Lisa K. Meulbroek: 02-24-09 Economist of the Day

We choose Lisa K. Meulbroek as our Economist of the Day. Lisa is the Fritz B. Burns Chair in Financial Economics
Robert Day School of Economics and Finance at Claremont McKenna College.

Lisa Meulbroek

Contact Information

E-mail: Lisa.Meulbroek@Sloan.MIT.edu
Phone: (909) 607-7363

Teaching Interests

• Financial Economics

Selected Research and Publications

• “The Promise and Challenge of Integrated Risk Management.” Risk Management and Insurance Review, 5 (4), 2002.
• “Company Stock in Pension Plans: How Costly Is It?,” Harvard Business School Working Paper 02-058.
• “A Senior Manager’s Guide to Integrated Risk Management,” Journal of Applied Corporate Finance, 14 (4), 2002, 56-70.
• “Restoring the Link Between Pay and Performance: Evaluating the Costs of Relative-Performance-Based (Indexed) Options,” Harvard Business School Working Paper 02-021.
• “Do Underwater Executive Stock Options Still Work? The Effect of Stock Price Movements on Managerial Incentive-Alignment,” with Li Jin, Harvard Business School Working Paper 02-002.
• “Designing an Option Plan that Rewards Relative Performance: Indexed Options Revisited,” Harvard Business School Working Paper 02-022.
• “The Efficiency of Equity-Linked Compensation: Understanding the Full Cost of Awarding Executive Stock Options,” Financial Management 30 (2), 2001, 5-30.
• “Short Sellers, Fundamental Analysis and Stock Returns” with Patricia Dechow, Amy Hutton and Richard Sloan, Journal of Financial Economics 61 (1), 2001, 77-106.
• “A Better Way to Manage Risk,” Harvard Business Review 79 (2), 2001, 22-23.
• “Does Risk Matter? Corporate Insider Transactions in Internet-Based Firms,” Harvard Business School Working Paper 00-062.
• “The Effect of Illegal Insider Trading on Takeover Premia” with Carolyn Hart. European Finance Review 1 (1), 1998, 51-80.
• “An Empirical Analysis of Illegal Insider Trading,” Journal of Finance 47 (5), 1992, 1661-1700.
• “A Comparison of Futures and Forward Prices of an Interest-Rate-Sensitive Financial Asset,” Journal of Finance 47 (1), 1992, 381-396.
• “Shark Repellents and Managerial Myopia: An Empirical Test,” with Mark L. Mitchell, J. Harold Mulherin, Jeffry M. Netter and Annette B. Poulsen, Journal of Political Economy 98 (5), 1990, 1108-1117.

Teaching Experience

Corporate Finance, Claremont McKenna College. Undergraduate economics elective. Introductory course (first finance course) covering elements of investments and corporate finance. Fall 2003.

Corporate Financial Management, Harvard Business School. Advanced corporate finance, second-year elective MBA-level course. Taught similar course at MIT’s Sloan School as part of second year curriculum. Both versions taught using the case method. Topics covered include various DCF-based valuation methods, their assumptions, relation to each other, and treatment of risky debt, option-pricing as applied to the firm’s debt and equity, and to the value of corporate guarantees, real options, corporate risk management integrating both risks and ways of managing that risk, market efficiency and incorporation of information, executive compensation. 1996-2002.

First-Year Finance, Harvard Business School. Introductory first-year MBA-level finance course covering valuation, working capital management, and capital structure. Taught using case method. 1992-1995.

Executive Educative, Harvard Business School. Miscellaneous classes including risk management, valuation, and company-specific tailored programs.

Business Studies, Harvard Business School. Finance course for DBA students.

Research Papers and Articles (some may be duplicative of the linked papers)

1. Company Stock: How Costly Is It?” Revise and resubmit from the Journal of Law and Economics (formerly Harvard Business School Working Paper 02-058).

2. “Does Risk Matter? Corporate Insider Transactions in Internet-Based Firms,” Revise and resubmit from the Journal of Finance (formerly Harvard Business School Working Paper 00-062)

3. “A Senior Manager’s Guide to Integrated Risk Management,” Journal of Applied Corporate Finance, Volume 14 No. 4, Winter 2002, pp. 56-70. Also scheduled to be reprinted in Enterprise Risk Management: Concepts and Cases, published by the Institute of Chartered Financial Analysts of India (ICFAI).

4. “The Promise and Challenge of Integrated Risk Management,” Risk Management and Insurance Review, Vol. 5 No. 4, Fall 2002, pp. 55-66.

5. “The Efficiency of Equity-Linked Compensation: Understanding the Full Cost of Awarding Executive Stock Options,” Financial Management, Summer 2001, pp. 5-30. Lead article. Received 2002 Addison-Wesley Prize for the Best Paper in Financial Management.

6. “Short-sellers, fundamental analysis and stock returns” with Patricia M. Dechow, Amy P. Hutton and Richard G. Sloan. Journal of Financial Economics Vol. 61, No.1, July 2001, pp. 77-106.

7. “A Better Approach to Managing Risk,” Harvard Business Review, Vol. 79, No. 2, February 2001, pp. 22-23.

8. “The Secrets Hidden in Market Prices,” Financial Times Mastering Management Series, Financial Times, Nov. 6, 2000, pp. 2-4. Lead article. Also published in Mastering Management 2.0, James Pickford (ed.), Pearson Education Limited, London, 2001, pp. 397-402.

9. “Total Strategies for Company-Wide Risk Control,” Financial Times Mastering Risk Series, Financial Times, May 9, 2000, pp. 2-4. Lead article. Also published in Mastering Risk 2.0: Volume 1: Concepts, James Pickford (ed.), Pearson Education Limited, London, 2001, pp. 67-73.

10. “The Effect of Illegal Insider Trading on Takeover Premia.” European Finance Review, Vol. 1, No. 1 (1997): 51-80. Solicited paper for inaugural issue of journal.

11. Book Review, Nasser Arshadi and Thomas H. Eyssell. The Law and Finance of Corporate Insider Trading: Theory and Evidence, in the Journal of Finance, Vol. 50, No. 2, June 1995, pp. 749-750.

12. “An Empirical Analysis of Illegal Insider Trading.” Journal of Finance, 47 (December 1992): 1661-1700. Lead article. Received First Prize, Smith Breeden Awards, 1993. Also published in Foundations of Corporate Law, Roberta Romano (ed.), Oxford University Press, New York, 1993.

13. “A Comparison of Futures and Forward Prices of an Interest Rate Sensitive Financial Asset.” Journal of Finance, 47 (March 1992): 381-396.

14. “The Effects of Antitakeover Protection on Long-Term Planning,” in Investing for the Long Term, Seminar Proceedings for the Association for Investment Management and Research (1992): 38-45.

15. “Shark Repellents and Managerial Myopia: An Empirical Analysis,” with M. Mitchell, H. Mulherin, J. Netter, and A. Poulsen. Journal of Political Economy 98 (October 1990): 1108-1117.

Published Cases and Notes

1. “Compensation at Level 3 Communications TN,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-202-085, June 2002, 21 p.

2. “Compensation at Level 3 Communications,” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9-202-084, December 2001, 12 p.

3. Kmart Inc. and Builders Square TN,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-202-083, December 2001, 14p.

4. “Ameritrade Holding Corporation TN,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-202-071, November 2001, 9p.

5. “Honeywell Inc. and Integrated Risk Management TN,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-202-020, August 2001, 20p.

6. “Risk Management at Apache Corporation TN,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-202-019, August 2001, 8p.

7. “Risk Management at Apache Corporation,” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9-201-113, April 2001, 24p.

8. “Extracting Information from the Futures and Forwards Markets: The Relation between Spot Prices, Forward Prices and Expected Future Spot Prices,” Harvard Business School Note, Harvard Business School Publishing, Boston, MA, Case Number 9-201-109, March 2001, 4 p.

9. “Valuing the Option Component of Debt and Its Relevance to DCF-Based Valuation Methods,” Harvard Business School Note, Harvard Business School Publishing, Boston, MA, Case Number 9-201-110, March 2001, 5p.

10. “Real Options Valuation when Multiple Sources of Uncertainty Exist,” Harvard Business School Note, Harvard Business School Publishing, Boston, MA, Case Number 9-201-106, March 2001, 5p.

11. “Honeywell Inc. and Integrated Risk Management,” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9-200-036, February 2000, 22p.

12. “Ameritrade Holding Corporation,” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9-200-057, April 2000, 18p.

13. “Kmart Inc. and Builders Square,” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9-200-044, February, 2000, 25p.

14. “Acova Radiateurs TN,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-200-003, August 1999, 21p.

15. “Note on European Buyouts,” Harvard Business School Note, Harvard Business School Publishing, Boston, MA, Case Number 9-296-051, January, 1996, 16p.

16. “Acova Radiateurs,” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9- 295-150, June 1995, 12 p.

17. “Time Inc.’s Entry into the Entertainment Industry A & B Teaching Note,” Harvard Business School Teaching Note, Harvard Business School Publishing, Boston, MA, Case Number 5-294-066, February 1994, 8p.

18. “Time Inc.’s Entry into the Entertainment Industry (A),” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9- 293-117, April 1993, 21p.

19. “Time Inc.’s Entry into the Entertainment Industry (B),” Harvard Business School Case, Harvard Business School Publishing, Boston, MA, Case Number 9-293-133, April 1993, 1p.

Working Papers

“Do Underwater Executive Stock Options Still Align Incentives? The Effect of Stock Price Movements on Managerial Incentive-Alignment,” with Li Jin. Harvard Business School Working Paper 02-002 (2001). Under consideration at the Journal of Business. Awarded “Best Corporate Finance Paper” at 2002 Financial Management Association International Conference. Awarded “Best Paper” at the 2002 Global Finance Association Annual Meeting.

“Restoring the Link Between Pay and Performance: Evaluating the Costs of Relative-Performance-Based (Indexed) Options,” Harvard Business School Working Paper 02-021 (2001).

“Designing an Option Plan that Rewards Relative Performance: Indexed Options Revisited” Harvard Business School Working Paper 02-022 (2001).

Experience

Claremont McKenna College Claremont, CA Fritz B. Burns Associate Professor of Economics, Fall 2003 -

Massachusetts Institute of Technology Cambridge, MA

Sloan School of Management Visiting Associate Professor, 2002

Harvard Business School Boston, MA Associate Professor, Finance, 1996-2002; Assistant Professor, Finance, 1991-1996

Securities And Exchange Commission Washington, DC; Senior Research Scholar, Office of Economic Analysis. July 1990-July 1991; Financial Economist, Office of Economic Analysis. Summers 1988, 1989

Goldman, Sachs & Co. New York, NY Associate, Financial Strategies Group. Summer 1987

The Boston Consulting Group, Inc. Chicago, IL Associate. 1984-1986

Education

Massachusetts Institute Of Technology Cambridge, MA  Ph.D. in Applied Economics, June 1990. Concentrations in finance and industrial organization.

University Of Chicago Chicago IL A.B. in Economics, with honors, June 1984. University of Chicago Honor Scholarship.

Awards for Academic Research

Addison Wesley Prize for the Best Paper in Financial Management, 2000-2002 (biannual award).

Best Paper Award of the 9th Global Finance Association Annual Conference, 2002.

Best Paper in Corporate Finance, Financial Management Association European Conference, 2002

Smith Breeden First Prize for Best Paper Published in the Journal of Finance 1993

Professional Service

Nominations Committee: 1994 American Finance Association Annual Meeting
Program Committee: 1996 Western Finance Association Meeting
Program Committee: 1997 Western Finance Association Meeting
Corporate Finance Track Chair: 2002 Financial Management Association Annual Meeting
Awards Subcommittee: 2002 Financial Management Association Annual Meeting

Served as referee for the American Economic Review, the European Finance Review, Financial Management, the Journal of Business, the Journal of Finance, the Journal of Financial Economics, the Journal of Financial and Quantitative Analysis, the Journal of Political Economy, the Quarterly Journal of Economics, the Rand Journal of Economics, and the Review of Financial Studies.

Executive Compensation: 02-24-09 Indexed Options, Similar to Exchange Options

Executive Compensation – David Harper

Instead of a fixed strike price, an exchange option gives the holder the right to purchase an asset (denoted V in screencast) with another asset (denoted U). Examples include exchange one currency for another; Executive stock options indexed to S&P 500 Index

Executive Compensation: 02-21-09 The Performers May Leave! Surprize?

Analysis and Discussion with Compensation Expert Brian Foley: New Compensation Rules Create Difficulties (Bloomberg News)

Executive Compensation: 02-17-09 No Pay for Performance

Class, the material below is from the Hertage Foundation and can be found by clicking on the link below. I decide to repost here since it directly relates to what we are discussing. What effect will Title VII, Section 7001 have on firm performance? There are other obvious questions as well you can draw from the article. BTW, I find the information provided by the Heriage Foundation to be “spot on.”

Congress Bans Pay for Performance

from Heritage.org by Andrew M. Grossman

A small provision slipped into the stimulus (PDF) by Sen. Chris Dodd is making big waves in the banking and finance industries. The last-minute addition to the bill, which pretty much no one noticed until after the legislation passed both chambers, places sharp limits on bonuses available to top executives and other high-earners.

How sharp? How about this:

[Title VII, Section 7001] A prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enhance the compensation of any of its employees.

So no more tying pay to performance.

But don’t worry, Sen. Dodd perhaps foresaw that complaint and so included a special allowance for “long-term restricted stock” that does not vest until the government has been paid back.

Think about that for a minute, and the problem becomes as clear as day. Here’s how Lucien Bebchuk (of all people!) puts it:

In such circumstances, restricted stock may provide incentives for executives to take excessive risks with the bank’s survival. Consider the case where an infusion of additional capital would greatly dilute the value of common shares but would be best for the bank, while failing to get that capital would put the bank’s future at risk. In such circumstances, compensation in restricted common shares would provide executives with an incentive to avoid raising capital (which would wipe out their shares’ value) and gamble on survival without additional capital.

While one might expect that Bebchuk’s solution to this sort of problem would be to let the courts figure it out or maybe hold weekly shareholder votes, even he recognizes that these new pay caps will cause distortions and perverse incentives.

More clearly, they will cause banks to think twice about participating in TARP and related programs. While that’s not a bad thing, it’s clearly not what the Obama Administration was hoping for, either.

(For more on the unintended consequences of pay regulations, see my previous posts on golden parachutes (which the Dodd insert bans), pay caps, and bailing out of TARP.)

Executive Compensaton: 02-16-09 Memo from

Class, the memo below is from Sullivan & Cromwell LLP, as printed in the Harvard Law School Corporate Governance Blog Because of its importance in our class, I am reposting. All credit goes to Sullivan & Cromwell and the Harvard Law School Corporate Governance Blog.

The final version of the American Recovery and Reinvestment Act of 2009, which was passed by the House on February 13 and was expected to be passed by the Senate later that night, includes extensive new restrictions on the compensation arrangements of financial institutions participating in the Troubled Asset Relief Program (“TARP”). The new legislation, which the President is expected to sign into law shortly, rewrites Section 111 of the Emergency Economic Stabilization Act of 2008 (“EESA”) (1) and directs the Treasury Department to establish standards and promulgate implementing regulations.

TREASURY TO ESTABLISH NEW STANDARDS

The new standards will codify many of the executive compensation guidelines for TARP recipients announced by the Treasury Department on February 4, 2009, impose additional restrictions and apply to all existing and future TARP recipients. It is not clear whether the standards will be immediately effective or will only be effective after regulations are issued.

Under the legislation, the standards are required to include the restrictions and other provisions summarized below, which include a variety of terms the meaning and scope of which have not been made clear.

• Financial Institutions Affected. The restrictions apply to all entities that have received or will receive financial assistance under the TARP during the period the TARP recipient has an obligation outstanding that arises from TARP financial assistance. However, the restrictions cease to apply if the Federal Government only holds warrants to purchase common stock of the TARP recipient.

• Employees Affected. Many of the restrictions extend beyond the TARP recipient’s CEO, CFO and three next most highly-compensated executive officers (the “senior executive officers”) and apply to other highly-compensated employees as well. It does not appear that other highlycompensated employees need to be officers of the TARP recipient, nor do any provisions specify how to identify such highly-compensated employees (for example, whether based on current or prior year compensation, whether a potential highly-compensated employee could drop off the prohibited group because of the bonus limit and how compensation would be defined for this purpose.

• Prohibition on Bonuses, Retention Awards, and Other Incentive Compensation. During the TARP restricted period, a TARP recipient may not pay (or accrue) any “bonus, retention award or incentive compensation” to a group of employees that depends on the amount of TARP assistance the financial institution has received. The restricted group ranges from the most highly-compensated employee for institutions with less than $25 million of TARP assistance to the five senior executive officers and at least the next 20 most highly paid employees for institutions with more than $500 million of TARP assistance.

The prohibition does not apply to (1) any bonus required to be paid pursuant to written employment contracts executed on or before February 11, 2009 (“as such valid employment contracts are determined by” Treasury) or (2) payment of “long-term” restricted stock that has a value not exceeding 1/3 of the employee’s total annual compensation, that does not fully vest during the TARP period, and that is subject to such other terms and conditions as Treasury determines are in the public interest. The legislation does not make clear how the term “fully vests” is to be interpreted and whether other forms of equity compensation and long-term incentives could qualify for the restricted stock exception. This prohibition also does not appear to apply to salary.

• Prohibition on Golden Parachutes. No golden parachute payments may be made to the five senior executive officers or the next five most highly-compensated employees during the TARP restricted period. Unlike the current regulations that apply to companies in the TARP Capital Purchase Program, “golden parachute” is broadly defined to include “any payment. . . for departure from a company for any reason, except for payments for services performed or benefits accrued”.

• Expanded Clawback. An expanded clawback applies to any bonus, retention award or incentive compensation paid to the five senior executive officers or the next 20 most highly-compensated employees based on “statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate”.

• No Incentives that Encourage Unnecessary and Excessive Risks. Compensation may not include incentives for the five senior executive officers to take unnecessary and excessive risks that threaten the value of such recipient.

• Prohibition on Compensation Plans that Would Encourage Manipulation of Earnings. Compensation plans may not encourage the manipulation of reported earnings to enhance compensation.

• Independent Board Compensation Committee Review. Each TARP recipient must establish a Board Compensation Committee comprised entirely of independent directors to review its compensation plans. This Board Compensation Committee must meet at least semiannually to assess any risks posed to the TARP recipient by its employee compensation plans. In private companies that receive or have received TARP assistance not exceeding $25 million, the board of directors will handle the duties of the Board Compensation Committee.

OTHER NEW RESTRICTIONS AND PROVISIONS

In addition to requiring Treasury to establish new standards as described above, the legislation includes the following restrictions and other provisions:

• Early Repayment Explicitly Permitted. TARP recipients are permitted (subject to Treasury’s consultation with the appropriate Federal banking agency, if any) to repay any assistance previously received without regard to any waiting periods and without regard to whether the financial institution has replaced the funds with funds from any other source. Upon repayment of assistance, Treasury is to liquidate warrants associated with the assistance at the current market price and the financial institution will no longer be subject to any of the TARP compensation restrictions.

• Retroactive Review of 2008 and Early 2009 Bonuses. Treasury must retroactively review bonuses, retention awards and other compensation paid to the senior executive officers and the next 20 most highly-compensated employees of each TARP recipient before the date of enactment of the new legislation. The review is to determine whether such compensation is inconsistent with the purposes of the new legislation or the TARP or is otherwise contrary to the public interest and, if so, Treasury must seek reimbursement from the TARP recipient and individual employee with respect to such compensation or bonuses.

• Annual Say on Pay Vote. At each annual or other meeting of shareholders during the TARP period, TARP recipients must allow a separate nonbinding “say on pay” shareholder vote to approve executives’ compensation. The legislation requires the SEC to issue any final rules and regulations required by the “say on pay” provision within one year after enactment. It is not clear if this requirement will apply to upcoming annual proxies or only after regulations have been issued.

• Policy on Luxury Expenditures. Boards of directors of TARP recipients must adopt companywide policies on excessive or luxury expenditures (as identified by Treasury), including excessive spending on transportation (including aviation) services, entertainment, office and facility renovations, and other events or activities that are not “reasonable expenditures for staff development, reasonable performance incentives, or other similar measures conducted in the normal course” of the TARP recipient’s business operations.

• Required Certification by CEO and CFO. The CEO and CFO of each TARP recipient must provide written certification of compliance with Section 111 of EESA. Public companies will provide the certification to the SEC together with their annual filings, and private companies will provide the certification to Treasury.

• $500,000 Tax Deduction Cap. The legislation provides that, during the TARP period, each TARP recipient will be subject to the provisions of section 162(m)(5) of the Internal Revenue Code, “as applicable”. Section 162(m)(5), recently enacted by EESA, imposes a $500,000 cap on deductible compensation for financial institutions that sell more than $300 million of assets through their participation in the TARP auction purchase program.(2)

* * *
ENDNOTES
(1) For more information about the Emergency Economic Stabilization Act of 2008 and its executive compensation standards, please see our memoranda entitled “Emergency Economic Stabilization Act” and “Financial Bailout Legislation Restricts Executive Compensation”, both dated October 7, 2008; “Treasury Implements New Executive Compensation Standards” dated October 21, 2008; and “Strict New Executive Compensation Standards Under TARP” dated February 5, 2009.
(2) For more information about this provision, see our memorandum entitled “Financial Bailout Legislation Restricts Executive Compensation”, dated October 7, 2008, pages 6-7.

Executive Compensation: 03-15-09 Unintended Consequences

Class, full article here. Can you describe any unintended consequences?

WASHINGTON — The giant stimulus package that cleared Congress Friday includes a last-minute addition that restricts bonuses for top earners at firms receiving federal cash — including those that already received it — more severely than the Obama administration’s previous pay limits.

The most stringent pay restriction bars any company receiving funds from paying top earners bonuses equal to more than one-third of their total annual compensation. That could severely crimp pay packages at big banks, where top officials commonly get relatively modest salaries but often huge bonuses.

Financial Stability Plan: 02-10-09 Fact Sheet

FACT SHEET FINANCIAL STABILITY PLAN

The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts. Today, our nation faces the most severe financial crisis since the Great Depression. It is a crisis of confidence, of capital, of credit, and of consumer and business demand. Rather than providing the credit that allows new ideas to flourish into new jobs, or families to afford homes and autos, we have seen banks and other sources of credit freeze up – contributing to and potentially accelerating what already threatens to be a serious recession. Restarting our economy and job creation requires both jumpstarting economic demand for goods and services through our American Recovery and Reinvestment Act and simultaneously ensuring through our new Financial Stability Plan that businesses with good ideas have the credit to grow and expand, and working families can get the affordable loans they need to meet their economic needs and power an economic recovery.

To address the financial crisis, the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem. To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.

To protect taxpayers and ensure that every dollar is directed toward lending and economic revitalization, the Financial Stability Plan will institute a new era of accountability, transparency and conditions on the financial institutions receiving funds. To ensure that we are responding to this crisis as one government, Secretary Timothy Geithner — working in collaboration and joined by Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, Office of Thrift Supervision Director John Reich and Comptroller of the Currency John Dugan – is bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery.

New Financial Stability Plan

1. Financial Stability Trust: A key aspect of the Financial Stability Plan is an effort to strengthen our financial institutions so that they have the ability to support recovery. This Financial Stability Trust includes:

a.A Comprehensive Stress Test: A Forward Looking Assessment of What Banks Need to Keep Lending Even Through a Severe Economic Downturn: Today, uncertainty about the real value of distressed assets and the ability of borrowers to repay loans as well as uncertainty as to whether some financial institutions have the capital required to weather a continued decline in the economy have caused both a dramatic slowdown in lending and a decline in the confidence required for the private sector to make much needed equity investments in our major financial institutions. The Financial Stability Plan will seek to respond to these challenges with:

•Increased Transparency and Disclosure: Increased transparency will facilitate a more effective use of market discipline in financial markets. The Treasury Department will work with bank supervisors and the Securities and Exchange Commission and accounting standard setters in their efforts to improve public disclosure by banks. This effort will include measures to improve the disclosure of the exposures on bank balance sheets. In conducting these exercises, supervisors recognize the need not to adopt an overly conservative posture or take steps that could inappropriately constrain lending.

•Coordinated, Accurate, and Realistic Assessment: All relevant financial regulators — the Federal Reserve, FDIC, OCC, and OTS — will work together in a coordinated way to bring more consistent, realistic and forward looking assessment of exposures on the balance sheet of financial institutions..

•Forward Looking Assessment – Stress Test: A key component of the Capital Assistance Program is a forward looking comprehensive “stress test” that requires an assessment of whether major financial institutions have the capital necessary to continue lending and to absorb the potential losses that could result from a more severe decline in the economy than projected.

•Requirement for $100 Billion-Plus Banks: All banking institutions with assets in excess of $100 billion will be required to participate in the coordinated supervisory review process and comprehensive stress test.

b. Capital Assistance Program: While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive “stress test” will have access to a Treasury provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital. While most banks have strong capital positions, the Financial Stability Trust will provide a capital buffer that will: Operate as a form of “contingent equity” to ensure firms the capital strength to preserve or increase

3 lending in a worse than expected economic downturn. Firms will receive a preferred security investment from Treasury in convertible securities that they can convert into common equity if needed to preserve lending in a worse-than-expected economic environment. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution’s stock price as of February 9, 2009. Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital from the CAP after a supervisory review.

c. Financial Stability Trust: Any capital investments made by Treasury under the CAP will be placed in a separate entity – the Financial Stability Trust – set up to manage the government’s investments in US financial institutions.

2. Public-Private Investment Fund: One aspect of a full arsenal approach is the need to provide greater means for financial institutions to cleanse their balance sheets of what are often referred to as “legacy” assets. Many proposals designed to achieve this are complicated both by their sole reliance on public purchasing and the difficulties in pricing assets. Working together in partnership with the FDIC and the Federal Reserve, the Treasury Department will initiate a Public-Private Investment Fund that takes a new approach.

• Public-Private Capital: This new program will be designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion.

• Private Sector Pricing of Assets: Because the new program is designed to bring private sector equity contributions to make large-scale asset purchases, it not only minimizes public capital and maximizes private capital: it allows private sector buyers to determine the price for current troubled and previously illiquid assets

3. Consumer & Business Lending Initiative – Up to $1 Trillion: Addressing our credit crisis on all fronts means going beyond simply dealing with banks. While the intricacies of secondary markets and securitization – the bundling together and selling of loans – may be complex, they account for almost half of the credit going to Main Street as well as Wall Street. When banks making loans for small businesses, commercial real estate or autos are able to bundle and sell those loans into a vibrant and liquid secondary market, it instantly recycles money back to financial institutions to make additional loans to other worthy borrowers. When those markets freeze up, the impact on lending for consumers and businesses – small and large – can be devastating. Unable to sell loans into secondary markets, lenders freeze up, leading those seeking credit like car loans to face exorbitant rates. Between 2006 and 2008, there was a net $1.2 trillion decline in securitized lending (outside of the GSEs) in these markets. That is why a core component of the Financial Stability Plan is:

• A Bold Expansion Up to $1 Trillion: This joint initiative with the Federal Reserve builds off, broadens and expands the resources of the previously announced but not yet implemented Term Asset-Backed Securities Loan Facility (TALF). The Consumer & Business Lending

Initiative will support the purchase of loans by providing the financing to private investors to help unfreeze and lower interest rates for auto, small business, credit card and other consumer and business credit. Previously, Treasury was to use $20 billion to leverage $200 billion of lending from the Federal Reserve. The Financial Stability Plan will dramatically increase the size by using $100 billion to leverage up to $1 trillion and kick start lending by focusing on new loans.

• Protecting Taxpayer Resources by Limiting Purchases to Newly Packaged AAA Loans: Because these are the highest quality portion of any security — the first ones to be paid — we will be able to best protect against taxpayer losses and efficiently leverage taxpayer money to support a large flow of credit to these sectors.

• Expand Reach – Including Commercial Real Estate: The Consumer & Business Lending Initiative will expand the initial reach of the Term Asset-Backed Securities Loan Facility to now include commercial mortgage-backed securities (CMBS). In addition, the Treasury will continue to consult with the Federal Reserve regarding possible further expansion of the TALF program to include other asset classes, such as non-Agency residential mortgage-backed securities (RMBS) and assets collateralized by corporate debt.

New Era of Transparency, Accountability, Monitoring and Conditions: A major and legitimate source of public frustration and even anger with the initial deployment of the first $350 billion of EESA funds was a lack of accountability or transparency as to whether assistance was being provided solely for the public interest and a stronger economy, rather than the private gain of shareholders, bondholders or executives. Going forward, the Financial Stability Plan will call for greater transparency, accountability and conditionality with tougher standards for firms receiving exceptional assistance. These will be the new standards going forward and are not retroactive. These stronger monitoring conditions were informed by recommendations made by formal oversight groups – the Congressional Oversight Panel, the Special Inspector General, and the Government Accountability Office — as well as Congressional committees charged with oversight of the banking system.

a. Requiring Firms to Show How Assistance from Financial Stability Plan Will Expand Lending: The core of the new monitoring requirement is to require recipients of exceptional assistance or capital buffer assistance to show how every dollar of capital they receive is enabling them to preserve or generate new lending compared to what would have been possible without government capital assistance.

• Intended Use of Government Funds: All recipients of assistance must submit a plan for how they intend to use that capital to preserve and strengthen their lending capacity. This plan will be submitted during the application process, and the Treasury Department will make these reports public upon completion of the capital investment in the firm.

• The Impact on Lending Requirement: Firms must detail in monthly reports submitted to the Treasury Department their lending broken out by category, showing how many new loans they provided to businesses and consumers and how many asset-backed and mortgage-backed securities they purchased, accompanied by a description of the lending environment in the communities and markets they serve. This report will also include a comparison to their most rigorous estimate of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10-Q or 10-K reports. Additionally, the Treasury Department will – in collaboration with banking agencies – publish and regularly update key metrics showing the impact of the Financial Stability Plan on credit markets. These reports will be put on the Treasury FinancialStability.gov website so that they can be subject to scrutiny by outside and independent experts.

• Taxpayers’ Right to Know: All information disclosed or reported to Treasury by recipients of capital assistance will be posted on FinancialStability.gov because taxpayers have the right to know whether these programs are succeeding in creating and preserving lending and financial stability.

b. Committing Recipients to Mortgage Foreclosure Mitigation: All recipients of capital investments under the new initiatives announced today will be required to commit to participate in mortgage foreclosure mitigation programs consistent with guidelines Treasury will release on industry standard best practices.

c. Restricting Dividends, Stock Repurchases and Acquisitions: Limiting common dividends, stock repurchases and acquisitions provides assurance to taxpayers that all of the capital invested by the government under the Financial Stability Trust will go to improving banks’ capital bases and promoting lending. All banks that receive new capital assistance will be:

• Restricted from Paying Quarterly Common Dividend Payments in Excess Of $0.01 Until the Government Investment Is Repaid: Banks that receive exceptional assistance can only pay $0.01 quarterly. That presumption will be the same for firms that receive generally available capital unless the Treasury Department and their primary regulator approve more based on their assessment that it is consistent with reaching their capital planning objectives.

• Restricted from Repurchasing Shares: All banks that receive funding from the new Capital Assistance Program are restricted from repurchasing any privately-held shares, subject to approval by the Treasury Department and their primary regulator, until the government’s investment is repaid.

• Restricted from Pursuing Acquisitions: All banks that receive capital assistance are restricted from pursuing cash acquisitions of healthy firms until the government investment is repaid. Exceptions will be made for explicit supervisor-approved restructuring plans.

d. Limiting Executive Compensation: Firms will be required to comply with the senior executive compensation restrictions announced February 4th, including those pertaining to a $500,000 in total annual compensation cap plus restricted stock payable when the government is getting paid back, “say on pay” shareholder votes, and new disclosure and accountability requirements applicable to luxury purchases.

e. Prohibiting Political Interference in Investment Decisions: The Treasury Department has announced measures to ensure that lobbyists do not influence applications for, or disbursements of, Financial Stability Plan funds, and will certify that each investment decision is based only on investment criteria and the facts of the case.

f. Posting Contracts and Investment Information on the Web: The Treasury Department will post all contracts under the Financial Stability Plan on FinancialStability.gov within five to 10 business days of their completion. Whenever Treasury makes a capital investment under these new initiatives, it will make public the value of the investment, the quantity and strike price of warrants received, the schedule of required payments to the government and when government is being paid back. The terms of pricing of these investments will be compared to terms and pricing of recent market transactions during the period the investment was made, if available.

5. Housing Support and Foreclosure Prevention: There is bipartisan agreement today that stemming foreclosures and restructuring troubled mortgages will help slow the downward spiral harming financial institutions and the real American economy. Many Congressional leaders, housing advocates, and ordinary citizens have been disappointed that the Troubled Asset Relief Program was not aimed at ending the foreclosure crisis. We will soon be announcing a comprehensive plan that builds on the work of Congressional leaders and the FDIC. Among other things, our plan will:

• Drive Down Overall Mortgage Rates: The Treasury Department and the Federal Reserve remain committed to expand as necessary the current effort by the Federal Reserve to help drive down mortgage rates – freeing up funds for working families – through continuation of its efforts to spend as much as $600 billion for purchasing of GSE mortgage-backed securities and GSE debt.

• Commit $50 Billion to Prevent Avoidable Foreclosures of owner-occupied middle class homes by helping to reduce monthly payments in line with prudent underwriting and long-term loan performance.

• Help Bring Order and Consistency to the various efforts to address the foreclosure crisis by establishing loan modification guidelines and standards for government and private programs.

• Require All Financial Stability Plan Recipients to Participate in Foreclosure Mitigation Plans consistent with Treasury guidance.

• Build Flexibility into Hope for Homeowners and the FHA to enable loan modifications for a greater number of distressed borrowers.

Small Business and Community Lending Initiative: Few aspects of our current financial crisis have created more justifiable resentment than the specter of hard-working entrepreneurs and small business owners seeing their companies hurt and even bankrupt because of a squeeze on credit they played no role in creating. Currently, the increased capital constraints of banks, the inability to sell SBA loans on the secondary market and a weakening economy have combined to dramatically reduce SBA lending at the very time our economy cannot afford to deny credit to any entrepreneur with the potential to create jobs and expand markets. Further adding to this frustration is the sense that community banks – which still engage in relationship lending that serves their local communities — have been overlooked not just during this crisis, but over the last several years.

Over the next several days, President Obama, the Treasury Department and the SBA will announce the launch of a Small Business and Community Bank Lending Initiative: This effort will seek to arrest the precipitous decline in SBA lending – down 57 percent last quarter from the same quarter a year earlier for the flagship 7(a) loans through:

• Use of the Consumer &Business Lending Initiative to finance the purchase of AAA-rated SBA loans to unfreeze secondary markets for small business loans.

• Increasing the Guarantee for SBA Loans to 90%: The Administration is seeking to pass in the American Recovery and Reinvestment Act an increase in the guarantee of SBA loans from as low as 75% to as high as 90%.

• Reducing Fees for SBA 7(a) and 504 Lending and Provide Funds for Both Oversight and Speedier and Less Burdensome Processing of Loan Applications.

FinancialStability.gov: 02-10-09 New Economic Crisis Website

This site is coming soon.

On Tuesday, February 10th, Treasury Secretary Timothy Geithner will outline a comprehensive plan to restore stability to our financial system. In the address, Secretary Geithner will discuss the Obama Administration’s strategy to strengthen our economy by getting credit flowing again to families and businesses, while imposing new measures and conditions to strengthen accountability, oversight and transparency in how taxpayer dollars are spent. And Secretary Geithner will explain how the financial stability plan will be critical in supporting an effective and lasting economic recovery.

For more information, please visit http://www.treas.gov/initiatives/eesa/

WATCH NOW: Speech outlining new comprehensive financial stability plan
Treasury Secretary Tim Geithner

Windows Media
Real Player

Windows Media Closed Captioned
Real Player Closed Captioned

Fact Sheet

02/10/2009 – Financial Stability Plan Fact Sheet

Press Releases and Statements

02/04/2009 – Treasury Announces New Restrictions On Executive Compensation

01/28/2009 – Treasury Announces New Policy To Increase Transparency in Financial Stability Program

01/27/2009 – Treasury Secretary Announces New Rules to Limit Lobbyist Influence In federal Investment Decisions

Karen Hopper Wruck: 02-08-09 Economist of the Day

We choose Karen Wruck as Economist of the Day. Karen is Associate Dean for MBA Programs and the Dean’s Distinguished Professor of Finance.

Karen Wruck

Contact Information

Email: wruck_1@cob.osu.edu
Tel: (614) 688-5443

Department of Finance
The Ohio State University
740 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210

Short Biography

Karen Hopper Wruck is Associate Dean for MBA Programs, Dean’s Distinguished Professor and Professor of Finance at the Fisher College of Business. She conducts research and teaches in the fields of financial and organizational economics, specializing in corporate restructuring, financial distress, corporate governance and management compensation. She has published numerous articles in leading academic journals and developed highly successful courses for delivery to MBAs and executives. In addition, her work and opinions have been highlighted in business periodicals. Two of her articles were recognized as “all star papers” by the Journal of Financial Economics (based on citations). Wruck is an associate editor of the Journal of Financial Economics, Journal of Corporate Finance, Journal of Financial Research and European Financial Management. In addition, she has served as an ad hoc referee for many other academic journals. She has been selected as the outstanding faculty member by students in the core of the full time MBA program and the executive MBA program at Ohio State. She has also received a faculty-selected award for exceptional contribution toward graduate student intellectual and cultural growth at OSU. Wruck serves as an academic director of the Financial Management Association and the Turnaround Management Association.

Teaching

MBA 812 MANAGERIAL ECONOMICS

Course Objectives

To provide an economics-oriented framework for analyzing managerial and organizational problems, and a better understanding of how a firm’s internal rules of the game affect behavior and performance. To develop your ability to expand and enrich your knowledge of organizations markets and management from the evidence acquired throughout your careers. You should expect to leave the course not with a set of cookbook solutions, but an effective, powerful way of thinking about business problems and their solutions.

SYLLABUS

READING LIST

FIN 821 ADVANCED CORPORATE FINANCE

Course Objectives

This purpose of this course is to provide students the opportunity to develop deep skills and understanding of the theory and practice that underlie corporate financial policy and related complex financial transactions. Topics covered will include the interaction between financial policy and corporate strategy, the market for corporate control, bankruptcy and restructuring and special advanced topics including project finance, asset-backed securities and loan syndication. The course content will be useful to students whose career goals and objectives include work in corporate finance at a public or private firm, consulting to corporations regarding financial policy and the structure of financial transactions, and conducting financial analysis to assess the financial decisions made and transactions undertaken by management.

SYLLABUS

Teaching and Course Development:

Advanced Corporate Finance, elective course in MBA curriculum, Max M. Fisher College of Business, The Ohio State University, 2006-present.

Managerial Economics: Organizations, Markets and Management, required MBA course in full time MBA program and executive MBA program, Max M. Fisher College of Business, The Ohio State University, 1999-present.

Microeconomics Review, non-credit short course for full time MBA students and executive MBA students taken prior to their enrollment in the full time program, The Ohio State University, 1999-present.

Coordination, Control and the Management of Organizations, course head for elective course covering topics in corporate control, restructuring and organization design with total enrollment of approximately 550 students. The course emphasizes the development and application of a theory of organizations with foundations in applied microeconomics, financial economics and psychology. For second year MBA students, Organizations and Markets Unit, Harvard Business School, 1991-1999.

Elective mini-courses and sessions in executive education programs, Harvard Business School, 1988-1999.

First Year Control, required course for first year MBA students, Harvard Business School, 1988-1991.

Theory of Finance and Corporate Financial Policy, elective course for MBA students, Simon School of Business, University of Rochester, 1987.

Cases in Finance, elective course for second year MBA students, Simon School of Business, University of Rochester, 1986-1987.

Financial Accounting, elective course for undergraduate students, Simon School of Business, University of Rochester, 1986.

Publicly Available Course Materials:

Jensen, Michael C. and Karen H. Wruck, Coordination, Control, and the Management of Organizations: Complete Package of Course-Related Materials (in Four Documents), April 20, 1998. (See http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=58704)

Jensen, Michael C., George P. Baker, Carliss Y. Baldwin, and Karen H. Wruck Organizations and Markets: History and Development of the Course and the Field, by, Dec. 10, 1997 (forthcoming in “The Intellectual Venture Capitalist: John H. McArthur and the Work of the Harvard Business School,” 1980-1995, Thomas K. McCraw and Jeffrey L. Cruickshank, eds, (Harvard Business School Press, 1998)). (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=78009)

Jensen, Michael C. and William H. Meckling, with contributions from George P. Baker and Karen H. Wruck, Coordination, Control, and the Management of Organizations: Course Notes, by April 20, 1998, Harvard Business School Working Paper. (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=78008)

Jensen, Michael and Karen H. Wruck, Coordination, Control, and the Management of Organizations: Course Content and Materials, April 20, 1998, unpublished manuscript, Harvard Business School. (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=77969)

Jensen, Michael C., William H. Meckling, George P. Baker, and Karen H. Wruck, with contributions from Carliss Y. Baldwin, and Malcolm S. Salter, Coordination, Control, and the Management of Organizations: Practice Questions, April 20, 1998, unpublished manuscript, Harvard Business School. (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=78010)

Wruck, Karen H., Ownership, Governance and Control of Organizations: Course Module Overview Note, Unpublished Manuscript, Harvard Business School, April 1997. (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=41942)

Classroom Materials:

Paine, Lynn S. and Karen H. Wruck, Sealed Air Corporation: Globalization and Corporate Culture Case Series.

Sealed Air Corporation: Globalization and Corporate Culture (A), Harvard Business School Case N9-398-096.

Sealed Air Corporation: Globalization and Corporate Culture (B), Harvard Business School Case N9-398-097.

Wruck, Karen H. and Sherry P. Roper, American Cyanamid Case Series.

American Cyanamid (A): Board Response to a Hostile Takeover Offer, Harvard Business School Case 9-897-048 (Rev. 12/3/97).

American Cyanamid (B): Management’s Response to the (A) Case, Harvard Business School Case 9-897-178 (Rev. 12/3/97).

American Cyanamid (C): Epilogue, Harvard Business School Case 9-897-064 (Rev. 12/3/97).

Teaching Note, American Cyanamid (A, B & C), Harvard Business School Case 5-897-161.

American Cyanamid (A & B) Combined, Harvard Business School Case 9-898-120 (12/3/97).

Wruck, Karen H. and Sherry P. Roper, Cytec Industries’ Spin-Off Case Series.

Cytec Industries’ Spin-Off (A): Sink or Swim?, Harvard Business School Case 9-897-053 (12/8/97).

Cytec Industries’ Spin-Off (B): Managing the Challenges of Success, Harvard Business School Case 9-897-054 (2/12/98).

Teaching Note, Cytec Industries’ Spin-Off (A & B), Harvard Business School Case 5-897-195.

Dyck, I. J. Alexander and Karen H. Wruck, Germany’s Evolving Privatization Policies: The Plaschna Management KG, Harvard Business School Case 9-795-120 (3/15/95).

Teaching Note, Germany’s Evolving Privatization Policies: The Plaschna Management KG , Harvard Business School Case 5-796-036.

Baker, George P., Perry Fagan, Michael C. Jensen and Karen H. Wruck, Value Creation, Harvard Business School Case 1-396-089.

Baldwin, Carliss Y., Michael C. Jensen and Karen H. Wruck, The Case of the Colored Post-It Notes, Harvard Business School Case 9-897-069 (12/6/96).

Wruck, Karen H. and A. Scott Keating, Sterling Chemicals Inc. Quality and Process Improvement, Harvard Business School Case 9-493-026 (Rev. 12/1/97).

Teaching Note, Sterling Chemicals Inc. Quality and Process Improvement, Harvard Business School Case 5-897-160 (Rev. 12/1/97).

Wruck, Karen H. and Steve-Anna Stephens, Safeway, Inc.’s Leveraged Buyout Inc. Case Series.

Safeway, Inc.’s Leveraged Buyout (A), Harvard Business School Case 9-294-139 (Rev. 12/1/97).

Safeway, Inc.’s Leveraged Buyout (B), Harvard Business School Case 9-294-140 (Rev. 12/1/97).

Safeway, Inc.’s Leverage Buyout (C): Media Response, Harvard Business School Case 9-294-141 (Rev. 12/1/97).

Teaching Note, Safeway, Inc.’s Leverage Buyout (A), (B) and (C), Harvard Business School Case 5-897-184 (Rev. 12/1/97).

Wruck, Karen H., Revco D.S. Inc Case Series.

Revco D.S., Inc. (A), Harvard Business School Case 9-294-125 (Rev. 12/5/97).

Teaching Note, Revco D.S., Inc. (A), Harvard Business School Case 5-897-166 (Rev. 12/5/97).

Revco D.S., Inc. (B) and Zell/Chilmark Partners, with Perry Fagan, Harvard Business School Case 9-294-126 (Rev. 12/5/97).

Teaching Note, Revco D.S., Inc. (B) and Zell/Chilmark Partners, Harvard Business School Case 5-897-167 (rev. 12/5/97).

Wruck, Karen H., Sealed Air Corporation Case Series.

Sealed Air Corporation’s Leveraged Recapitalization (A), Harvard Business School Case 9-294-122 (Rev. 12/5/97).

Sealed Air Corporation’s Leveraged Recapitalization (B), Harvard Business School Case 9-294-123 (Rev. 12/5/97).

Teaching Note, Sealed Air Corporation’s Leveraged Recapitalization (A) & (B), Harvard Business School Case 5-295-143 (Rev. 12/5/97).

Baker, George P. and Karen H. Wruck, The O.M. Scott & Sons Company, Harvard Business School Case 9-190-148 (Rev. 9/28/90).

Teaching Note, The O.M. Scott & Sons Company, Harvard Business School Case 5-191-216.

Jensen, Michael C. and Karen H. Wruck, Fighton Inc. Case Series.

Fighton, Inc., (A), Harvard Business School Case 9-391-056 (Rev. 10/1/92).

Fighton, Inc., (B), Harvard Business School Case 9-391-265.

Teaching Note, Fighton Inc., (A) & (B), Harvard Business School Case 5-491-111.

Wruck, Karen H., Siemens Electric Motor Works Case Series.

Siemens Electric Motor Works (A): Process Oriented Costing, with Robin Cooper, Harvard Business School Case 9-189-089 (Rev. 6/28/93).

Teaching Note, Siemens Electric Motor Works (A): Process Oriented Costing, with Robin Cooper, Harvard Business School Case 5-189-127 (Rev. 1/7/93).

Siemens Electric Motors (B): Pricing Interdivisional Sales, Harvard Business School Case 9-189-090 (Rev. 12/27/89).

Teaching Note, Siemens Electric Motor Works (B): Pricing Interdivisional Sales, Harvard Business School Case 5-190-128 (Rev. 3/1/89).

Siemens Electric Motor Works (A) and (B) Combined, Harvard Business School Case 9-190-052.

Working Papers and Manuscripts

Wruck, Karen H. and Yilin Wu, 2006, The Value of Relationship Investing: Evidence from Private Placements of Equity by U.S. Public Firms, Unpublished manuscript, Max M. Fisher College of Business, The Ohio State University and Hong Kong University of Science and Technology.

Wruck, Karen H. and Yilin Wu, 2005, Large Shareholders and Firm Value: Evidence from Private Placements of Equity by U.S. Public Firms, Unpublished manuscript, Max M. Fisher College of Business, The Ohio State University and Hong Kong University of Science and Technology.

Wruck, Karen H. and Michael C. Jensen, 2005, Management Revolution: The Legacy of the Market for Corporate Control, volume 2, Book Manuscript under contract with Harvard University Press.

Minton, Bernadette A. and Karen H. Wruck, 2005, Leverage, Asset Liquidity and Management Credibility: New Evidence on the Determinants of Corporate Borrowing, Unpublished Manuscript, Max M. Fisher College of Business, The Ohio State University.

Minton, Bernadette A. and Karen H. Wruck, 2002, Is Low Leverage Good for Shareholders? Stock Price Performance and the Determinants of Capital Structure, Dice Center Working Paper, Max M. Fisher College of Business, The Ohio State University.

Palepu, Krishna G. and Karen H. Wruck, 1992, Consequences of Leveraged Shareholder Payouts: Defensive versus Voluntary Recapitalizations, Harvard Business School Working Paper.

Publications

Wruck, Eric G. and Karen H. Wruck, 2002, Restructuring Top Management: Evidence from Corporate Spinoffs, Journal of Labor Economics 20, S176-S218.

DeAngelo, Harry, Linda DeAngelo and Karen H. Wruck, 2002, Asset Liquidity, Debt Covenants and Managerial Discretion in Financial Distress: The Collapse of L.A. Gear, Journal of Financial Economics 64, 3-34.

Wruck, Karen Hopper, 2000, Compensation, Incentives and Organizational Change: Ideas and Evidence from Theory and Practice, Breaking the Code of Change, Michael Beer and Nitin Nohria, eds., Harvard Business School Press, Boston.

Kaplan, Steven N., Mark L. Mitchell, and Karen H. Wruck, 2000, A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organization Design, Incentives and Internal Capital Markets, Productivity of Mergers and Acquisitions, Steven Kaplan, ed., National Bureau of Economic Research, Conference Volume. (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=10995)

Dyck, I.J. Alexander and Karen H. Wruck, 1998, The Government as Venture Capitalist, Organizational Structure and Contract Design in Germany’s Privatization Process, European Financial Management.

Wruck, Karen Hopper and Michael C. Jensen, 1998, The Two Key Principles Behind Effective TQM Programs, European Financial Management, volume 4, 401-423.

Dyck, I.J. Alexander and Karen H. Wruck, 1998, Organization Structure, Contract Design and Government Ownership: A Clinical Analysis of German Privatization, Journal of Corporate Finance: Contracting, Governance and Organization, volume 4, pp. 265-299.

Weiss, Lawrence A. and Karen H. Wruck, 1998, Information Problems, Conflicts of Interest, and Asset Stripping: Chapter 11’s Failure in the Case of Eastern Airlines, Journal of Financial Economics, volume 48, pp. 55-97.

Wruck, Karen Hopper and Michael C. Jensen, 1997, Science, Specific Knowledge and Total Quality Management, Journal of Applied Corporate Finance, Summer, volume 10. (Downloadable at http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=55993)

Wruck, Karen Hopper, 1995, Financial Policy as a Catalyst for Organizational Change: Sealed Air Corporation’s Leveraged Special Dividend, Journal of Applied Corporate Finance, volume 7, pp. 20-37.

Wruck, Karen Hopper and Michael C. Jensen, 1994, Science, Specific Knowledge and Total Quality Management, Journal of Accounting and Economics, volume 18, pp. 247-287. Reprinted in The Practice of Quality Management, 1996, edited by Uday Karmarkar and Phillip Lederer, (Kluwer Academic Publishers).

Wruck, Karen Hopper, 1994, Financial Policy, Internal Control, and Performance: Sealed Air Corporation’s Leveraged Special Dividend, Journal of Financial Economics, volume 36, pp. 157-192.

Wruck, Karen Hopper, 1991, What Really Went Wrong at Revco?, Journal of Applied Corporate Finance, Summer 1991, pp. 79-92. Reprinted in The New Corporate Finance: Where Theory Meets Practice, 1993, edited by Donald Chew (McGraw Hill).

Baker, George P., and Karen H. Wruck, 1991, Lessons from a Middle Market LBO: The Case of O.M. Scott, Journal of Applied Corporate Finance, Spring 1991, pp. 46-58. Reprinted in The New Corporate Finance: Where Theory Meets Practice, 1993, edited by Donald Chew (McGraw Hill).

Wruck, Karen Hopper, 1990, Financial Distress, Reorganization, and Organizational Efficiency, Journal of Financial Economics, volume 27, pp. 419-444. Reprinted in Bankruptcy and Distressed Restructurings: Analytical Issues and Investment Opportunities, 1992, edited by Edward I. Altman (Business One Irwin Publishers).

Baker, George P., and Karen H. Wruck, 1989, Organizational Changes and Value Creation in Leveraged Buyouts: The Case of O.M. Scott & Sons Company, Journal of Financial Economics, volume 25, pp.163-190. Reprinted in The Challenge of Organizational Change, 1992, edited by Rosabeth Moss Kanter, Barry A. Stein and Todd D. Jick, (Free Press, New York), pp. 349-365, Performance Measurement, Evaluation, and Incentives, 1992, edited by William J. Bruns (Harvard Business School Press, Boston), and Management Buyouts, 1994, edited by Mike Wright (Dartmouth Publishing Company Limited, Hampshire, England).

Wruck, Karen Hopper, 1989, Equity Ownership Concentration and Firm Value: Evidence From Private Equity Financings, Journal of Financial Economics, volume 23, pp. 3-28. (Journal of Financial Economics “All-Star” paper based on top two papers per volume in terms of citations for papers published between 1974 and 1995).

Warner, Jerold B., Ross L. Watts, and Karen H. Wruck, 1988, Stock Prices and Top Management Changes, Journal of Financial Economics, volume 20, pp. 461-492. (Journal of Financial Economics “All-Star” paper based on top two papers per volume in terms of citations for papers published between 1974 and 1995).

Published Comments and Book Reviews

Wruck, Karen H., 1997, Review of Corporate Bankruptcy: Economic and Legal Perspectives, edited by Jagdeep S. Bhandari and Lawrence A. Weiss, Cambridge University Press, Journal of Finance, volume 52, pp. 1752-1755.

Wruck, Karen H., 1993, Stock-Based Incentive Compensation, Asymmetric Information and Investment Behavior: A Comment, Journal of Accounting and Economics, volume 16, pp. 373-380.

Editorial Activities

Associate Editor: Journal of Corporate Finance, Journal of Financial Economics, Journal of Financial Research, European Financial Management, formerly two terms for Journal of Accounting and Economics.

Advisory Editor: Social Sciences Electronic Publishing (http://www.ssrn.com), FEN-Educator Electronic Journal, Organizations and Markets Electronic Journal.

Ad Hoc Referee: Financial Management, Journal of Accounting and Economics, Journal of Business, Journal of Corporate Finance, Journal of Economics and Management Strategy, Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Industrial Organization, Journal of Industrial Economics, Journal of Law, Economics and Organizations, Journal of Management Studies, Managerial and Decision Economics, Rand Journal, Review of Financial Studies.

Seminars, Presentations and Professional Service (partial listing)

Seminars and Symposia (in alphabetical order):

· Arizona State University, W.P. Carey School of Business.

· Atlanta Finance Forum (Atlanta Fed, Emory, Georgia State, Georgia Tech).

· Boston College, Wallace E. Carroll Graduate School of Management.

· Columbia University, Columbia Business School.

· Dartmouth College, Amos Tuck Graduate School of Business.

· Davidson College, Seminar series for senior economics majors.

· Emory University, Goizueta School of Business.

· Harvard University, Graduate School of Business (Financial Decisions and Control Workshop, Finance Seminar Series, Economics of Organizations Seminar Series, Conference on Methodologies in Finance).

· Indiana University, Kelley School of Business.

· National Bureau of Economic Research, Corporate Finance Meetings
(seminar presentation, discussant at various conferences).

· Northwestern University, J. L. Kellogg Graduate School of Management.

· Rutgers University, Conference on Capital Structure.

· Southern Methodist University, Edwin L. Cox School of Business.

· The Ohio State University, Max M. Fisher College of Business.

· Turnaround Management Association, New York, New York.

· University of Cincinnati, College of Business.

· University of Maryland, College of Business Management, Symposium on Compensation and Incentives.

· University of North Carolina, Chapel Hill, Kenan-Flagler Business School.

· University of Oklahoma, College of Business Administration.

· University of Pittsburgh, Katz Graduate School of Business.

· University of Rochester, Simon Graduate School of Business Administration (seminars, Symposium on Total Quality Management, Symposium on Managerial Incentives and Corporate Performance).

· University of Southern California, Marshall School of Business Administration.

· University of Virginia, Darden Graduate School of Business Administration.

· Virginia Polytechnical Institute, Pamplin College of Business.

Professional Service (Leadership Positions, Conferences):

Financial Management Association, elected Academic Director, 2003.

Financial Management Association, Program Chair for Corporate Finance Track, 2003 Annual Meetings. Responsible for selecting program committee, overseeing paper review process, revising assessment of papers by outside reviewers and organizing accepted papers into over 50 sessions.

Turnaround Management Association, Academic Director, 2001-present.

American Economics Association
(paper presentations, discussant at various conferences).

American Finance Association
(paper presentations, discussant at various conferences).

Western Finance Association
(session organizer, paper presentation, discussant at various conferences).

Appointments

The Ohio State University, Max M. Fisher College of Business, Professor of Finance, July 2004-present, Dean’s Distinguished Professor, July 2003-present, Associate Dean of MBA Programs, May 2003-present, Associate Professor of Finance, July 1999-June 2004.

Harvard University, Graduate School of Business Administration, Associate Professor, Organizations and Markets Unit, July 1992-June 1999, Associate of the Department of Psychology, July 1998-June 1999, Assistant Professor, Accounting and Control Unit, September 1987-June 1992.

University of Rochester, Simon Graduate School of Business Administration, Instructor, Department of Finance, Department of Accounting, 1986-1987, Teaching Assistant, 1982-1986, Department of Finance, Organizations and Markets Department.

Education

University of Rochester, Simon Graduate School of Business Administration, Ph.D., Finance, Accounting, Economics, 1988, M.S., Applied Economics, 1985.

Davidson College, A.B. cum laude, Economics, 1982.

Awards and Honors

Outstanding Core Faculty Award, full time MBA program, Fisher College of Business, The Ohio State University, awarded by MBA class of 2005.

Outstanding Core Faculty Award, full time MBA program, Fisher College of Business, The Ohio State University, awarded by MBA class of 2004.

Academic Director, Financial Management Association, Elected April 2003.

Two publications (Warner, Watts and Wruck (1988) and Wruck (1989)) recognized as Journal of Financial Economics “All-Star” papers based on top two papers per volume in terms of citations for papers published between 1974 and 1995, December 2002.

Outstanding Core Faculty Award, full time MBA program, Fisher College of Business, The Ohio State University, awarded by MBA class of 2002.

Outstanding Faculty Award, Executive MBA program, Fisher College of Business, The Ohio State University, awarded by MBA class of 2002.

Westerbeck Graduate Teaching Award, Fisher College of Business, The Ohio State University, for exceptional contribution toward graduate student intellectual and cultural growth, awarded April 2002.

Turnaround Management Association, Academic Director, 2001-present.

Outstanding Core Faculty Award, full time MBA program, Fisher College of Business, The Ohio State University, awarded by MBA class of 2001.

Beta Gamma Sigma (Business Honor Society), 1988.

State Farm Companies Foundation Fellowship for Doctoral Dissertation in Business, 1985-1986.

Earhart Foundation Fellowship for Doctoral Dissertation in Business, 1984-1985.

American Accounting Association Doctoral Consortium Fellow, 1984.

University of Rochester fellowship and full tuition waiver, 1982-1987.

Phi Beta Kappa (Undergraduate Honor Society), 1982.

Omicron Delta Epsilon (Economics Honor Society), 1981.

Lunsford Richardson Honors Scholarship, Davidson College, 1981-1982.

Personal

Date of Birth: October 19, 1960. Married, three children.

Executive Compensation: 02-05-09 Senate Passes Pay Limits

Now, we will have creative accountants and finance professional finding a way around each rules (assuming the House passes the same amendment and the President signs the bill including the amendment. The interesting question is who will be the most creative and how quickly loopholes will open. The market will work.

WASHINGTON — The Senate approved an amendment Thursday that would tighten executive-compensation limits for companies receiving funds from the Treasury Department’s Troubled Asset Relief Program, or TARP.

The amendment, proposed by Senate Banking Chairman Christopher Dodd (D., Conn.), follows a Wednesday announcement by President Barack Obama that he would impose a $500,000 compensation limit on top executives at firms that receive “exceptional government” aid. Sen. Dodd’s amendment was agreed to by voice vote.

“If you don’t do something about this, we will never be able to build confidence and optimism people need to feel about the [TARP] program,” Sen. Dodd said.

Unlike Mr. Obama’s announced limits, Sen. Dodd’s amendment would prohibit firms receiving TARP funds from paying bonuses to their 25 highest-paid employees. The Treasury Department could increase the number of employees prohibited from receiving bonuses at firms that receive TARP funds. It also would require a retroactive review of those firms to determine if they had given improper bonuses while receiving TARP funds.

Another provision in the amendment would allow the government to “claw back,” or rescind, bonuses or incentives paid to executives if the pay was based on false earnings reports.

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