 2002, 647-667.
• Shareholding cascades: separation of ownership and control in Belgium (with M. Becht and A. Chapelle), in The control of corporate Europe, F. Barca and M. Becht (eds.), 2001 (1st edition) and 2002 (2nd edition), Oxford University Press, 71-105.
• Strong managers and passive institutional investors in the UK (with M. Goergen), in The control of corporate Europe, F. Barca and M. Becht (eds.), 2001 (1st edition) and 2002 (2nd edition), Oxford University Press, 259-284.
• Corporate governance and economic performance in Belgium (with M. Goergen) in Corporate governance and economic performance, K. Gugler (ed.), Oxford University Press, 2001, 85-96.
• Corporate governance and economic performance in the UK (with M. Goergen) in Corporate governance and economic performance, K. Gugler (ed.), Oxford University Press, 2001, 184-200.
• Executive compensation in Europe (with J. McCahery), in P. Essers, R. Happe, G. Meussen, M. Raaijmakers en R. Vriesendorp (eds.): Verkenningen op de grens van burgerlijk recht en belastingsrecht, Boom Juridische Uitgevers, 2001, 229-244.
• Shareholding concentration and pyramidal ownership structures in Belgium, in Corporate Governance, Financial Markets and Global Convergence, M. Balling, E. Hennessy and R. OBrien (eds.), Kluwer Academic Publishers, December 1997, 263-300.
• From critical to communicative rationality: on theory building in the management science, in European Research Paradigms in Business Studies, H.S. Jensen, T. Elfring en A. Money (eds.), Handelshojskolens Forlag, 1995, 135-164.

Books

Edited

• Corporate governance regimes: convergence and diversity, J. McCahery, P. Moerland, T. Raaijmakers and L. Renneboog (eds.), Oxford University Press, September 2002, pp. 700, 28 chapters.
• Venture capital contracting and the valuation of high tech projects, J. McCahery and L. Renneboog (eds.), Oxford: Oxford University Press, November 2003, pp. 500, 19 chapters.
• Advances in corporate finance and asset pricing, L. Renneboog (ed.), Amsterdam: Elsevier, March 2006, pp. 510, 22 chapters.
• International Mergers and Acquisitions Activity since 1990: Recent Research and Quantitative Analysis, G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 2007, 12 chapters.
• Corporate Governance and Regulatory Impact on Mergers and Acquisitions: Research and Analysis on Activity Worldwide Since 1990 , G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 2007, 10 chapters
• Monographs: The economics of the proposed European takeover directive, J. McCahery and L. Renneboog, Centre for European Policy Studies, Brussels, March 2003, pp. 105.
• Dividend policy and corporate governance, L. Correia da Silva, M. Goergen and L. Renneboog, Oxford University Press, 2004, pp.185.
• Gu Li Zheng Ce Yu Gong Si Zhi Li, L. Correia da Silva, M. Goergen and L. Renneboog, Oxford: Oxford University Press, 2008, pp. 185.

Case studies

• Valuating Ryanair’s Expansion to Turkey: An application of discounted cash flows (case A) and real options (case B), (with E. Ultee), European Case Clearing house, 2007. – Case 107-039-1. (www.ecch.com)
• - Spreadsheets 107-039-4. (www.ecch.com)
• - Teaching note 107-039-8. (www.ecch.com)
• - Spreadsheets toTeaching note 107-039-9. (www.ecch.com)

Book Review

Creating value from mergers and acquisitions, by Sudi Sudarsanam, FT Prentice Hall 2003, ISBN 0-201-72150-3, European Financial Management 10, 2004, 537-538.

Unpublished working papers

• Share price reactions to sporty performances of soccer clubs listed on the London Stock Exchange and the AIM, Discussion paper CentER, Tilburg University, review and resubmit Journal of Business Finance and Accounting.
• Coalition formation and shareholder monitoring in the UK (with R. Crespi), Discussion paper CentER, Tilburg University.
• The determinants of managerial monitoring in French listed firms, (with I. Dherment), review and resubmit Strategic Management Journal.
• Corporate monitoring by blockholders in Europe: Empirical evidenceof managerial disciplining in Germany, Belgium, France and the UK, (with I. Dherment and J. Köke), Discussion paper CentER, Tilburg University, review and submit Journal of Law, Economics and Organization.
• The managerial labor market and the governance role of shareholder control structures in the UK, (with G. Trojanowski), Discussion paper CentER, Tilburg University, review and resubmit Journal of Corporate Finance.
• The choice between rights-preserving issue methods: Regulatory and financial aspects of issuing seasoned equity in the UK. (with A. Korteweg), review and resubmit European Financial Management.
• Stock price reaction to short-lived public information: the case of betting odds (with F. Palomino and C. Zhang), Discussion paper CentER, Tilburg University.
• Public to private transactions: Motives, trends, theories and empirical literature on LBOs, MBOs, MBIs and IBOs (with T. Simons), Discussion paper CentER, Tilburg University.
• Dividend policy of German firms: A dynamic panel data analysis of partial adjustment models (with M. Goergen and L. Correia da Silva), review and resubmit Journal of Empirical Finance.
• Patterns in payout and channel payout choice of UK firms in the 1990s, (with G. Trojanowski), Discussion paper CentER, Tilburg University, review and resubmit Journal of Business, Finance, and Accounting.
• Takeover waves: triggers, performance and motives, (with M. Martynova), Discussion paper CentER, Tilburg University.
• Is ethical money financially smart? (with J. ter Horst and C. Zhang), Discussion paper CentER, Tilburg University.
• The risk-return tradeoff in socially responsible investment funds (with J. ter Horst and C. Zhang), Discussion paper CentER, Tilburg University.
• Socially Responsible Investments: Performance, Risk Exposure and Regulation, (with J. ter Horst and C. Zhang), Discussion paper CentER, Tilburg University.
• Returns to bidding and target firms in European corporate takeovers, (with M. Martynova), Discussion paper CentER, Tilburg University.
• How relevant is payout policy under low shareholder protection?, (with P. Szilagyi), Discussion paper CentER, Tilburg University.

Research projects

• Participation in research reports to :

1. European Commission (DG XII):

‘Ownership concentration and pyramiding in Belgian quoted companies’, part of report ‘Ownership and Control’ to the European Commission from the European Corporate Governance Network, October 1997, editor M. Becht. 250p.

2. OECD:

‘Corporate governance in Belgium: survey of the literature’: part of report on Corporate Governance in Europe, February 1999, editor K. Gugler, 180p.

3. Ministry of Finance, the Netherlands:

‘Corporate Governance systems and performance’, research on the relation between corporate control systems and performance in the Netherlands, Belgium and UK with special focus on the importance of the Dutch ’structural regime’. Edited by P. Moerland and T. Nijman (Center for Applied Research of Tilburg University), September 1999.

4.Central Plan Bureau, France (Commissariat Général du Plan):

See infra.

5. Deminor (Brussels):

Building and testing a corporate governance index for European blue chip firms. Work in progress, from November 2000.

6. Center for European Policy Studies (CEPS; Brussels)

Report on the newly proposed take-over regulation of the European Commission: ‘The economics of the proposed European takeover directive’. March 2003. Authors: Joe McCahery and Luc Renneboog; pp. 105.

7. Monitoring Commission of the Corporate Governance Code, Ministry of Finance, the Netherlands.

Report on recent developments on corporate governance in the main western economies (with P. Duffhues and. J. ter Horst), November 2005.

Supervision of PhD students

- Arthur Korteweg in 2001-2002 (transferred to U. of Chicago), thesis: Seasoned equity offerings.
- Jana Fidrmuc (2000- June 2003); The impact of large shareholders on information signalling, factor productivity and managerial disciplining. Defence: 27 June 2003.Currently at Erasmus University and Warwick Business School
- Greg Trojanowski (2000-2004): Ownership structure as a mechanism of corporate governance. Defence: 12 November 2004.Currently at the University of Exeter.
- Annabel Sels (2006): Foreign direct investment as an entry mode and order of entry under uncertainty – An application in emerging economies, Defence: 9 June 2006.
- Chendi Zhang (2002-2006) (with J. ter Horst as co-supervisor): Ethics, Investment and Investor Behaviour. Hired by the University of Warwick.
- Marina Martynova (2002-2006): M&A in Europe and the price of corporate governance in the market for corporate control. Hired by the University of Sheffield.
- Peter Szilagyi (2003-2007): Corporate Governance and the Agency Costs of Debt and Outside Equity. Hired by the University of Cambridge.
- Mieszko Mazur (2006-…): Divestitures and Spin-offs.
- Christophe Spaenjers (2006-…): The economics of art.
- Yang Zhao (2006-…): Director networks.
- Eric Engesaeth (2007-…) : Managerial remuneration. Employed by Towers Perrin..
- Margot de Rooij (2008-…) (with Jenke ter Horst, co-supervisor): Behavioural Economics/Neuro-economics..
- Peter Cziraki (2008-…) : Insider trading and shareholder activism..
- Philip Geiler (2008-…) : Managerial remuneration. .

Member of PhD committees

- University of Liège (Belgium): Thaddée Frédéric Nlemvo Ndonzuau: L’impact de la structure de l’actionnariat sur la performance financière et les choix stratégiques de l’entreprise. Defence: 15 May 1998.
- Cambridge University: Antonio Saragga-Seabra: Investment, corporate acquisitions and firm market value. Defence: 18 Dec. 2001.
- Budapest University of Economics: Arnold Ludanyi: The participation of venture capital companies in the management and financing of Hungarian enterprises. Defence: 20 June 2002.
- European University Institute (Florence): Simon Hough: Priceless or worthless? Four essays on art as an investment. Defence: 28 April 2003.
- Charles University Prague – CERGE: Elena Yusupova: ‘Bidding behaviour of investment companies in the voucher privatisation: Theoretical model and empirical predictions of the Czech voucher funds’; Defence: Spring 2006.
-Helsinki School of Economics: Seppo Kinkki : ‘Essays on minority protection and dividend policy’, Defence: Autumn 2007.
-Swedish School of Economics and Business Administration Hanken (Finland): Erkki Nikoskelainen: ‘The operating characteristics of leveraged buyouts: Empirical evidence from Europe’, Autumn 2007.
- Université Libre de Bruxelles (ULB, Brussels): Cristina Vespro: ‘Essays on Financial Architecture’; Defence: 23 June 2008.

Citizenship & Civil State

Nationality: Belgian citizen.
Marital status: Happily married to Eugenia Houvenaghel. 4 children, aged 8, 6, 4 and 1.

Personal

Interested in poetry, history and classical music.
Founding member of London Business School’s PhD soccer team (1991-95). Enjoy cycling, walking (Camino de Santiago, Xacobeo 1999) and running.

Degree in piano at the Music Academy of Aalst (Belgium) (1975-84). Singing classes at the Music Academy of Leuven (1996-98). Former member of the University of Chicago Choir (1989), of the University of London Chorus (1991-93), of the Royal Choral Society (London 1993-95), of Vocal Ensemble Florilegium (Leuven 1996), of Vocal Ensemble OrSeCante (Leuven 1996-97), of the Capilla Mercuriale (KULeuven 1996-98) and of the Kempense Oratorium Vereniging (Turnhout 2000-03).

Some favourite CDs (random order)

1. 1. Le Chant de Virgile by Josquin Desprez, Roland Lassus, Adriaan Willaert etc. (Huelgas ensemble directed by Paul van Nevel; Harmonia Mundi)
2. 2. Tenebrae Responsories by Tomas Luis de Victoria (The Sixteen directed by Harry Christophers – Virgin Classics)
3. 3. Officium Defunctorum / Missa Pro Defunctis by Cristobal de Morales (La Capella Reial da Catalunya / Hespèrion XX directed by Jordi Savall)
4. 4. Theophanie: Orthodox Chant (Choir of the Monastery of Chevetogne)
5. 5. Lagrime de San Pietro by Roland de Lassus (Ensemble Vocal Europeen directed by Philippe Herreweghe)
6. 6. O Gemma lux by Guillaume Dufay (Huelgas Ensemble directed by Paul van Nevel – Harmonia Mundi)
7. 7. The Pilgrimage to Santiago (New London Consort directed by Philip Pickett – L’Oiseau-Lyre)
8. 8. Romances Sefardes dans l’empire de la Sublime Porte (Accentus Austria directed by Thomas Wimmer – Arcana)
9. 9. Diaspora Sefardi, Romances y Musica Instrumental (La Capella Reial da Catalunya / Hespèrion XXI directed by Jordi Savall)
10. 10. Carlos V – Mille Regretz: La Cancion del Emperador (La Capella Reial da Catalunya / Hespèrion XXI directed by Jordi Savall – Alia Vox)
11. 11. Paraisos Perdidos – Christophorus Columbus (La Capella Reial da Catalunya / Hespèrion XXI directed by Jordi Savall)
12. 12. Miguel de Cervantes – Don Quijote de la Mancha – Romances y Musicas (La Capella Reial da Catalunya / Hespèrion XXI directed by Jordi Savall)
13. 13. Fiesta Criolla – Une fete pour la Vierge de Guadelupe a Sucre (1718) (Ars Longa de La Havana directed by Gabriel Garrido – K617/Le couvent)
14. 14. Flow my tears (Songs from the first booke of songs 1597 and the second booke 1600) by John Dowland (Metronome)
15. 15. Opus Ultimum by Heinrich Schutz (Collegium Vocale directed by Philippe Herrewege)
16. 16. Lachrimae Caravaggio composed by Jordi Savall (Le concert de nations, Hesperion XXI – Alia Vox)
17. 17. Te Deum by Antonio Teixeira (The Sixteen directed by Harry Christophers – Collins Classics)
18. 18. Cello Suites 1-6 by J.S. Bach (M. Rostropovich; Phillips)
19. 19. Missa Criolla by Ariel Ramirez (Coral Salve de Laredo directed by Jose Luis Ocejo – Philips)
20. 20. Canon Pokaianen by Arvo Paert (Estonian Philharmonic Chamber Choir directed by Toenu Kaljuste)
21. 21. Vigilia by Einojuhani Rautavaara (Finnish Radio Chamber Choir directed by Timo Nuoranne)
22. 22. The protecting veil by John Tavener (the Royal Philharmonic directed by Justin Brown)
23. 23. The Well by Chava Alberstein.
24. 24. The prisoner’s song by Muzsikas
25. 25. Le pas du chat noir / Le voyage du Sahar by Anouar Brahem (ECM)
26. And much much more

Some favourite films (random order):

1. 1. The English patient by Anthony Minghella
2. 2. Trois couleurs: Bleu by Krzysztof Kieslowski
3. 3. The merchant of Venice by Michael Radford
4. 4. La gloire de mon père / Le chateau de ma mère by Yves Robert
5. 5. Heimat by Edgar Reitz
6. 6. Jean De Florette / Manon Des Sources by Claude Berri
7. 7. Il postino by Michael Radford
8. 8. The good, the bad and the ugly by Sergio Leone
9. 9. The lord of the rings by Peter Jackson
10. 10. Gandhi by Richard Attenborough
11. 11. Amadeus by Milos Forman
12. 12. The girl with the pearl earring by Peter Webber
13. 13. La double vie de Veronique by Krzysztof Kieslowski
14. 14. The talented Mr. Ripley by Anthony Minghella
15. And
16. 15. Die Grosse Stille (Le Grand Silence / Into great silence) by Philip Groening

Annette B Paulson: 03-27-09 Economist of the Day

We choose Annette B Paulson as our Economist of the Day. Annette is the Sterne Professor, Department Head, Department of Banking and Finance at the University of Georgia.

Annette Poulsen

Contact Information

apoulsen(at)terry.uga.edu
T: 706.542.3645

Annette’s complete vitae is here. Also, Annette’s Facebook page is here.

Teaching

FINA 3000H Financial Management
FINA 7100 Corporate Financial Managment
FINA 7810 International Finance

Working Papers

Selected Publications:

With Mike Stegemoller . “Moving from Private to Public Ownership: Selling Out to Public Firms vs. Initial Public Offerings.” Financial Management, (forthcoming),

With Angela Morgan and Jack Wolf. “The Evolution of Shareholder Voting for Executive Compensation Schemes.” Journal of Corporate Finance, 12, (2006), pp. 715-737. Download

With William Megginson, Robert Nash and Jeffry Netter. “The Choice of Private versus Public Capital Markets: Evidence from Privatizations.” Journal of Finance, 49, (2004), pp. 2835-2870. Download

With Jeffry Netter. “Operational Risk in Finance Service Providers and the Proposed Basel Capital Accord: An Overview.” Advances in Financial Economics, 8, (2003), pp. 147-172. Download

With Angela Morgan. “Linking Pay to Performance – Compensation Proposals in the S&P 500.” Journal of Financial Economics, 62, (2001), pp. 489-523. Download

With Rob Nash and Jeffry Netter. “Determinants of Contractual Relations Between Shareholders and Bondholders: Investment Opportunities and Restrictive Debt Covenants.” Journal of Corporate Finance, 9, (2003), pp. 201-232. Download

With J. Harold Mulherin. “Proxy Contests and Corporate Change: Implications for Shareholder Wealth.” Journal of Financial Economics, 47, (1998), pp. 279-314. Download

With Naveen Khanna. “Managers in Financially Distressed Firms: Villains or Scapegoats?” Journal of Finance, 50, (1995), pp. 919-940. Download

With Larry Lang and Rene Stulz. “Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion.” Journal of Financial Economics, 37, (1995), pp. 3-38. Download

Full list of Papers [Note: some may duplicate the papers above which can be downloaded]

“Moving from Private to Public Ownership: Selling Out to Public Firms vs. Initial Public Offerings,” with Mike Stegemoller, Financial Management, forthcoming.

“The Evolution of Shareholder Voting for Executive Compensation Schemes,” with Angela Morgan and Jack Wolf, Journal of Corporate Finance, 12, 715-737, 2006.

“The Choice of Private versus Public Capital Markets: Evidence from Privatizations,” with William Megginson, Robert Nash and Jeffry Netter, Journal of Finance, 49, 2835-2870, 2004.

“Operational Risk in Financial Service Providers and the Proposed Basel Capital Accord: An Overview,” Advances in Financial Economics, with Jeffry Netter, 8, 147-172, 2003 (research funded by a grant from Financial Services Exchange).

“Determinants of Contractual Relations between Shareholders and Bondholders: Investment Opportunities and Restrictive Debt Covenants,” Journal of Corporate Finance, with Robert Nash and Jeffry Netter, 9, 201-232, 2003 (research funded by a National Science Foundation grant).

“Linking Pay to Performance – Compensation Proposals in the S&P 500,” Journal of Financial Economics, with Angela Morgan, 62, 489-523, 2001.

“Proxy Contests and Corporate Change: Implications for Shareholder Wealth,” Journal of Financial Economics, with Harold Mulherin, 47, 279-314, 1998.

“Managers in Financially Distressed Firms: Villains or Scapegoats?,” Journal of Finance, with Naveen Khanna, 50, 919-940, 1995.

“Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion,” Journal of Financial Economics, with Larry Lang and Rene Stulz, 37, 3-38, 1995.

“Syndicated Loan Announcements and the Market Value of the Banking Firm,” Journal of Money, Credit and Banking, with William Megginson and Joseph F. Sinkey, Jr., 27, 457-475, 1995.

“Rule 415: An Analysis of Intra Industry Changes in Underwriting Revenues,” Journal of Regulatory Economics, with Wayne Marr and Jeffry Netter, 6, 27-40, 1994.

“Event Study Methodology Under Conditions of Event-Induced Variance,” Journal of Financial Economics, with Jim Musumeci and Ekkehart Boehmer, 30, 253-272, December 1991.

“Contractual Resolution of Bondholder-Stockholder Conflicts in Leveraged Buyouts,” Journal of Law and Economics, with Kenneth Lehn, 34, 645-673, October 1991.

“Proxy Reform as a Single Norm? Evidence Related to Cross-Sectional Variation in Corporate Governance,” Journal of Corporation Law, with J. Harold Mulherin, 17, 125-142, Fall 1991.

“Consolidating Corporate Control: The Choice Between Dual-Class Recapitalizations and Going Private Transactions,” Journal of Financial Economics, with Kenneth Lehn and Jeffry Netter, 27, 557-580, October 1990.

“Shark Repellents and Managerial Myopia: An Empirical Test,” Journal of Political Economy, with Lisa Meulbroek, Mark Mitchell, Harold Mulherin and Jeffry Netter, 98, 1108-1117, October 1990.

“The Economics of Event Risk: The Case of Bondholders in Takeovers,” Journal of Corporation Law, with Kenneth Lehn, 15, 199-218, Winter 1990.

“Free Cash Flow and Stockholder Gains in Going Private Transactions,” Journal of Finance, with Kenneth Lehn, 44, 771-787, July 1989.

“Stock Trading Before the Announcement of Tender Offers: Market Anticipation or Insider Trading,” Journal of Law, Economics and Organization, with Gregg Jarrell, 5, 225-248, Fall 1989.

“Returns to Acquiring Firms in Tender Offers: Evidence from Three Decades,” Financial Management, with Gregg Jarrell, 18, 12-19, Autumn 1989. (Reprinted in Readings in Mergers and Acquisitions, Ed. by Patrick A. Gaughan, Blackwell Publishers, 1994.)

“Effects of State Corporation Laws: The Recent Experience,” Financial Management, with Jeffry Netter, 18, 29-40, Autumn 1989.

“Harmonizing Margins: The Regulation of Margin Levels in Stock Index Futures Markets,” Cornell Law Review, with Dean Furbush, 74, 873-901, July, 1989.

“Dual-Class Recapitalizations as Antitakeover Mechanisms: The Recent Evidence,” Journal of Financial Economics, with Gregg Jarrell, 20, 129-152, January/March 1988.

“Leveraged Buyouts: Wealth Created or Wealth Redistributed,” with Kenneth Lehn, in Public Policy Toward Corporate Takeovers, 46-62, edited by Murray Weidenbaum and Kenneth Chilton, Transaction Publishers: New Brunswick, NJ, 1988. (Reprinted in Readings in Mergers and Acquisitions, Ed. by Patrick A. Gaughan, Blackwell Publishers, 1994.)

“Insider Trading: The Law, the Theory, the Evidence,” Contemporary Policy Issues, with Jeffry Netter and Philip Hersch, VI, 1-13, July 1988.

“Shark Repellents and Stock Prices: The Effects of Antitakeover Amendments since 1980,” Journal of Financial Economics, with Gregg Jarrell, 19, 127-168, September 1987.

“Japanese Bank Regulation and the Activities of U.S. Offices of Japanese Banks,” Journal of Money, Credit and Banking, 18, 366-373, August, 1986.

“Motivations for Hostile Tender Offers and the Market for Political Exchange,” Contemporary Policy Issues, with Gregg Jarrell, 4, 30-45, July 1986.

“Shark Repellents and Poison Pills: Stockholder Protection from the Good Guys or the Bad Guys?,” Midland Corporate Finance Journal, with Gregg Jarrell, 4, 39-47, Summer 1986.

Working Papers

“Information asymmetry and acquirer returns,” with Micah Officer and Mike Stegemoller, under review.

Current Research

“International Competition in Stock Listings,” with Rob Nash, Jeff Netter and Mike Stegemoller.

“Profiling the Debt of Large Firms,” with Michael Stegemoller.

Securities and Exchange Commission Studies

“Update–The Effects of Dual-Class Recapitalizations on Shareholder Wealth: Including Evidence From 1986 and 1987,” with Ken Lehn, July 16, 1987.

“Shelf Registration: An Analysis of Intraindustry Changes in Underwriting Revenue,” with Wayne Marr, June 22, 1987.

“The Effects of Dual-Class Recapitalizations on the Wealth of Shareholders,” with Gregg Jarrell and Tony Tri, June 1, 1987.

“Shareholder Wealth Effects of Ohio Legislation Affecting Takeovers,” with Michael Ryngaert, Jeffry Netter and Janis Belk, May 18, 1987.

“Stock Trading Before the Announcement of Tender Offers: Insider Trading or Market Anticipation?,” with Gregg Jarrell, February 24, 1987.

“Noninvestment Grade Debt as a Source of Tender Offer Financing,” with Kenneth Lehn and John Pound, June 20, 1986.

“Shark Repellents and Stock Prices: The Effects of Antitakeover Amendments Since 1980,” with Gregg Jarrell, July 24, 1985.

“The Economics of Any or All, Partial, and Two Tier Tender Offers,” with Robert Comment, Gregg A. Jarrell and Hugh Haworth, April 19, 1985.

Other Activities

Book Review of Strong Managers, Weak Owners: The Political Roots of American Corporate Finance, by Mark J. Roe, Journal of Finance, 50, 764-769, 1995.

Invited author, Fortune Encyclopedia of Economics, “Corporate Debt”, 1992; revised, 2004.

Consulting on merger and acquisition issues, especially with respect to antitakeover laws and defense mechanisms.

Member of State of California Senate Commission on Corporate Governance, Shareholder Rights and Securities Transactions, September 1986-September 1987.

SEC: 03-09-09 Reverses Course on TARP-Related Shareholder Proposal

Reposted from The Harvard Law School Corporate Governance Forum. Find here.

Posted by Jeremy L. Goldstein, Wachtell, Lipton, Rosen & Katz, on Saturday March 7, 2009 at 10:05 am <!–
Corporate Elections and Voting, Insights from Practice, Securities Regulation –>

(Editor’s Note: This post by Jeremy Goldstein is based on a client memo by Mr. Goldstein and his colleagues Lawrence S. Makow, Jeannemarie O’Brien, Nicholas G. Demmo, and David M. Adlerstein of Wachtell, Lipton, Rosen & Katz.)

The SEC staff has denied a no-action request by Regions Financial to exclude a shareholder proposal requesting that Regions impose numerous restrictions on executive compensation in light of the company’s participation in the TARP Capital Purchase Program (CPP). Several unions have reportedly submitted the proposal (or a variation thereof) at nearly two dozen financial institutions. Its restrictions, if adopted, would severely hamstring a company in designing compensation to attract, retain and incentive senior management. The union proposal would micromanage executive compensation with a laundry list of rigid, inflexible restrictions, including an annual cap on incentive compensation, a requirement of performance vesting for most long-term equity compensation, a requirement that stock option strike prices be peer-indexed, a bar against executives selling more than 25% of their equity awards while they remain employed, a prohibition on accelerated (e.g., non-cause firing) vesting for all executive equity awards, a limit on severance payments to no more than annual salary and a freeze on the accrual of retirement benefits under SERPs.

Regions argued that the proposal is actually multiple proposals in violation of Rule 14a-8 and is vague and indefinite (among other reasons, for failing to say whether the restrictions would be permanent or limited to the period of TARP participation). Regions also argued that it had substantially implemented the proposal by agreeing to limit executive compensation in its CPP investment agreement with the U.S. Treasury. Last December, the SEC staff granted no-action relief to SunTrust on a substantially identical shareholder proposal. In denying Regions’ request for no-action relief, the staff provided no explanation for its about-face.

As described in our memorandum of February 13, 2009, the just-enacted stimulus bill requires Treasury to implement harsh compensation restrictions for TARP participants. Last week, Treasury announced its own distinct set of compensation requirements for prospective TARP participants. Each of these differs from the contractual compensation restrictions that CPP participants believed they were signing up for in round one of the TARP. Right now, directors and managers of financial institutions are being compelled to spend significant time grappling with responses to these developments. In this overheated environment, boards of many major financial companies will now also have to contend with the recent wave of “kitchen sink” shareholder initiatives on executive compensation. The SEC and investors alike would be well served to consider whether a continual ratcheting up of distraction and pressure on financial institutions is the best path to hastening economic recovery and restoring credit markets.

Options Backdating: 03-09-09 Bruce Karatz, KB Home, Indicted

LOS ANGELES – A former CEO and chairman of the board of KB Home was named today in a 20-count indictment that charges him in a scheme to defraud KB and its shareholders by awarding himself and other KB executives millions of dollars in undisclosed stock-based compensation in connection with the backdating of stock options over a seven-year period.

Bruce E. Karatz, 63, of Bel Air Estates, was charged with seven counts of mail fraud, five counts of wire, three counts of securities fraud, four counts of making false statements in reports filed with the Securities and Exchange Commission, and one count of lying to KB’s accountants.

This scheme alleged in the indictment involves Karatz’s use of hindsight pricing to inflate the value of stock options granted to him and other KB executives, as well as Karatz’s ongoing concealment of this practice from KB’s board of directors, Compensation Committee and shareholders. Furthermore, the indictment alleges, when an internal investigation into stock-option backdating was initiated at KB in May 2006, Karatz falsely denied his orchestration of the stock-option backdating scheme and caused a false report of KB’s historical option-granting practices to be submitted to KB’s Audit Committee and outside auditor, which impeded the timely and accurate disclosure of this matter in filings with the Securities and Exchange Commission.

In a related case, a former senior vice president of KB and head of Human Resources, Gary A. Ray, pleaded guilty on February 6 to conspiring with Karatz to obstruct justice. By pleading guilty, Ray admitted that he and Karatz collaborated in causing a false and misleading report on KB’s historical option-granting practices to be submitted to KB’s Audit Committee and other KB managers for the purpose of warding off a contemplated SEC probe into backdating at KB (see: http://www.usdoj.gov/usao/cac/pressroom/pr2008/154.html).

According to the indictment returned this afternoon by a federal grand jury in Los Angeles, Karatz engaged in a fraudulent scheme to disguise and conceal from KB and its shareholders the nature and value of stock-based compensation KB was actually awarding to Karatz and other KB executives through its stock-option granting practices. Karatz allegedly caused below-market exercise prices to be selected for stock options granted to him and other KB executives by using hindsight to backdate the grant date of these options to the date with the lowest price point for KB’s stock.

In furtherance of the scheme, the indictment alleges, Karatz concealed his use of hindsight pricing from KB’s board of directors, Compensation Committee and shareholders. In various public filings made by KB, Karatz made it appear that KB’s option grants were made “as of” the date that had been selected. Karatz allegedly caused false statements to issued that claimed that all employee stock options granted under KB’s compensation plans had an exercise price equal to the fair market value of KB’s stock on the date of the grant. This representation created the false impression that KB was granting at-the-money stock options to KB executives, for which the recording of a compensation expense was not required, when in fact KB was granting discounted, in-the-money stock options, a large portion of which were awarded to Karatz himself.

As a result of these fraudulent practices, Karatz caused KB to grant millions of backdated, in-the-money options to himself and to other KB executives without publicly reporting the compensation and without taking the required compensation expense on KB’s financial statements. As a result, the indictment alleges, Karatz was able to misappropriate millions of dollars in KB’s funds when he exercised his options, while maintaining the pretense that these gains were solely the result of the appreciation of the market value of KB’s stock.

After KB commenced an internal investigation into its option-granting practice in May 2006, Karatz continued to conceal that he had backdated KB’s stock option grants during the preceding seven years. Among other things, Karatz caused a false and misleading internal report to be presented to KB’s Audit Committee and outside auditors that represented there was “no evidence of the backdating of options or other manipulation by management.” KB’s Audit Committee and other members of KB’s management relied on this false and misleading internal report in deciding to file KB’s Form-10Q for the three month period ending May 31, 2006, without disclosing any irregularities in KB’s past option-granting practices.

After KB discovered irregularities in its reporting, KB was unable to timely file its third quarter 10Q in October 2006. When KB ultimately filed its 2006 3rd quarter Form-10Q and its 2006 Form-10K in February 2007, the company was forced to recognize, for the first time, more than $36 million in additional stock-based compensation expenses and a total increase of more than $70 million in accrued liabilities arising from adjustments required to address the backdated stock options.

Karatz is expected to make his initial court appearance on March 26 in federal court in Los Angeles. If convicted of all the charges, Karatz faces a statutory maximum sentence of 415 years in federal prison.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

“Top executives of publicly traded companies have a duty to adhere to all the rules imposed on them by company directors and members of the public who invest their hard-earned money,” said United States Attorney Thomas P. O’Brien. “Mr. Karatz allegedly broke the rules, and then lied about it, to line his pockets and then to conceal his windfall from his company and the trading public. Efforts to manipulate a company’s compensation process, and then to impede the oversight function of the SEC, seriously compromise the integrity of our entire system.”

“This investigation painted a picture of avarice and dishonesty at its core,” said Salvador Hernandez, Assistant Director in Charge of the FBI in Los Angeles. “The FBI is committed to devoting resources to the continuing crisis involving corporate figures who abdicate their responsibility in order to enrich themselves.”

This case was investigated by the Federal Bureau of Investigation.

William Dudley: 03-06-09 Remarks Before the Council on Foreign Relations

Remarks at the Council on Foreign Relations Corporate Conference 2009, New York City

Thank you for having me here today. It is a pleasure being back to speak at the Council. In the past, my Federal Reserve colleague, Governor Daniel Tarullo, gathered panels of Wall Street economists here at the Council to talk about economic issues. When he invited me to participate, it was challenging work because Dan always asked us about our economic forecasts! And he remembered and recounted our past mistakes (and our much rarer, more prescient forecasts)!

Before I begin, let me emphasize that my comments represent my own views and opinions and do not necessarily reflect the views of the Federal Open Market Committee or of the Federal Reserve System.

What has happened to the global financial system is momentous. We have seen—despite extraordinary actions by central banks and governments around the world—a severe impairment of the intermediation process between borrowers and savers. We have seen a massive deleveraging of the non-bank financial sector. We have seen a tightening in financial market conditions even as the Federal Reserve has pushed the federal funds rate down close to zero. The result has been a severe loss of confidence among consumers and business and a global recession.

Today I would like to talk a bit about what went wrong, where we are today, some new initiatives that are underway, what lessons we should take from the crisis and some steps we need to take so this doesn’t happen again.

It is well-recognized that one important catalyst for this financial crisis was the easy credit and loose underwriting practices that fueled the boom in the U.S. housing sector. The ability of virtually anyone to get a loan to buy a house pushed up home prices significantly faster than incomes. To keep the boom going, underwriting standards were progressively relaxed, but even with that support to demand, inevitably the boom proved unsustainable.

As the boom reversed and housing prices began to fall, the bad underwriting practices and the mispricing of risk became readily apparent. When prices are rising no one needs to default, they always have the option of refinancing or selling the house at the now higher price. But when prices are dropping, there is no easy way out. The result has been a sharp rise in delinquencies and foreclosures as the bust has played out.

The fact that these poorly underwritten loans were used in the construction of very complex collateralized debt obligations or CDOs, with risks that were not well understood and grossly mispriced—made a bad situation even worse. Investors who thought they had purchased safe AAA-rated assets found that these assets were very vulnerable to a housing bust and that the ratings were unreliable predictors of the risk of loss.

The poor performance of these securities, in turn, made investors much less willing to invest in structured-finance products more generally. Secondary market liquidity evaporated, which exacerbated the difficulty in valuing the securities. This made the market even less attractive, causing risk premia to widen further, which only worsened the valuation problems.

As this process unfolded, the result was a virtual shutdown of the securitization market for residential mortgage assets not backed by the federal government directly (Ginnie Mae) or implicitly (Fannie Mae and Freddie Mac). The subprime and the Alt-A mortgage markets, which relied heavily on the securitization process dried up. Of course, this just reinforced the downward pressure on housing prices, which, in turn, led to increased delinquencies and foreclosures. This deterioration undermined the value of the securities further. It was a vicious feedback loop in action. The poor performance of highly-rated mortgage securities caused investors to begin to shun securitizations more generally.

The shutdown of the securitization markets led to significant pressure on bank balance sheets. Banks could no longer securitize non-conforming mortgages or the collateralized loan obligations associated with leveraged buyouts and other private equity activity that they had financed. Moreover, bank backstop liquidity lines were triggered as SIVs and conduits could no longer issue  asset-backed commercial paper. Finally, banks took large  mark-to-market losses on their trading books and had to increase their loan loss provisions.

As the crisis continued into 2008, the squeeze on bank balance sheets intensified. This was driven by several important developments. First, the demise of Bear Stearns increased the pressure on the other broker dealers to deleverage. They did this, of course, by becoming less willing to lend funds to their counterparties, such as hedge funds, and by shrinking their trading books. In the week leading up to Bear’s demise a nasty feedback loop ensued: forced asset sales increased price volatility. This led to higher haircuts by dealers on their counterparties, which led to more forced asset sales and still higher volatility.

Second, the failure of Lehman in September accelerated the pace of this deleveraging process. Major bank intermediaries were frightened by what had happened and were unwilling to engage with each other. Prime money market mutual funds suffered large outflows. Investors fled as the news came out that the Reserve Fund had “broken the buck” because of large losses generated by its holdings of Lehman paper.

By late September we were in a very bad spot. Banks weren’t willing to lend to each other even at very short term maturities. LIBOR—the London Interbank Offered Rate, which is the rate that banks offer to lend to each other—soared even as the Federal Reserve continued to lower its federal funds rate target and injected extra reserves into the banking system. Merrill Lynch agreed to merge with Bank of America. The equity prices of the two remaining independent investment banks—Goldman Sachs and Morgan Stanley—weakened, their credit default swap spreads widened and this began to undermine their ability to obtain funding. In response, Goldman Sachs and Morgan Stanley jumped over the regulatory wall and became bank holding companies.

Hedge funds were forced to liquidate assets as financing terms tightened. As a group, their performance deteriorated sharply beginning in late summer. This provoked investor redemptions—further accelerating the speed and scope of the deleveraging cycle.

Although housing and housing finance may have been at the epicenter of the crisis, it is important, however, to recognize that the crisis goes much deeper. In part, it was rooted in the overconfidence of investors and borrowers that paid little attention to liquidity and rollover risk and seemed blind to the risk of a global downturn. It was also rooted in the gaps in supervision and regulation that allowed a whole range of financial intermediaries and businesses to become more leveraged, in many cases funding long-term illiquid assets with short-term borrowing.

To some extent, what has happened can be tied to changes in the nature of the business cycle and how those changes influenced expectations. Put simply, when business cycles become more damped and recessions less frequent and less severe, this will cause financial market participants to take on more risk. This will not appear to be problematic during the expansion stage. But it will make the financial system much more vulnerable when the bust does occur. Occurring with less frequency, the bust will be a bigger surprise to market participants. They will be less well-prepared with the capital buffers and liquidity cushions needed to traverse an adverse economic environment.

The complete breakdown in trust across markets has been remarkable. Essentially, it has gone like this: Even if I think you are a good credit, I am not going to lend to you, because others may not share the same opinion. The problem is if no one else thinks you are good, I may not be able to get my money back if I need it. Conversely, others are not willing to lend to you, even though they think you are a good credit, because they are not convinced that I will do so. The result is that no one lends, financial conditions tighten and this exacerbates the downward pressure on the economy. As economic conditions deteriorate, this undermines the financial strength of the major financial institutions, further reinforcing the downward spiral in confidence.

Another bad dynamic that exacerbated the crisis has been the reluctance of some banks to raise the additional capital they might need should the economic outlook deteriorate sharply. Repeatedly over the past 18 months we have heard—from the GSEs, from the investment banks, from the commercial banks—now is not a good time to raise capital. This desire to postpone capital raising stems, in part, to the fact that bank executives often do not want to dilute the existing shareholders (which, of course, include themselves).

I believe that the management calculus has often gone like this: In good states of the world, I have enough capital. In bad states of the world, perhaps I don’t. But to raise enough capital to guarantee I can endure all the potential bad states of the world, I will have to massively dilute my existing shareholders now. So the
self-interested thing to do is to avoid the dilution and hope for a good state of the world.

This does not always work well in practice. Once capital preservation becomes paramount, deleveraging intensifies and counterparties grow more wary about engaging. This dynamic, in turn, makes a bad state of the world more likely. What may be sensible for each institution individually, may collectively be a bad idea. That is because each firm does not internalize the cost that their decision not to raise capital has on the overall financial system.

A healthy banking system is always essential. But never has that been more true right now given what has happened to the securitization markets and the broad “shadow” banking system.

So where are we now?

In my view, the deleveraging process is still far from complete. Hedge fund redemptions have soared. It would not be surprising that when we’re done, hedge fund assets (before leverage) will have fallen in half or more from their peak of about $2 trillion. Of course, the Madoff scandal and other episodes of misappropriated funds have further undermined confidence, reinforcing the redemption pressure.

Most importantly, the pressure on the financial system has been exacerbated by the deterioration in the economic outlook following the Lehman failure. Before last fall, the causality ran mostly from the turmoil in the financial system to the real economy. Since then, the real economy has contracted sharply and this has reinforced the balance sheet pressure on banks and the forced deleveraging process.

So where do we go from here?

Well fortunately, it is not all bad news—there are a number of programs that have been enacted that have already made a difference. And several new initiatives are being enacted now that should help to support and bolster the financial system.

Those areas where the Federal Reserve and the Federal government have responded in force are doing somewhat better. Banks and dealers have plenty of access to liquidity. The Term Auction Facility or TAF—in which funds are auctioned off to banks—and the Term Securities Lending Facility or TSLF—in which auctions are held to borrow Treasuries from the Federal Reserve—have recently been undersubscribed, indicating that the facilities have been sufficiently sized to meet the demand for liquidity. The FDIC has also guaranteed bank and bank holding company funding through its Temporary Guarantee Liquidity Program. As a result, bank term funding spreads have narrowed a bit this quarter.

However, while the Federal Reserve can provide liquidity to the banks and dealers and the FDIC can reduce counterparty concerns via its guarantee program, these steps cannot force banks and dealers to on lend these funds to their customers.

This is where several new initiatives may show the way forward.

First, the Federal Reserve has begun to bypass the banks and dealers, which are balance sheet constrained, and instead has begun to provide liquidity directly to borrowers. One of these programs, the Commercial Paper Funding Facility or CPFF has been up and running since late October.

Under the terms of the CPFF, the Federal Reserve offered to purchase A1-P1 rated commercial paper at 84-day maturity from issuers. Although A1-P1 rated paper is the highest quality stuff, it makes up almost all of the CP market. The only catch is that the CPFF will only buy at rates that are quite high compared to the rates one would expect in the market during normal times. The Fed has to charge a high rate and up-front fees to provide some equity in the fund to offset potential credit losses.

This facility has worked extremely well in restoring market function in the commercial paper market. Initially, there was a surge of issuance into the facility. Commercial paper rates in the market were high and the issuers wanted to extend the maturity of their obligations. But since that time, purchases have slowed sharply. Following the introduction of the CPFF, commercial paper rates in the marketplace dropped below the rates charged by the CPFF. As a result, issuance into the program has collapsed because many issuers can now raise funds more cheaply in the private market. About half of the maturing paper in the CPFF has not been rolled over. As a result, the amount of CPFF holdings, which peaked at around $350 billion in mid-January, has fallen by over $100 billion, to below $250 billion. To date at least, the CPFF has worked as planned and has been very successful in rehabilitating the commercial paper market.

Second, the Term Asset-Backed Security Loan Facility or TALF will provide balance sheet capacity directly to investors beyond the banking and dealer community. This program is designed to restart the securitization markets.

The TALF is being rolled out in two stages. In the first stage, which I’ll call TALF Version 1.0, the Federal Reserve will provide non-recourse loans to investors against AAA-rated consumer asset-backed securities collateral. Primary dealers will serve as the contact point with these investors to make it easier for the Fed to interface with potentially hundreds of investors.

The AAA-rated securities eligible as collateral for this non-recourse lending program are used to fund a wide variety of consumer and business loans, including student , credit card, auto and small business administration loans. The market for these securities had dried up because the traditional investors in these securities—SIVs, bank-related conduits and securities lenders—have either disappeared or are balance sheet constrained. This has reduced the availability of credit for consumers and led to higher borrowing costs.

The first subscriptions for financing under TALF Version 1.0 will occur on March 17. The first batch of new securitizations will be funded on March 25.

TALF Version 2.0 will follow. This will broaden the TALF into new asset classes such as Commercial Mortgage Backed Securities. Development of this phase is still in its early days. But it anticipated that the size and scope of TALF will expand sharply in the months ahead.

So how will the TALF restart securitization activity and provide balance sheet capacity to the private sector? By providing leverage and 3-year term, non-recourse financing to investors, the TALF should increase the demand for AAA-rated securitizations. Yields of LIBOR + 400 basis points may not be sufficiently attractive on an unleveraged basis, but at 10 times leverage the returns become very attractive.

The non-recourse nature of the loans is also important. If the price of the security falls considerably, the investor just loses an amount equal to size of the haircut. For example, if the haircut was 10% and the value of the security was $100, the most the investor could lose would be $10. Thus, the facility eliminates much of the downside risk that would arise from a very deep recession or the fire sales of assets that could cause prices to drop sharply temporarily.

This is a very exciting program because it provides balance sheet capacity to risk capital that cannot currently get leverage. It goes beyond current programs. Just as important, once it is up and running it can be scaled up and out in many different dimensions. In principle, it could be applied to other distressed asset classes, it could move down the credit spectrum to lower-rated tranches, and it could be used to fund older vintage assets.

Two other important initiatives are also in train that deserve note.

Last week the Treasury and the major banking supervisors announced the details of a capital stress assessment process for all bank holding companies with assets in excess of $100 billion. This process is designed to ensure that the banking system has sufficient, high-quality capital to be able to absorb the losses that would likely be generated by an economic scenario considerably worse than generally expected. The stress assessment assumes an adverse economic environment. For example, under this scenario, the unemployment rate is anticipated to average more than 10% in 2010, considerably higher than the consensus economic forecast.

The stress assessment will unfold in three steps. First, each bank holding company will be asked to evaluate the credit losses that are likely to occur under an adverse economic environment. These losses would then be evaluated relative to the bank holding company’s ability to absorb those losses.

Second, if this analysis indicated that the banking organization was likely to fall short of well-capitalized in the stress environment, the bank holding company would be able to obtain additional capital via mandatory convertible preferred stock purchased by the Treasury.

Third, if the stress scenario were actually to occur, generating losses that depleted common equity capital below what is deemed adequate, then the mandatory convertible preferred would be available to be converted into common equity. The government’s mandatory convertible preferred investment is, in some sense, contingent capital that is available to be converted into common equity only as needed.

I believe this program is very important if we are to break the adverse dynamic that I outlined early. As I mentioned earlier, many bank holding companies don’t have an incentive to raise sufficient capital to ensure that they can handle a very bad outcome. That is because such capital-raising would severely dilute existing shareholders. This implies that, left to their own devices, banks might end up being undercapitalized in a stress environment. The risk of this outcome makes these banks (and their counterparties) very cautious in terms of their behavior. This cautiousness, which is rational for each bank and counterparty individually, is bad for the system because it constrains the supply of credit and results in tighter financial conditions. This, in turn, makes the bad economic outcome more likely.

The stress assessment regime that is being implemented should help to break this dynamic. Banking institutions will end up with sufficient capital to withstand even an adverse environment. This should reassure banks and investors that the banking system will remain resilient. With more capital in place, more lending should take place. This, in turn, should reduce the likelihood that the bad economic scenario will, in fact, be realized. The result: a virtuous rather than a vicious circle!

The point of the stress assessment is not to pick winners or losers, but instead to ensure that the banking system and all the major banks have sufficient capital to withstand a very adverse environment. Following the conclusion of the stress assessment process, the government is committed to supplying whatever amount of capital is needed to ensure that all the major banks will remain viable.

The second major initiative that deserves mention is the PPIF or Public-Private Investment Fund. This facility, which would be underpinned by TARP capital and private capital, would purchase illiquid, legacy assets. Although the terms and conditions of the PPIF have not yet been announced, this facility should help put a floor under the prices of lower-quality assets and provide a means for banks to shed such assets from their balance sheets.

Despite all these efforts, I don’t want to give you the impression that all will be well soon—that seems unlikely. It will take time for the deleveraging process to come to an end and, as the recent employment data have underscored, the economy has considerable momentum to the downside. But the Federal Reserve is prepared to do whatever it takes, within the bounds of its legal authority, to keep markets working and credit available and affordable.

Finally, what are the lessons to be learned from this crisis? What do we need to fix in order to make our financial system more robust and our economy less vulnerable? Let me offer up a short list of seven areas that we might focus on—recognizing that this list is by no means complete or exhaustive.

• We need more transparency and homogeneity in securities. The difficulty in valuing opaque and heterogeneous securities has led to greater illiquidity, price volatility and market risk, bigger haircuts and more forced deleveraging. Opacity has also led to an undue reliance on credit ratings.
• We need central counterparties or CCPs for over-the-counter derivatives in order to reduce settlement risk. To do this properly, we will have to work with international supervisors, regulators, and governments to achieve global solutions. On this score, lots of progress has been made in the credit default swap space—with several new CCPs likely to be up and running in months, if not weeks. But we can do much more in this area.
• We need an accounting and disclosure regime that allows investors to meaningfully ascertain the risks they are taking. For example, the same assets are often carried on different bank books at different prices. If you can’t trust the valuation marks on the assets, how robust can confidence be in the ability of the financial system to withstand stormy weather?
• We need a resolution mechanism for bank holding companies and non-bank financial institutions—legislation is needed here. Judging from the actions of the past year, there are indeed institutions that are “too big to fail”, at least in certain circumstances. Let’s set up a resolution framework that is robust and transparent so everyone understands the rules of the road and likely outcomes beforehand. An ad hoc approach increases uncertainty and reduces policymaker credibility.
• If large systemically important institutions are indeed too big to fail, then there needs to be an explicit quid pro quo for this. Otherwise, this implicit support will create moral hazard and discriminate against smaller institutions. In particular, important institutions cannot be allowed to stay outside in the sun during good times, but allowed to come inside the regulatory net when it is raining.
• We need a more robust capital regime for banks. Measures of regulatory capital lag far behind the real-time market-based measures of capital and risk. Moreover, the capital regime is procyclical. Banks are constrained in the amount of reserves they can build in good times as a buffer against cyclical downturns. Finally, banks balk at cutting dividends to conserve capital or replenishing the capital they sorely need in the middle of crisis. These incentives reinforce the downward pressure on the financial system during times of stress.
• We need a more effective regulatory system. We need a systemic risk authority that has both the responsibility and the powers to look across the entire financial system—both depository institutions and the capital markets. Our regulatory regime is incredibly balkanized, which makes coordination difficult and means that important information can fall between the cracks. It also leads to less accountability for supervisory shortcomings and failures, which is another area where we have to do better.

This list is just a hint of the agenda that lies ahead. We need to put our financial system into the repair shop for intensive reconstruction. We need to do this in order to rebuild confidence and to ensure that we do not repeat the type of financial boom and bust that has characterized this cycle.

Thank you very much for your kind attention, I would be happy to take questions.

Espen Eckbo: 02-10-09 Economist of the Day

We choose Espen Eckbo as our Economist of the Day. Espen is the Tuck Centennial Professor of Finance and the Founding Director,  Center for Corporate Governance at Dartmouth College.

Espen Eckbo

Contact Information
B. Espen Eckbo
Tuck Centenial Professor of Finance
Founding Director, Center for Corporate Governance

b.espen.eckbo@dartmouth.edu

+1-603-646-3953 Tel
+1-603-646-3805 Fax

Tuck School of Business
Dartmouth College
Hanover, NH 03755 USA

www.tuck.dartmouth.edu/eckbo

Beth Perkins
Academic Coordinator for Professor Eckbo & Professor Karin Thorburn
Center Administrator for the Center for Corporate Governance

beth.l.perkins@dartmouth.edu

+1-603-646-3412 Tel
+1-603-646-9086 Fax

Biographical Sketch

B. Espen Eckbo, born in Norway, is the Tuck Centennial Professor of Finance and founding director for the Center for Corporate Governance at the Tuck School of Business at Dartmouth. He received his Ph.D at the University of Rochester (USA) in 1981 and was Professor of Finance at the University of British Columbia (Canada) from 1981 to 1996. He held chaired professorships at the Norwegian School of Management, 1993-94, and at the Stockholm School of Economics, 1996-1998, and he has been a visiting professor at MIT, UCLA, INSEAD, Vanderbilt University, and the Norwegian School of Economics and Business Administration.

He received the prestigious Batterymarch Fellowship in 1987, and has been awarded large competitive research grants from various national research councils. Professor Eckbo conducts research in corporate finance and capital markets, with emphasis on investment banking, corporate governance, mergers and acquisitions, and portfolio management and performance evaluation. He publishes regularly in top finance journals, and is a founding co-editor of the European Finance Review, the journal of the European Finance Association. He is currently a director the Norwegian Research Council, and a former director of the European Finance Association and the American Financial Management Association.

Dr. Eckbo’s business experience includes performing contract research for U.S., Canadian and Norwegian government agencies; serving as expert witness in cases involving corporate governance and insider trading issues. He chaired the investment committee of the University of Oslo’s endowment fund 1997-1998, and he has been an advisor to the to the trade association of the largest mutual funds in Norway. He is currently a member of the board of directors of an index fund in Oslo.

Some of Professor Eckbo’s course offerings are shown here.

Click on the course title to access the most recent course syllabus.

International Corporate Governance

MBA 2nd year elective

This course debates corporate governance systems and practices around the world. We begin with the fundamentals of law and finance: how a country’s legal system affects cost of capital and financial development. We then move more specifically to conflict resolution between the various constituencies of the firm, including incentive alignment between owners (shareholders) and their representatives (board and management), and the need to protect fundamental shareholder rights. There is a growing recognition of the need for reforms that reduce shareholder costs of monitoring management. Proposed reforms include greater transparency in issues ranging from accounting standards to executive pay and to corporate social responsibility. There is also a strong movement, especially among pension- and hedge funds, to reform fundamental shareholder rights. Proposals include simplified board election processes, and enhanced opportunities for binding shareholder resolutions at the general meeting. Collectively, these proposals radically alter the balance of power between shareholders and corporate insiders. Corporate insiders often resist reforms that bring shareholders “too close” to the firm’s decision making processes. The course brings out this controversy through a combination of lectures, academic readings and in-class debate with industry leaders.

Advanced Corporate Finance

MBA 2nd year elective

This course addresses important empirical regularities in corporate finance, governance and control. The course readings survey large-sample empirical research, occasionally using cases as an illustrative backdrop. We start with takeovers and corporate control transactions, debating evidence on optimal bidding strategies and on the conflicts of interests underlying attempts by target managements to eliminate unwanted (hostile) bids. We then address the effect of information asymmetries on firms’ capital structure choice and on various mechanisms for raising capital. Do corporate insiders time security issuances, and what is done to deal with the potential for such timing? Why do we see substantial underpricing of initial public offerings of stock (IPOs) and how is it possible to minimize this particular issuance cost? What does the emerging “behavioral” finance field have to say about these and other corporate finance issues? Third, the course discusses the design of optimal bankrupt procedures and empirical evidence on issues such as fire-sales and conflicts of interests in bankruptcy. Finally, given the central role of managerial incentives in corporate finance, we debate the executive compensation controversy, including shareholder demands for “say on pay” and other types of engagements.

			Click here to download course material.The area is restricted and requires a username and password.

Corporate Finance

AFA-Module 7

Part-time MBA Course

This intensive 3-day course covers central topics in corporate finance. It starts with the use of options pricing techniques to value flexibility in the firm’s investment projects, and to value risky debt when total firm value is known. It continues with a review of classical capital structure theory (the trade-off between tax benefits and bankruptcy costs), and debates the effects of alternative bankruptcy systems on the expected cost of default. The discussion of capital structure choice also covers optimal security design, ex planning the use of complex debt covenants. Next, the course covers investment banking and the capital acquisition process. We examine the cost-effective solutions to external financing problems, and we review recent large-sample evidence on IPO Underpricing and the long-run performance of security issues. The course ends with corporate finance issues in the context of M&As and corporate restructurings

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Corporate Finance,
Restructuring and Governance

Executive MBA Course

This intensive seven-day course exposes participants to key issues in corporate finance and restructurings, as well as to the ongoing debate over corporate governance and investor protection. These issues are particularly relevant for executives, directors, and policy makers in both the financial and industrial sector. We provide practical tools for financial decisions and valuation, and participants are exposed to financial and strategic issues surrounding corporate restructuring techniques, IPOs, and takeovers. The course is highly intensive, with daily workloads of 8-9 hours. Each day consists of a mix of lecturing, case discussions, and case preparations in groups. As much as possible, groups are formed to obtain a mix of individuals with different expertise. Case assignments include valuation exercises as well as discussions of strategic and financial issues. A workshop is provided to refresh and explain basic valuation techniques needed for case solving.

			Click here to download course material. The area is restricted and requires a username and password.

Asset Pricing and Portfolio Management

AFA-Module 6

Part-time MBA Course

This intensive 3-day course covers topics including market efficiency, basic theory of portfolio selection, mean-variance efficient portfolios, capital asset pricing (two-fund) theory, arbitrage pricing theory (multifactor pricing), empirical identification of pervasive risk factors, fund performance evaluation, and basic market micro-structure issues. The format is a combination of lecture notes, examples, discussion of journal articles, and exercise of factor analysis using real-world time series. Performance evaluation is illustrated using portfolios of IPO stocks, insiders’ stock holdings, and mutual funds.

			Click here to download course material. The area is restricted and requires a username and password.

Topics in Corporate Finance (PhD)

Part II surveys important empirical regularities in corporate finance. There are five main themes:

• Performance econometrics: event study techniques and portfolio performance evaluation procedures used to infer valuation impacts of corporate actions.
• Raising capital:  how transaction costs and asymmetric information between the firm and outside investors affects firms’ ability to raise cash in public securities markets and issuers’ choice of flotation method in both seasoned (SEO) and initial (IPO) public offerings of equity.
• Capital structure and bankruptcy: how the structure of financial securities helps reduce agency costs and resolving managerial incentives to over- or under-invest, and a comparison of auctions and negotiations in bankruptcy.
• Corporate takeovers: valuation effects of takeover activity, sources of takeover gains, and empirical investigations of optimal bidding theories for competition preemption, the payment method (cash versus stock), and bidder toeholds in the target.
• Corporate Governance: evolution of governance systems around the world, the role of the board and board election procedures, executive compensation, the return to shareholder activism and governance investing.

Professor Eckbo’s working papers, work in progress, books, and selected publications are below. For the full list of publications, please see Publications in the Vitae.

Books

Eckbo, B. Espen (ed.), Handbook of Corporate Finance: Empirical Corporate Finance, Volume 2, (Elsevier/North-Holland Handbook of Finance Series), ISBN-13: 978-0-444-53090-5, 2008.

B. Espen Eckbo (ed.), Handbook of Corporate Finance: Empirical Corporate Finance, Volume 1, (Elsevier/North-Holland Handbook of Fiannce Series), ISBN-13: 978-0-444-50898-0, 2007.

B. Espen Eckbo (ed.), Handbook of Corporate Finance: Corporate Governance (Elsevier/North-Holland/Handbooks in Finance Series), ISBN 0-444-51117-2, 2004

Working Papers

“Creditor Pre-filing Actions, Asset Dispositions and CEO Wealth Effects of Bankruptcy,” with Karin S. Thorburn, 2008.

“Markup Pricing Revisited”, with Sandra Betton and Karin S. Thorburn, 2008

• http://ssrn.com/abstract=1094946

“The Choice of Seasoned-Equity Selling Mechanism: Theory and Evidence”, with Øyvind Norli, 2005.

• http://ssrn.com/abstract=635649

“Pervasive Liquidity Risk”, with Øyvind Norli, 2002

• http://ssrn.com/abstract=996069

“Chapter 11 Targets,” with Karin S. Thorburn

“Bidder Returns and the Source of Cash-Financing in Takeovers,” with Sandra Betton, Karin S. Thorburn, and Melissa Toffanin.

“Effects of Industry Competition on Deal Structure, Offer Premiums, and Bidder Gains in Takeovers,” with Sandra Betton and Karin S. Thorburn.

“Initiating takeovers,” with Øyvind Norli and Karin S. Thorburn

“CEO Compensation, Pay-Performance Sensitivity and Total Executive Wealth,” with Darius Palia and Karin S. Thorburn

Publications

“Merger Negotiations and the Toehold Puzzle”, with Sandra Betton and Karin S. Thorburn, Journal of Financial Economics, forthcoming.

• Best conference paper runner-up, European Finance Association 2006 Meetings.

“Bid Strategies and Takeover Premiums: A Review,” Journal of Corporate Finance, 15, 149-178, 2009.

“Creditor Financing and Overbidding in Bankruptcy Auctions”, with Karin S. Thorburn, Journal of Corporate Finance, 15, 10-29, 2009.

• Best Paper award, Journal of Corporate Finance

“Equity Issues and the Disappearing Rights Offer Phenomenon,” Journal of Applied Corporate Finance, 20 (4), 1-14, 2008.

“Automatic Bankruptcy Auctions and Fire-Sales”, with Karin S. Thorburn, Journal of Financial Economics 89, 404-422, 2008.

• Available as Tuck School of Business Working Paper 2007-36, and at SSRN: http://ssrn.com/abstract=963184

“Corporate Governance – i et Nøtteskall”, Penger og Kreditt 34 (publication of the Norwegian Central Bank), 87-99, 2006.

• PDF file available here

“Liquidity Risk, Leverage and Long-Run IPO Returns”, with Øyvind Norli, Journal of Corporate Finance, 11, 1-35, 2005

“Control Benefits and CEO Discipline in Automatic Bankruptcy Auctions,” with Karin S. Thorburn, Journal of Financial Economics, 69, 227-258, 2003.

“Toeholds, Bid-jumps, and Expected Payoffs in Takeovers”, with Sandra Betton, Review of Financial Studies 13, 841-882, 2000.

• Received Barclays Global Investors/Michael Brennan Prize for the Best Paper in the Review of Financial Studies in 2000.
• Reprinted in Mulherin, Harold and Lorraine Freeberg, Mergers and Corporate Governance, (Business Economics Series, Edward Elgar Publishing Ltd), forthcoming.

“Seasoned Public Offerings: Resolution of the ‘New Issues Puzzle’”, with Ronald W. Masulis and Øyvind Norli,Journal of Financial Economics 56, 251-291, 2000.

“Gains to Bidder Firms Revisited: Domestic and Foreign Acquisitions in Canada”, with Karin S. Thorburn,Journal of Financial and Quantitative Analysis 35, 1-25, 2000.

“Are Mandatory Bankruptcy Auctions More Efficient?”, with Karin S. Thorburn, in B. Green (ed.), Risk Behavior and Risk Management in Business Life Kluwer Academic Publishers, 288-295, 2000.

“The Conditional Performance of Insider Trades”, with David C. Smith, Journal of Finance 53, 467-498, 1998.

• Smith-Breeden Prize Nominee for Best Paper in the Journal of Finance

“Pensjonsfond: Porteføljevalg, Avkastning og Risiko”, Norsk Offentlig Utredning (NOU 1998:10, vedlegg 3), 324-360, 1998.

“Bedriftsoppkjøp og Verdiskapning”, in K. Boye and C. B. Meyer (eds.), Fusjoner og Oppkjøp, (Cappelen Akademiske Forlag, Oslo),44-278, 1998.

Eckbo, B. Espen, “Aktiv Eller Passiv Fondsforvaltning?”, Praktisk Økonomi og Ledelse, no 1, 7-17, 1998.

“Why Underwrite Rights Offers? Some New Evidence”, with Øyvind Bøhren, and Dag Michalsen, Journal of Financial Economics 46, 223-261, 1997.

“Comment on “Determinants of Intercorporate Shareholdings”, European Finance Review 1, 289-293, 1997.

“Seasoned Equity Offerings: A Survey”, with Ronald W. Masulis, in R. Jarrow, V. Maksimovic and B. Ziemba (eds.) Finance North-Holland, Series of Handbooks in Operations Research and Management Science, 1017-1072, 1995.

“Managerial Shareownership, Voting Power, and Cash Dividend Policy”, with Savita Verma, Journal of Corporate Finance 1, 33-62, 1994.

Temporary Components of Stock Prices: New Univariate Results”, with Jian Liu, Journal of Financial and Quantitative Analysis 28, 161-176, 1993.

Omfang og Lønnosomhet av Bedriftsoppkjøp”, in Omstrukturering av Føretak, Nordiska Skattevetenskapliga Forskningsrådets Skriftserie, NSFS 29, Iustus Forlag, 291-336, 1993.

“Adverse Selection and the Rights Offer Paradox”, with Ronald W. Masulis, Journal of Financial Economics 32, 293-332, 1992.

• Reprinted in M. Levis (ed.), 1995, Empirical Issues in Raising Equity Capital, (North-Holland series in Advances in Finance, Investment Banking).

“Mergers and the Value of Antitrust Deterrence”, Journal of Finance 47, 1005-1029, 1992.

“Acquisitions”, in The New Palgrave Dictionary of Money and Finance, Macmillan Press, London, 10-13, 1992.

“Costs of Equity Issuance”, with Ronald W. Masulis, in The New Palgrave Dictionary of Money and Finance, Macmillan Press, London, 496-499, 1992.

“Mergers, Concentration, and Antitrust”, in C. Wihlborg, M. Fratiani, and T.D. Willett (eds.), Financial Regulation and Monetary Arrangements after 1992, North-Holland, Contributions to Economic Analysis Series, chap. 6, 123-143, 1991.

“Anatomy of a Takeover Defense: The Southam-Torstar Standstill Agreement”, Canadian Investment Review 4 (Fall), 73-78, 1991.

“Bedriftsoppkjøp og Internasjonalisering: Norge og Europa i 1980-årene”, Beta 5, 1-30, 1991.

“Valuation Effects of Greenmail Prohibitions”, Journal of Financial and Quantitative Analysis 25, 491-505, 1990.

“Asymmetric Information and the Medium of Exchange in Takeovers: Theory and Tests”, with Ronald Giammarino and Robert Heinkel, Review of Financial Studies 3, 651-675, 1990.

“Consistent Estimation of Cross-Sectional Models in Event Studies”, with Vojislav Maksimovic and Joseph Williams, Review of Financial Studies 3, 343-365, 1990.

“Competition and Wealth Effects of Horizontal Mergers”, in F. Mathewson, M. Trebilcock and M. Walker (eds.), The Law and Economics of Competition Policy , The Fraser Institute, Vancouver, chap. 9, 297-332, 1990.

“Information Disclosure, Means of Payment, and Takeover Premiums: Public and Private Tender Offers in France”, with Herwig Langohr, Journal of Financial Economics 24, 363-403, 1989.

• Reprinted in Deborah Miller and Stewart Meyers (eds.), 1990, Frontiers of Finance: The Batermarch Fellowship Papers, chi. 20, (Basil Blackwell: New York).
• Reprinted in A. Cosh and A. Hughes (eds.), 1998, Takeovers, (The International Library of Management, Vol II), (Dartmouth Publishing Company, Ltd.) ch. 21.

“The Role of Stock Market Studies in Formulating Antitrust Policy Towards Horizontal Mergers”, Quarterly Journal of Business and Economics 28, 22-38, 1989.

“The Market for Corporate Control: Policy Issues and Capital Market Evidence”, in R.S. Khemani, D. Shapiro and W.T. Stanbury (eds.), Mergers, Corporate Concentration and Corporate Power in Canada,M (The Canadian Institute for Research on Public Policy, Montreal), chap. 7, 143-225, 1988.

“Markedet for Selskapskontroll: En Oversikt over Internasjonale Empiriske Forskningsresultater”, Beta 1, 54-89, 1987.

Eckbo, B. Espen and Peggy Wier, “Antitrust Policy Towards Mergers: Misguided Intervention Prevents Efficiency Gains”, Simon Management Review,(Summer), 1-5, 1987.

“Mergers and the Market for Corporate Control: The Canadian Evidence”, Canadian Journal of Economics 19, 236-260, 1986.

• Received the Harry F. Johnson Prize of the Canadian Economics Association for the best paper published in the Canadian Journal of Economics

“Valuation Effects of Corporate Debt Offerings”, Journal of Financial Economics 15, 119-151, 1986.

“Mergers and the Market Concentration Doctrine: Evidence from the Capital Market”, Journal of Business 58, 325-349, 1985.

• Reprinted in P. A. Gaughan (ed.), 1993, Readings in Mergers and Acquisitions, (Basil Blackwell: New York).
• Reprinted in A. Cosh and A. Hughes (eds), 1998, Takeovers (The International Library of Management, Vol I), (Dartmouth Publishing Company Ltd.), ch. 18.

Eckbo, B. Espen and “AntimergerPolicy under the Hart-Scott-Rodino Act: A Re-Examination of the Market Power Hypothesis”, with Peggy Wier, Journal of Law and Economics 28, 119-149, 1985.

• Reprinted in F.S. McChesney and W.F. Shughart II (eds.), 1995, The Causes and Consequences of AntiTrust, ch. 9, (The University of Chicago Press: Chicago.)

“Horizontal Mergers, Collusion and Stockholder Wealth”, Journal of Financial Economics 11, 241-273, 1983.

Graduate School of Management, University of Rochester, New York, PhD (Finance and Economics), May 1981

Graduate School of Management, University of Rochester, New York, MSc (Finance and Economics), May 1980

Norwegian School of Economics and Business Administration, MSc (Economics and Finance), May 1977

Norwegian School of Economics and Business Administration, BSc (Economics), May 1975

Professorships

Tuck School of Business at Dartmouth, USA: 1998 –
Tuck Centennial Chair in Finance
Founding Director, Center for Corporate Governance

Stockholm School of Economics, Sweden: 1996-1998
Gösta Olson Chair in Finance

University of British Columbia, Canada: 1981-1996
Professor of Finance 1992-1996
Associate Professor of Finance (with tenure) 1987-1992
Assistant Professor of Finance 1981-1987

Visiting Professorships

Sloan School of Management, MIT, 2001-2002 (taught PhD course)
Owen Graduate School of Management, Vanderbilt University, winter 1997
Norwegian School of Management (BI), 1993-1994
Norwegian School of Economics (NHH), Professor II (adjunct) 1990– (taught PhD Courses)
INSEAD, spring 1987
Graduate School of Management, UCLA, 1985-1986

Awards and Distinctions

Paper awards

Best Paper, Journal of Corporate Finance, 2009: “Creditor Financing and Overbidding in Bankruptcy Auctions” (with Karin S. Thorburn).

Runner-up award for best conference paper presented at the 2006 meetings of the European Finance Association: “Merger Negotiations and the Toehold Puzzle” (with Sandra Betton and Karin S. Thorburn), August 2006.

All Star Paper, Journal of Financial Economics,1983, “Horizontal Merger, Collusion, and Stockholder Wealth” (2001).

All Star Paper, Journal of Financial Economics, 1986, “Valuation Effects of Corporate Debt Offerings” (2001).

Barclays Global Investors/ Michael Brennan Prize for Best P in the Review of Financial Studies, 2000: “Toeholds, Bid Jumps, and Expected Payoffs in Takeovers,” (with Sandra Betton).

Smith-Breeden Prize Nominee for Best Paper in the Journal of Finance, 1999, “The Conditional Performance of Insider Trades,” (with David Smith).

Harry G. Johnson Prize for Best Paper in the Canadian Journal of Economics, 1986, “Mergers and the Market for Corporate Control: The Canadian Evidence”.

Fellowships

Research Associate, European Corporate Governance Institute (ECGI), 2002-

Research Fellow of the Center For Economic Policy Research (CEPR), London, 1999-2005

Batterymarch Fellow (worldwide competition), 1987

Other

Keynote speaker, 2008 meetings of the French Finance Association, Lille, France.

Keynote speaker, Conference on the Market for Corporate Control Regulation and Corporate Governance Issues, University of Lille 2, Lille, France, March 2007.

Keynote speaker, Conference on Mergers and Acquisitions, Xfi Centre for Finance and Investment at the University of Exeter (UK) , December, 2005.

Keynote Speaker, The 2005 City University of Hong Kong Corporate Finance and Governance Conference, May, 2005.

Honorary Master of Arts, Dartmouth College, 2000.

Research Scholar, School of Business, Indian University, October 1996.

Prize for Excellence in Research, awarded by the Faculty of Commerce, University of British Columbia, 1986.

Grants

Norwegian Research Council: annually, 1992-2001
Norwegian Ministry of Finance: 1991, 1997
Swedish Ministry of Justice: 1999-2002
Social Sciences and Humanities Research Council of Canada: 1984-87,
1989-92
Government of British Columbia: 1984, 1987-90
Government of Canada (Bureau of Competition Policy): 1984, 1988
U.S. Federal Trade Commission: 1984

Boards

Business and Research Councils

Member, Advisory Board, Center for Leadership and Governance, America’s Health Insurance Plans, 2006-

Member, Corporate Governance Group, Norges Bank Investment Mangement, 2005-06

Member, Academic Council, Corporate Boardmember Magazine, 2000-

Director, IndexSpar (equity index fund), Oslo, Norway, 2000-05 (fund merged)

Founding Director, Center for Corporate Governance, Tuck School of Business, 1999-

Chairman, Investment Committee of UNIFOR (University of Oslo Endowment Fund), 1997-98

Director, Program on Economic Crime, Norwegian National Research Council, 1996-2002

Academic Journals

Founding Co-Editor: Editor:

Founding co-editor, European Finance Review (the journal of the European Finance Association), 1997-2003 (journal renamed the Review of Finance in 2003)

Current Associate Editor:

European Financial Management, 2006 –
Review of Finance, 2003 –
Finance Research Letters, 2003 –
Finance India, 1998 –
Journal of Corporate Finance, 1994 –
Journal of Empirical Finance, 1994 –

Former Associate Editor:

Review of Financial Studies, 1999-2002
Journal of Financial Research, 1993-2000
Financial Management, 1990-1997
Canadian Investment Review, 1988-96
Advisory Editor, Journal of Economics and Business, 1987-96

Advisory Editor

Handbooks in Finance (North-Holland/Elsevier Handbook Series), 2007 –

Academic Associations

Director, Financial Management Association, 2007-
Member, Nominating Committee, American Finance Association, 2000
Member, Nominating Committee, Western Finance Association, 2001
Director, European Finance Association, 1996-99

Steven Neil Kaplan: 02-07-09 Economist of the Day

We choose Steve Kaplan as the Economist of the Day. Steve is the Neubauer Family Professor of Entrepreneurship and Finance.

Steve Kaplan

Contact Information

5807 South Woodlawn Avenue
Chicago, IL 60637-1610
steven.kaplan@ChicagoBooth.edu
(773) 702-4513

Short Biography

Steven Neil Kaplan conducts research on issues in private equity and entrepreneurial finance, corporate governance, mergers and acquisitions, and corporate finance. He has published papers in a number of academic and business journals. He has testified to the U.S. Senate Finance Committee and the U.S. House Financial Services Committee about his research.Kaplan is a research associate at the National Bureau of Economic Research and an associate editor of the Journal of Finance and the Journal of Financial Economics.

Kaplan teaches advanced MBA and executive courses in entrepreneurial finance and private equity, corporate financial management, corporate governance, and wealth management. He has been one of the top-rated teachers at Chicago Booth in Business Week’s bi-annual surveys since 1992. BusinessWeek named him one of the top 12 business school teachers in the country. [my emphasis]

Kaplan serves on the board of directors of Accretive Health, Columbia Acorn Funds, and Morningstar. He also serves as a director of the Illinois Venture Capital Association and the University of Chicago Laboratory Schools, and as the academic dean of the Kauffman Fellows Program, an educational and mentoring program for new venture capitalists. He has been a member of the faculty since 1988.

He received his AB, summa cum laude, in Applied Mathematics and Economics from Harvard College and earned a PhD in Business Economics from Harvard University.

Teaching

Entrepreneurial Finance and Private Equity 2008(Fall); Special Topics in Entrepreneurship: Developing a New Venture (New Venture Challenge) 2009(Spring)

Recent Presentations

“How Big a Problem Is U.S. Corporate Governance?”, September 2006

“Should You Bet on the Jockey or the Horse? Or What Are Firms? Evolution from Early Business Plan to Public Companies” , with Berk Sensoy and Per Strömberg, July 2006

Research Articles with Links

“Which CEO Characteristics and Abilities Matter?” with Mark Klebanov and Morten Sorensen, June 2007.

“Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?” with Josh Rauh, July 2007.

“Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies,” with Berk Sensoy and Per Strömberg, forthcoming, Journal of Finance.

“ How has CEO Turnover Changed? Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs” , with Bernadette Minton, July 2006.

“How Do Legal Differences and Learning Affect Financial Contracts?” , with Frederic Martel and Per Strömberg, January 2006.

“Do Mutual Funds Time Their Benchmarks?” , with Berk Sensoy, November 2005

“Private Equity Performance: Returns, Persistence, and Capital Flows“, with Antoinette Schoar, Journal of Finance, August 2005.

“Characteristics, Contracts, and Actions: Evidence From Venture Capitalist Analyses “, with Per Strömberg, Journal of Finance, October 2004.

“What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies,” with Pekka Hietala and David T. Robinson, Financial Management, Autumn 2003.

“The State of U.S. Corporate Governance: What’s Right and What’s Wrong?“, with Bengt Holmström, Journal of Applied Corporate Finance, Spring 2003.

“Financial Contracting Theory Meets the Real World: Evidence From Venture Capital Contracts,” with Per Strömberg. Review of Economic Studies, April 2003.

“How well do venture capital databases reflect actual investments?“, with Berk Sensoy and Per Strömberg, September 2002.

” Valuation and New Economy Firms“, in Asset Price Bubbles, edited by William Hunter, George Kaufman and Michael Pomerleano, MIT Press, 2003.

” The Effects of Business-to-Business E-Commerce on Transaction Costs“, with Luis Garicano. Journal of Industrial Economics, 2001.

“Corporate Governance and Merger Activity in the U.S“, with Bengt Holmstrom. Journal of Economic Perspectives, Spring 2001.

“A framework for analyzing B2B e-commerce“, with Luis Garicano

“B2B E-Commerce Hubs: Towards a Taxonomy of Business Models,” with Mohanbir Sawhney. Harvard Business Review, 2000.

“The Emerging Landscape of Business to Business E-Commerce“, with Mohanbir Sawhney. Business 2.0, 1999.

“How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed,” (with Gregor Andrade), Journal of Finance, Volume 53, (October 1998), 1443-1494. (Lead Article). Awarded Smith Breeden prize for First Prize Paper in 1998.

“A Clinical Exploration of Value Creation and Destruction in Acquisitions: Integration, Organization Design, and Internal Capital Markets,” with Mark Mitchell and Karen Wruck, in Mergers and Productivity, 1997, Steven Kaplan, editor, National Bureau of Economic Research.

“The Evolution of U.S. Corporate Governance: We are All Henry Kravis Now,” Journal of Private Equity, Fall, 1997, 7-14.

“Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S.,” Journal of Political Economy, Volume 102, No. 3, (June, 1994), 510-546.

“The Value Maximizing Board,” with Robert Gertner, December, 1996.

Working Papers Note: Some of the papers below may overlap the hyperlinked articles above.

Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes with Josh Rauh, September 2006.

How has CEO Turnover Changed Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs, with Bernadette Minton, July 2006.

What are Firms Evolution from Early Business Plans to Public Companies, with Berk Sensoy

How Do Legal Differences and Learning Affect Financial Contracts with Fredric Martel and Per Strömberg, January 2006.

How Well Do Venture Capital Databases Reflect Actual Investments with Berk Sensoy and Per Strömberg, September 2002.

The Value Maximizing Board, with Robert Gertner, December 1996.

The Holding Period Distinction of the Capital Gains Tax, National Bureau of Economic Research Working Paper #762, 1981.

Other Articles

Mergers and Acquisitions: A Financial Economics Perspective, Prepared for the Antitrust Modernization Commission Economist s Roundtable on Merger Enforcement, Winter 2006.

The State of Corporate Governance. (with Bengt Holmstrom), Sloan Management Review, Fall 2003.

Business-To-Business E-Commerce: Value Creation, Value Capture And Valuation, (with Luis Garicano) in The Economics of the Internet and E-Commerce, Michael Baye, ed., volume 11 in Advances in Applied Microeconomics, JAI Press, Elsevier Science, 2002.

U. S. Boards of Directors: Post-Enron, Corporate Board Member, 2002 Special Supplement.

Valuation and New Economy Firms, in Asset Price Bubbles, edited by William Hunter, George Kaufman and Michael Pomerleano, MIT Press, 2003.

B2B E-Commerce Hubs: Towards a Taxonomy of Business Models, with Mohan Sawhney, Harvard Business Review, May-June 2000.

Let s Get Vertical, with Mohan Sawhney, Business 2.0, September, 1999 (Lead article).

How Risky is the Debt in Highly Leveraged Transactions with Jeremy Stein, Journal of Applied Corporate Finance.

Those Japanese Firms with Their Disdain for Shareholders: Another Fable for the Academy,” Washington University Law Quarterly, Volume 74, No. 2, 1996, 403-418.

The Market Pricing of Cash Flow Forecasts: Discounted Cash Flow vs. The Method of Comparables, with Richard Ruback, Journal of Applied Corporate Finance, Volume 8, Number 4, Winter, 1996, 45-60.

Corporate Governance in Germany, Japan, and the U.S.: A Comparison, in Research in International Business and Finance, Volume 12, edited by Larry H.P. Lang. JAI Press, 1995. Reprinted in Journal of Applied Corporate Finance, Volume 9, Number 4, Winter, 1997.

Valuation in Corporate Control Transactions, Proceedings of AIMR Seminar, Equity Analysis: The Role of Corporate Financial Decision Making, 1995.

Corporate Governance and Incentives in German Companies: Evidence From Top Executive Turnover and Firm Performance, European Financial Management, Volume 1, No. 1,March, 1995, 23-36.

Federated’s Acquisition and Bankruptcy: Lessons and Implications , Washington University Law Quarterly, Volume 72, Number 3, 1994, 1103-1226.

Do Mutual Funds Time Their Benchmarks with Berk Sensoy, November 2005.

“The Evolution of Buyout Pricing and Financial Structure (or What Went Wrong) in the 1980s,” with Jeremy Stein, Journal of Applied Corporate Finance, Volume 6, Number 1, Spring, 1993.

The Staying Power of Leveraged Buyouts, Journal of Applied Corporate Finance, Volume 6,

Management Buyouts, The New Palgrave Dictionary of Money and Finance, 1992.

Sources of Value in Management Buyouts, Chapter 4 in Leveraged Management Buyouts, edited by Yakov Amihud (Illinois: Dow Jones-Irwin, 1989).

Books

Mergers and Productivity, Steven Kaplan, editor, National Bureau of Economic Research, 2000.

Cases

SunGard Data Systems, 2005; Community Banking Systems, 2005; Iron Gate Technologies, 2003; Platinum Capital Partners, 2003; Accel Partners, 1999; Cinven and Tiller Foodservices, 1998; Horizon Communications (A) and (B), 1997; Visible Interactive (A) and (B), 1996; Paramount Communications, Inc. — 1994, 1996; Paramount Communications, Inc. — 1993, 1996.

Honors

Smith Breeden Prize, First Prize Paper for Best Paper in Journal of Finance, 1998.

Addison-Wesley Prize for 2nd Best Paper in Autumn, 2002 to Summer, 2004 issues of Financial Management.

Nasdaq Award for best paper on capital formation, Western Finance Association meetings, 2004.

Elected Director, American Finance Association, 1997-1999.

One of top-ranked teachers at GSB, Business Week, 1992, 1994, 1996, 1998, 2000, 2002, 2004.

Named one of top twelve business school teachers in U.S., Business Week, 1994.

Named one of top four business school entrepreneurship professors in U.S., Business Week,1996.

Arthur L. Kelly Faculty Prize, 1999 (for exceptional service beyond teaching and research).

Class of 1999 Phoenix Award (for exhibiting exceptional dedication to the MBA Class of 1999).

Class of 1997 Phoenix Award (for exhibiting exceptional dedication to the MBA Class of 1997).

Selected as one of 40 Under 40 ( the biggest standouts under the age of forty in the Chicago area’s private and public sectors ), Crain s Chicago Business, 1997.

Testified at the U.S. Senate Finance Committee Hearings on Leveraged Buyouts, 1989.

Invited to present paper at 1995 Nobel Symposium on Law and Finance in Stockholm.

Articles Note: Some of the article below may overlap with the Linked-Articles.

Private Equity Performance: Returns, Persistence and Capital Flows, with Antoinette Schoar, Journal of Finance, Volume 60, August 2005.

Characteristics, Contracts, and Actions: Evidence From Venture Capitalist Analyses, with Per Strömberg. Journal of Finance, Volume 59, October 2004, 2177-2210.

What is the Price of Hubris Using Takeover Battles to Infer Overpayments and Synergies, with Pekka Hietala and David T. Robinson, Financial Management, Volume 32, Number 3, Autumn, 2003. Awarded Addison-Wesley Prize for 2nd Best Paper in Autumn, 2002 to Summer, 2004 issues.

The State of U.S. Corporate Governance: What s Right and What s Wrong (with Bengt Holmstrom), Journal of Applied Corporate Finance, Spring 2003, 8-20.

Financial Contracting Theory Meets the Real World: Evidence From Venture Capital Contracts, with Per Strömberg, Review of Economic Studies, Volume 70, April 2003, 281-316.

The Effects of Business-to-Business E-Commerce on Transaction Costs, with Luis Garicano, Journal of Industrial Economics, December, 2001, 463-485.

Corporate Governance and Takeovers in the U.S.: Making sense of the 80s and 90s, with Bengt Holmström, Journal of Economic Perspectives, Spring, 2001, 121-144.

Venture Capitalists As Principals: Contracting, Screening, and Monitoring, with Per Strömberg, American Economic Review Papers and Proceedings, May, 2001.

Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints, with Luigi Zingales, Quarterly Journal of Economics, May, 2000, 707-712.

A Clinical Exploration of Value Creation and Destruction in Acquisitions: Integration, Organization Design, and Internal Capital Markets, with Mark Mitchell and Karen Wruck, in Mergers and Productivity, Steven Kaplan, editor, National Bureau of Economic Research, 2000.

How Costly is Financial (not Economic) Distress Evidence from Highly Leveraged Transactions that Became Distressed, with Gregor Andrade, Journal of Finance, Volume 53, October, 1998, 1443-1494. (Lead article). Awarded Smith Breeden Prize for First Prize Paper in 1998.

The Evolution of U.S. Corporate Governance: We Are All Henry Kravis Now, Journal of Private Equity, Fall, 1997, 7-14.

Do Financing Constraints Explain Why Investment Is Correlated With Cash Flow with Luigi Zingales, Quarterly Journal of Economics, Volume 112, February, 1997, 169-215.

The Valuation of Cash Flow Forecasts, with Richard Ruback, Journal of Finance, Volume 50, September, 1995, 1059-1094.

Appointments of Outsiders to Japanese Boards: Determinants and Implications for Managers, with Bernadette Minton, Journal of Financial Economics, Volume 36, October, 1994, 225-258.

Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S., Journal of Political Economy, Volume 102, June, 1994, 510-546.

Top Executives, Turnover, and Firm Performance in Germany, Journal of Law, Economics, & Organization, Volume 10, April, 1994, 142-159.

Campeau’s Acquisition of Federated: Post-Bankruptcy Results, Journal of Financial Economics, Volume 35, February, 1994, 123-136.

The Evolution of Buyout Pricing and Financial Structure in the 1980s, with Jeremy Stein, Quarterly Journal of Economics, Volume 108, May, 1993, 313-358.

The Success of Acquisitions: Evidence from Divestitures, with Michael Weisbach, Journal of Finance, Volume 47, March, 1992, 107-138.

The Staying Power of Leveraged Buyouts, Journal of Financial Economics, Volume 29, October, 1991, 287-314.

How Risky is the Debt in Highly Leveraged Transactions with Jeremy Stein, Journal of Financial Economics, Volume 27, October, 1990, 215-246.

Outside Directorships and Corporate Performance, with David Reishus, Journal of Financial Economics, Volume 27, October, 1990, 389-410.

Campeau’s Acquisition of Federated: Value Destroyed or Value Added Journal of Financial Economics, Volume 25, December, 1989, 191-212. Reprinted in Financial Statement Analysis edited by Ray Ball and S. P. Kothari (New York: McGraw-Hill, 1994).

The Effects of Management Buyouts on Operating Performance and Value, Journal of Financial Economics, Volume 24, October, 1989, 217-254. Reprinted in Financial Statement Analysis eds., Ray Ball and S. P. Kothari (New York: McGraw-Hill, 1994). Reprinted in Empirical Issues in Raising Equity Capital ed. Mario Levis (London: North Holland 1995).

Management Buyouts: Evidence on Taxes as a Source of Value, Journal of Finance, Volume 44, July, 1989, 611-632.

The Effects of LBOs on Tax Revenues, with Michael Jensen and Laura Stiglin, Tax Notes, Volume 42, February 6, 1989. Reprinted in The High Yield Debt Market ed. Edward Altman (Illinois: Dow Jones-Irwin, 1990).

Experience

1988-present GRADUATE SCHOOL OF BUSINESS (GSB), Neubauer Family Professor of Entrepreneurship and Finance, 1999-. Leon Carroll Marshall Professor of Finance, 1997-1999. Professor of Finance, 1995-1997. Associate Professor of Finance, 1992-1995. Assistant Professor of Finance, 1988-1992. Faculty director of Polsky Center for Entrepreneurship, 1997 -. CHICAGO, IL

2001 INSEAD Visiting Professor. FONTAINEBLEAU, FRANCE

Summer 1984 BOOZ, ALLEN & HAMILTON, INC. Summer Associate. Consultant in corporate strategy. NEW YORK, NY

1981-1983 KIDDER, PEABODY & CO. INCORPORATED Analyst, Corporate Finance Department. NEW YORK, NY

Education

1983-1988 HARVARD UNIVERSITY
Ph. D., Business Economics, 1988. Dissertation: Sources of Value in Management Buyouts. A.M., Business Economics, 1987. Included first year of M.B.A. program. Top-ranked student in first-year M.B.A. section. CAMBRIDGE, MA

1977-1981 HARVARD COLLEGE
A.B. in Applied Mathematics, summa cum laude. Phi Beta Kappa. CAMBRIDGE, MA

Professional Activities

Academic: National Bureau of Economic Research, Research Associate, 1995-; Research Fellow, 1990 -5.

Associate Editor, Journal of Finance, 1994-2000, 2006 – ; Journal of Financial Economics, 1991- ; European Financial Management, 1994-; Journal of Corporate Finance, 2000-; Journal of Empirical Finance 2001-; Journal of Financial and Quantitative Analysis. 1994-1998, Review of Financial Studies, 1993-1996.

Non-Academic: Board of directors, Accretive Health, Columbia Acorn Funds and Morningstar (MORN).

Co-Dean and Board of Center for Venture Education Kauffman Fellows Program.

Board of directors, University of Chicago Laboratory Schools, University of Chicago Center for Research in Security Prices (CRSP). Investment advisory board, Sterling Capital Partners.

Corporate Governance: 02-06-09 Economic Crisis Creates New Breed of Director

The global credit crisis and the resulting rescue plans have raised the specter of ongoing government involvement in corporate life. Public companies are now and will continue to be under a microscope to an extent they have never experienced before. Are boards equipped with the expertise to navigate successfully through this impending era of heightened scrutiny?

Today’s boards will be expected to watch over an organization’s various risks, while at the same time help corporate management develop strategies to cope with the myriad of regulatory and policy issues that may affect their businesses. This whitepaper indicates that it is more important than ever for nominating committees to consider candidates with strong backgrounds in government policy making. Best- in-class nominating committees will find it useful to broaden their search to include individuals with executive-level experience working in government and for public policy-making entities.

You can download the document here. It’s a Kornferry article.

Raghuram G. Rajan: 02-03-09 Economist of the Day

Note: The next four Economists of the Day (01-31, 02-01, 02-02, 02-03) will be published today, but with the appropriate day. I will be visiting a school on an accreditation visit and will not have time to publish the blog.

Rajan Raghuram

We choose Raghuram G. Rajan as the Economist of the Day. Ragan is the Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago.

Contact Information

5807 South Woodlawn Avenue
Chicago, IL 60637-1610
raghuram.rajan@ChicagoBooth.edu
Tel: (773) 702-4437

Short Biography

Raghuram G. Rajan served as Chief Economist at the International Monetary Fund between 2003 and 2006. His major research focus is on economic growth, and the role finance plays in it. Rajan believes there is no issue with greater urgency or moral imperative than economic development. As for his students, he hopes they walk away with “a greater awareness of the world they live in. And in a small way,” he says, “I want to help them reflect on how they can make it better.”

He has been a visiting professor at the Kellogg School of Management at Northwestern University, the Massachusetts Institute of Technology Economics Department and Sloan School of Management, as well as the Stockholm School of Economics. He also has worked as a consultant for the Indian Finance Ministry, World Bank, Federal Reserve Board, Swedish Parliamentary Commission, and various financial institutions. His practical experience gives him a better understanding of what is economically important and what is not.

Rajan is the author, along with fellow Chicago Booth faculty member Luigi Zingales, of the book, Saving Capitalism from the Capitalists. Reearch papers he has authored include: “Foreign Capital and Economic Growth” published in 2006 in the Proceedings of the Jackson Hole Conference organized by the Kansas City Fed; “Does Aid Affect Governance?” written with Arvind Subramanian that will appear in the American Economic Review; “Modernizing China’s Growth Paradigm” written with Eswar Prasad and published in May 2006 in the American Economic Review; “Entry Regulation as a Barrier to Entrepreneurship” written with Leora Klapper and Luc Laeven and published in 2006 in the Journal of Financial Economics.

Rajan’s work has earned him a number of awards. He received the inaugural Fischer Black Prize in 2003, which is awarded by the American Finance Association for the person under 40 who has contributed the most to the theory and practice of finance.

After getting a bachelor’s degree from the Indian Institute of Technology in Delhi in 1985 and an MBA from the Indian Institute of Management in 1987, Rajan moved to the United States where he earned a PhD from the Massachusetts Institute of Technology with a thesis entitled “Essays on Banking.” He joined the Chicago Booth faculty in 1991.

Outside of the classroom, Rajan enjoys squash, tennis, cricket, cooking, reading, and traveling.

New New Work (Title by Rajan)

Illiquidity and Interest Rate Policy (with Doug Diamond)

The cheapest way for banks to finance long term illiquid projects is typically by borrowing short term from households. But when household needs for funds are high, interest rates will rise sharply, debtors will have to shut down illiquid projects, and in extremis, will face more damaging runs. Authorities may want to push down interest rates to maintain economic activity in the face of such illiquidity, but intervention may not always be feasible, and when feasible, could encourage banks to increase leverage or fund even more illiquid projects up front. Authorities may want to commit to a specific policy of interest rate intervention to restore appropriate incentives. For instance, to offset incentives for banks to make more illiquid loans, authorities may have to commit to raising rates when low, to counter the distortions created by lowering them when high. We draw implications for interest rate policy to combat illiquidity.

The Credit Crisis: Conjectures about Causes and Remedies (AEA Presentation)

Growth and Development

“Landed Interests and Financial Underdevelopment in the United States”, with Rodney Ramcharan

“Rent Preservation and the Persistence of Underdevelopment” forthcoming, American Economic Journals: Macroeconomics

Foreign Capital and Economic Growth with Eswar Prasad and Arvind Subramanian Brookings Papers on Economic Activity, 2007, 1, 153-209

Does Aid Affect Governance? With Arvind Subramanian, 2007, AER Papers and Proceedings.

Modernizing China’s Growth Paradigm With Eswar Prasad, 2006, AER Papers and Proceedings.

Making Capitalism Work for Everyone With Luigi Zingales

India’s Pattern of Development: What Happened, What Follows? With Kalpana Kochhar, Utsav Kumar,

Arvind Subramanian, and Ioannis Tokatlidis, Journal of Monetary Economics, vol 53, 2006, p 981-1019.

“What Undermines Aid’s Impact on Growth?” with Arvind Subramanian, mimeo, IMF.

“Aid and Growth: What Does the Cross-Country Evidence Really Show?” with Arvind Subramanian, Review of Economics and Statistics, forthcoming.

“Failed States, Vicious Cycles, and a Proposal”, mimeo, University of Chicago.

The Great Reversals: The Politics of Financial Development in the 20^th Century with Luigi Zingales, Journal of Financial Economics, vol 69, 1, July 2003, 5-50.

Financial Systems, Industrial Structure and Growth with Luigi Zingales, Oxford Review of Economic Policy. 17 (4): 467-482 WIN 2001

Which Capitalism? Lessons from the East Asian Crisis: with Luigi Zingales, Journal of Applied Corporate Finance, Fall 1998.

“Financial Dependence and Growth”, (pdf) with Luigi Zingales, American Economic Review, June 1998, vol 88, pp 559-586.

Banking General

“Rethinking Capital Regulation”, with Anil Kashyap and Jeremy Stein.

“The Real Effects of Banking Crises”, with Giovanni Dell’Ariccia, Enrica Detragiache, Journal of Financial Intermediation, 2008, vol 17, 89-112

“Dollar Shortages and Crisis”, with Ioannis Tokatlidis, International Journal of Central Banking, vol 1, no 2, 177-220.

“Money in a Theory of Banking” with Douglas Diamond, American Economic Review, 2006, 96, (1), 30-53

“Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks”, with Allen Berger, Nathan Miller, Mitchell Petersen, and Jeremy Stein, forthcoming, Journal of Financial Economics

Liquidity Shortages and Banking Crises (pdf) with Douglas Diamond, Journal of Finance, 2005, 60, (2), 615-647.

“Banks and liquidity”, with Douglas Diamond, American Economic Review (Papers and Proceedings), May 2001.

“Banks, Short-term Debt, and Financial Crises: Theory, Policy Implications, and Applications“, 2001, with Douglas Diamond, Journal of Monetary Economics, Proceedings of Carnegie Rochester Conference on Public Policy.

Banks as Providers of Liquidity: An Explanation for the Co-Existence of Lending and Deposit-Taking, with Anil Kashyap and Jeremy Stein, Journal of Finance. 57 (1): 33-73 FEB 2002

“A Theory of Bank Capital”, 2000, with Douglas Diamond, Journal of Finance, vol 55, no 6, 2431-2465.

“Liquidity risk, liquidity creation and financial fragility: A theory of banking” 2001, with Douglas Diamond, Journal of Political Economy , vol 109, 2, 287-327.

“The Past and Future of Commercial Banking Viewed through an Incomplete Contract Lens” (pdf), Journal of Money, Credit, and Banking, August 1998, vol 30: (3), pp 524-550.”

The Paradox of Liquidity” (pdf) with Stewart Myers, Quarterly Journal of Economics, August 1998, vol 113: (3), pp 733-771.

“Why Banking Has a Future: Towards a New Theory of Banking”,(pdf) Journal of Applied Corporate Finance, July 1996.

“Covenants and Collateral as Incentives to Monitor”,(pdf) with Andrew Winton, Journal of Finance, 1995, vol 50, pp 1113-1146.

“Why Bank Credit Policies Fluctuate: A Theory and Some Evidence”,(pdf) Quarterly Journal of Economics, 1994, vol 109, pp 399-442.

“Insiders and Outsiders: The Choice between Informed and Arm’s-length debt”(pdf) Journal of Finance, 1992, Vol 47, pp 1367-1400

Banking Relationships

“Does Distance Still Matter? The Revolution in Small Business Lending”, 2002, with Mitchell Petersen, Journal of Finance, 57 (6): 2533-2570 Dec 2002.

“The Effect of Credit Market Competition on Lending Relationships”(pdf), with Mitchell Petersen, Quarterly Journal of Economics, 1995, vol 110, pp 407-443.

“The Benefits of Firm-Creditor Relationships: Evidence from small business data”, (pdf) with Mitchell Petersen, Journal of Finance, 1994, Vol 49, pp 3-37.

Universal Banking

“Organization Structure and Credibility: Evidence from Commercial Bank Securities Activities before the Glass-Steagall Act”, (pdf) with Randall Kroszner, Journal of Monetary Economics, 1997, vol 39, no 3, 475-516.

“Commercial Bank Entry into the Securities Business: A Survey of Theories and Evidence”,(pdf) in Universal Banking, Anthony Saunders and Ingo Walter ed.

“Is the Glass-Steagall Act Justified?: Evidence from the U.S. experience with Universal Banking 1921-1933″,(pdf) with Randall Kroszner, American Economic Review, 1994, vol 84, pp 810-832.

“An Investigation into the Economics of Extending Bank Powers”, Journal of Emerging Market Finance, 2002.

International Finance

“Landed Interests and Financial Underdevelopment in the United States”, with Rodney Ramcharan

Controlled Capital Account Liberalization: A Proposal with Eswar S. Prasad

“Has Financial Development Made the World Riskier?” EUROPEAN FINANCIAL MANAGEMENT 12: 499, 2006.

The Great Reversals: The Politics of Financial Development in the 20^th Century with Luigi Zingales, Journal of Financial Economics, vol 69, 1, July 2003, 5-50.

Financial Systems, Industrial Structure and Growth with Luigi Zingales, Oxford Review of Economic Policy. 17 (4): 467-482 WIN 2001

Which Capitalism? Lessons from the East Asian Crisis: with Luigi Zingales, Journal of Applied Corporate Finance, Fall 1998.

“Financial Dependence and Growth”, (pdf) with Luigi Zingales, American Economic Review, June 1998, vol 88, pp 559-586.

“Is There an Optimal Capital Structure? Some Evidence from International Data.“, with Luigi Zingales, (pdf) Journal of Finance, 1995, vol 50, pp 1421-1460.

Miscellaneous Finance

“The Eclipse of the U.S. Tire Industry” (pdf) with Luigi Zingales, 2000, in Mergers and Productivity, edited by Steven Kaplan, University of Chicago Press.

“Trade Credit : Some Theories and Evidence” with Mitchell Petersen, Review of Financial Studies, 1997, vol 10, no 3, 661-692.

“Analyst Following of Initial Public Offerings” with Henri Servaes, Journal of Finance, 1997, vol 52, 2, 507-530.

“The Effect of Market Conditions on Initial Public Offerings”, 1994, with Henri Servaes, Mimeo, University of Chicago.

Organizations, Power and the Theory of the Firm

“ The Internal Governance of Firms”, with Viral Acharya and Stewart Myers.

“Are perks purely managerial excess?” with Julie Wulf, Journal of Financial Economics, 2006, 79, (1), 1-33.

“Entry Regulation as a Barrier to Entrepreneurship”, with Leora Klapper and Luc Laeven, Journal of Financial Economics, 2006, 82, (3), 591-629

“The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies”, with Julie Wulf, The Review of Economics and Statistics, 2006, 88, (4), 759-773

Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks with Allen Berger, Nathan Miller, Mitchell Petersen, and Jeremy Stein, Journal of Financial Economics, 2005, 76, (2), 237-269

“The Influence of the Financial Revolution on the Nature of Firms.”, with Luigi Zingales, American Economic Review (Papers and Proceedings), 91 (2): 206-211 MAY 2001.

“The firm as a dedicated hierarchy: A theory of the origins and growth of firms, (pdf), Luigi Zingales, Quarterly Journal of Economics, 116 (3): 805-851 AUG 2001.

What Determines Firm Size? (Pdf) With Krishna Kumar and Luigi Zingales

The Governance of the New Corporation, 2000, with Luigi Zingales, in Xavier Vives ed. Corporate Governance, Cambridge University Press.

“The Costs of Diversity: The diversification discount and inefficient investment”, with Henri Servaes and Luigi Zingales, Journal of Finance, vol 55, no 1, 35-80.

“Power in a Theory of the Firm”, (pdf) with Luigi Zingales, Quarterly Journal of Economics, May 1998, vol 113, pp 387-432.

“The Tyranny of the Inequality: An Enquiry into the Adverse Consequences of Power Struggles”, (ps) 2000, with Luigi Zingales, Journal of Public Economics, 2000, 76, (3), 521-558

Articles Published in Finance & Development between 2003 and 2006

The Great Game Again?

Countries’ current attempts to acquire commodity-producing firms as a way of ensuring their economic security in the face of declining commodities seem to mirror the 19th-century struggle among powerful countries to acquire influence in the Middle East and Central Asia. These attempts also violate good business sense.

From Paternalistic to Enabling

India needs to exchange its paternalistic, directive government, which seeks to remedy every wrong through a subsidy, a quota, or a scheme, for one that creates an enabling environment for the people and unleashes their entrepreneurial zeal.

Separate and Unequal

Microfinance is increasingly being touted as a miracle cure for poverty. But instead of focusing solely on microcredit for the poor, we should make financial services available for all, says the IMF’s Economic Counsellor.

Aid and Growth: The Policy Challenge

The IMF’s Economic Counsellor says we need more than aid to break the cycle of poverty. He argues that if the campaign to make poverty history is to succeed, then the failures of the past must be recognized, starting with recognition of the chequered history of aid.

Risky Business

The IMF’s Economic Counsellor argues that skewed incentives for investment managers may be adding to global financial risk. While the techniques and instruments to absorb fluctuations have improved, there is a great deal of uncertainty about how they will perform in a serious downturn

Debt Relief and Growth

The IMF’s Economic Counsellor explains why one-size-fits-all proposals for debt relief to poor countries may be politically convenient but don’t necessarily make economic sense.

Rules versus Discretion

Should the IMF have less of a free hand in resolving crises? The Director of the IMF’s Research Department examines whether or not the IMF should follow many central banks in adopting more of a rules-based approach to problems.

Odious or Just Malodorous

While the proposal to declare debt accumulated under dictatorships as odious is well motivated, one does not need conspiracy theories to explain why the idea has not got anywhere, nor why newly legitimate governments have accepted responsibility for servicing the potentially odious debts they inherited.

Assume Anarchy? Why an orthodox economic model may not be the best guide for policy

Raghuram Rajan suggests that a better starting point for analysis than a world with only minor blemishes may be a world where nothing is enforceable and property and individual rights are totally insecure.

Why Are Structural Reforms So Difficult?

Raghuram Rajan explains that reforms are hard to sell because their benefits aren’t always as obvious as their short-term costs. Success, he says, depends on timing, the sequence of reforms, and the compensation of “losers.”

How Useful Are Clever Solutions?

In his first Straight Talk column, Raghuram Rajan, the IMF’s new Economic Counsellor and Research Department Director, warns that “clever” solutions to economic problems aren’t always truly useful.

Other articles

2008

Even desperate times need the right measures published in the Financial Times

A Change of Tack in Emerging Markets published in the Financial Times

Financial Development at Risk with Erik Berglof, published in the Financial Times

Oped 3 on Monetary Policy : Monetary Policy Myths with Eswar Prasad, published in Business Standard

Op-ed 2 on Monetary Policy : Exchange Rate Policy with Eswar Prasad, published in Business Standard

Op-ed 1 on Monetary Policy : Why an Inflation Objective with Eswar Prasad, published in Business Standard

Business World Interview (interviewed by Ashok Desai)

Economic Times Interview, April 14th

Next Generation Financial Reforms for India, with Eswar Prasad, published in the Wall Street Journal, Asia

A Hundred Small Steps, published in Business Standard.

Fake alpha or Heads I win, Tails you lose. published in the Financial Times.

Whither Now Regulation published in the Banker

2007

A Change of Tack in Emerging Markets forthcoming in the Financial Times

Central Banks face a liquidity trap published in the Financial Times

India and Economic Freedom published in the Economic Times

China and India lie low published in the Financial Times.

Why it takes small groups to solve global problems published in the Financial Times

The Global Financing Glut published in the Financial Times

2006

The Bangalore Bug with Arvind Subramanian published in the Financial Times

Overview of Global Imbalances published in Business Times

Crisis and Change published in Time magazine

Seven Years of Plenty and… published in the Financial Times

2005

China’s Key to Sustainable Growth with Eswar Prasad published in the Financial Times

India’s Economy: From Where to Where? with Arvind Subramanian published in India Today

The World Economy at Crossroads various newspapers.

2004

An International View of Outsourcing with Shang-jin Wei in various newspapers.

The Siren Call of the “New Bretton Woods with Arvind Subramanian published in the Financial Times

Global Imbalances published in the Financial Times

Recent Speeches

Is There a Threat of Oligarchy in India? Speech to Bombay Chamber of Commerce, Sep 10^th 2008.

Financial sector reforms in India and the global crisis. Speech to the Institute for Economic Growth, Delhi, March 2008.

A view of the liquidity crisis Speech in Chicago in February 2008

Charts for “A view of the liquidity crisis”

Russia in the Mirror of Other Emerging Markets Speech in Moscow on Jan 30th 2008

Financial sector reforms in India: Why? Why Now? How? Speech in New Delhi on Jan 16, 2008

“A Tale of Two Liquidities” Speech to Conference on Liquidity at Naples, December 17, 2007

“Foreign Capital and Economic Growth”, the Tinbergen Lecture at Amsterdam, October 26, 2007.

Speeches as Economic Counsellor of the International Monetary Fund

Title: Saving Growth from Unequal Influence Remarks made by Raghuram Rajan in Conference on Growth in Mexico City organized by the World Bank.

Title: Is There a Global Shortage of Fixed Assets?, Remarks by Raghuram G. Rajan, Economic Counselor and Director of Research
Date: December 01, 2006

Title: Investment Restraint, The Liquidity Glut, and Global Imbalances: Remarks by Raghuram G. Rajan, Economic Counselor and Director of Research
Date: November 16, 2006

Title: Benign Financial Conditions, Asset Management, and Political Risks: Trying to Make Sense of Our Times, Luncheon Address by Raghuram G. Rajan, Economic Counselor and Director of Research, IMF
Description: At the Conference on International Financial Instability: Cross-Border Banking and National Regulation organized by the Federal Reserve Bank of Chicago
Date: October 06, 2006

Title: Foreign Capital and Economic Growth; Presentation by Raghuram Rajan, Economic Counsellor and Director of the Research Department, based on a paper written by Eswar Prasad, Raghuram Rajan, and Arvind Subramanian
Description: At a Conference Organized by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming
Date: August 25, 2006

Title: Monetary Policy and Incentives, Address by Raghuram G. Rajan, Economic Counselor and Director of Research, IMF
Description: At the Bank of Spain Conference on Central Banks in the 21st Century
Date: June 08, 2006

Title: The IMF in A Changing World: Keynote Address by Raghuram G. Rajan, Economic Counsellor and Director of Research, IMF
Description: Given at the Arison School of Business in Israel.
Date: May 17, 2006

Title: The Ebbing Spirit of Internationalism and the International Monetary Fund: The 2006 Krasnoff Lecture — Remarks by Raghuram Rajan, Economic Counsellor and Director of Research Department, International Monetary Fund
Description: At the Stern School, New York University
Date: March 08, 2006

Title: Perspectives on Global Imbalances — Remarks by Raghuram Rajan, Economic Counsellor and Director of Research Department, the International Monetary Fund
Description: At the Global Financial Imbalances Conference, London, United Kingdom
Date: January 23, 2006

Title: India: The Past in its Future, Remarks by Raghuram Rajan, Economic Counselor and Director of Research Department, the International Monetary Fund
Description: At the Forum for Free Enterprise, Mumbai, India
Date: January 20, 2006

Title: Revitalizing Reforms in Europe, By Raghuram G. Rajan, Economic Counsellor and Director of the IMF’s Research Department
Description: The Ludwig Erhard Lecture, Brussels
Date: December 08, 2005

Title: The Greenspan Era: Lessons for the Future, Speech by Raghuram G. Rajan, Economic Counsellor and Director of the IMF’s Research Department
Description: Given at a Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming
Date: August 27, 2005

Title: Convocation Address at the Indian Institute of Management by Raghuram Rajan, Economic Counselor and Director of Research, IMF
Description: Given in Ahmedabad, India
Date: April 02, 2005

Title: India: A Hub for Globalization

Description: Given at the Pravasi Bharati Divas in Mumbai

Date: January 2005.

Title: How can India be a G-5 power?

Description: Given at the India Today Conclave in Delhi

Date: March 2004.

Book

Saving Capitalism from the Capitalists, with Luigi Zingales, Feb 2003, Published by Crown Business, a division of Random House, paperback Princeton University Press 2004.

http://www.savingcapitalism.com/

New Work

The Credit Crisis: Conjectures about Causes and Remedies (AEA Presentation)

Crisis and Change (convocation speech at the University of Chicago)

Reforming Global Economic and Financial Governance

It’s no longer illiquidity any more (article, FT online)

Strengthening the Paulson Plan (article, WSJ online and WSJ Asia, Sep 25 2008)

Even Desperate Times Need the Right Measures (article, FT online, Sep 18, 2008).

Is There a Threat of Oligarchy in India? Speech to Bombay Chamber of Commerce, Sep 10^th 2008.

“The Contributions of Stewart Myers to the Theory and Practice of Corporate Finance”, with Franklin Allen, Sudipto Bhattacharya, and Antoinette Schoar, Journal of Applied Corporate Finance, Vol. 20 No. 4 (Fall 2008).

“ The Internal Governance of Firms”, with Viral Acharya and Stewart Myers.

We develop a model of internal governance where the self-serving actions of top management are limited by the potential reaction of subordinates. We find that internal governance can mitigate agency problems and ensure firms have substantial value, even without any external governance. Internal governance seems to work best when both top management and subordinates are important to value creation. We then allow for governance provided by external financiers and find situations where external governance, even if crude and uninformed, complements internal governance in improving efficiency. Interestingly, this allows us to develop a theory of dividend policy, where dividends are paid by self-interested CEOs to maintain a balance between internal and external control. Finally, we explore how the internal organization of firms may be structured to enhance the role of internal governance. Our paper could explain why young firms with limited external oversight, and firms in countries with poor external governance, can have substantial value, and why improving external governance may not be a panacea for all governance problems.

“Rethinking Capital Regulation”, with Anil Kashyap and Jeremy Stein.

Recent estimates suggest that U.S. banks and investment banks may lose up to $250 billion from their exposure to residential mortgages securities. The resulting depletion of capital has led to unprecedented disruptions in the market for interbank funds and to sharp contractions in credit supply, with adverse consequences for the larger economy. A number of questions arise immediately. Why were banks so vulnerable to problems in the mortgage market? What does this vulnerability say about the effectiveness of current regulation? How should regulatory objectives and actual regulation change to minimize the risks of future crises? These are the questions we focus on in this paper.

“A Pragmatic Approach to Capital Account Liberalization”, with Eswar Prasad, forthcoming, Journal of Economic Perspectives.

Cross-country regressions suggest little connection from foreign capital inflows to more rapid economic growth for developing countries and emerging markets. This suggests that the lack of domestic savings is not the primary constraint on growth in these economies, as implicitly assumed in the benchmark neoclassical framework. We explore emerging new theories on both the costs and benefits of capital account liberalization, and suggests how one might adopt a pragmatic approach to the process.

“The Future of the IMF and the World Bank”, forthcoming, AEA Papers and Proceedings 2008.

“Rent Preservation and the Persistence of Underdevelopment” forthcoming, American Economic Journals: Macroeconomics

Initial inequality in endowments and opportunities, together with low average levels of endowments, can create constituencies in a society that combine to paralyze reforms, even though the status quo hurts them collectively. Each constituency prefers reforms that expand its opportunities, but in an unequal society, this will typically hurt another constituency’s rents. Competitive rent preservation ensures no comprehensive reform path may command broad support. Though the initial conditions may well be a legacy of the colonial past, persistence does not require the presence of coercive political institutions, perhaps one reason why underdevelopment has survived independence and democratization. Instead, the roots of underdevelopment may lie in the natural tendency towards rent preservation in a divided society.

Foreign Capital and Economic Growth with Eswar Prasad and Arvind Subramanian, Brookings Papers on Economic Activity, 2007, 1, 153-209

We document the recent phenomenon of “uphill” flows of capital from nonindustrial to industrial countries and analyze whether this pattern of capital flows has hurt growth in nonindustrial economies that export capital. Surprisingly, we find that there is a positive correlation between current account balances and growth among nonindustrial countries, implying that a reduced reliance on foreign capital is associated with higher growth. This result is weaker when we use panel data rather than cross-sectional averages over long periods of time, but in no case do we find any evidence that an increase in foreign capital inflows directly boosts growth. What explains these results, which are contrary to the predictions of conventional theoretical models? We provide some evidence that even successful developing countries have limited absorptive capacity for foreign resources, either because their financial markets are underdeveloped, or because their economies are prone to overvaluation caused by rapid capital inflows.

“Has Financial Development Made the World Riskier?” EUROPEAN FINANCIAL MANAGEMENT 12: 499, 2006.

Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behavior makes more likely. As a result, under some conditions, economies may be more exposed to financial-sector-induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market-friendly policies that would curtail the incentive of intermediary managers to take excessive risk.

“Aid, Dutch Disease, and Manufacturing Growth” with Arvind Subramanian, mimeo, IMF.

We examine one of the most important and intriguing puzzles in economics: why it is so hard to find a robust effect of aid on the long-term growth of poor countries, even those with good policies. We look for a possible offset to the beneficial effects of aid, using a methodology that exploits both cross-country and within-country variation in the data, and corrects for possible reverse causality. We find that aid inflows have systematic adverse effects on a country’s competitiveness, as reflected in the lower relative growth rate of labor intensive and exporting industries, as well as a lower growth rate of the manufacturing sector as a whole. We provide evidence suggesting that the channel for these effects is the real exchange rate overvaluation caused by aid inflows.

“Failed States, Vicious Cycles, and a Proposal”, mimeo, University of Chicago.

Why should people’s choice of government be restricted, even if that government drags them into the abyss?