Suraj Srinivasan
Associate Professor of Business Administration
Suraj Srinivasan is an Associate Professor in the Accounting and Management area at Harvard Business School. He teaches the second year MBA elective Business Analysis and Valuation Using Financial Statements and to executives, Strategic Financial Analysis for Business Evaluation. He also teaches in corporate governance programs sMaking Corporate Boards More effective, Audit Committees in a New Era of Governance and Compensation Committees: New Challenges, New Solutions. Prior to joining HBS, Professor Srinivasan was an Assistant Professor of Accounting at the University of Chicago Graduate School of Business from 2004 – 2008 where he received the Ernest R. Wish Accounting Research prize in 2007.
Professor Srinivasan’s research examines corporate governance in the U.S. and internationally. He has studied issues such as the impact of globalization on corporate disclosure practices and compensation arrangements in international companies, the effect of securities regulation on incentives of companies to cross list in the U.S., incentives of audit firms to provide high quality audits, and reputational consequences for corporate directors when companies experience financial reporting problems.
Professor Srinivasan earned a bachelor's degree with honors in electrical and electronics engineering and a master's degree in physics with honors from Birla Institute of Technology and Sciences in India prior to earning an MBA from the Indian Institute of Management Calcutta. He also received a doctorate degree in business administration from Harvard Business School in 2004 where he received the George S. Dively Award for outstanding thesis research.
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Article
| Management Science
| Forthcoming
Which U.S. Market Interactions Affect CEO Pay? Evidence from UK Companies
Joseph Gerakos, Joseph Piotroski and Suraj Srinivasan
This paper examines how different types of interactions with U.S. markets by non-U.S. firms are associated with higher level of CEO pay, greater emphasis on incentive-based compensation, and smaller pay gap with U.S. firms. Using a sample of CEOs of UK firms and using both broad cross-sectional and narrow event-window tests, we find that capital market relationship in the form of an U.S. exchange listing is related to higher UK CEO pay; however, the effect is similar when UK firms have a listing in any foreign country implying a foreign listing effect not unique to the U.S. Product market relationships measured by the extent of sales in the U.S. by UK companies are associated with higher pay, greater use of U.S.-style pay arrangements, and a reduction in the U.S.-UK pay gap. The product market effect is incremental to the effect of a U.S. exchange listing, the extent of the firm's non-U.S. foreign market interactions, and the characteristics of the executive. The U.S-UK CEO pay gap reduces in UK firms that make U.S. acquisitions. Further, the firm's use of a U.S. compensation consultant increases the sensitivity of UK pay practices to U.S. product market relationships.
Keywords: CEO compensation;
international pay;
globalization;
corporate governance;
incentives;
cross-listing;
United Kingdom;
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Article
| Review of Accounting Studies
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Non-Audit Services and Financial Reporting Quality: Evidence from 1978-1980
Kevin Koh, Shiva Rajgopal and Suraj Srinivasan
We provide evidence for the long-standing concern on auditor conflicts of interest from providing non-audit services (NAS) to audit clients by using rarely explored NAS fee data from 1978 to 1980. Using this earlier setting, we find cross-sectional evidence of improved earnings quality when auditors provide NAS, especially those related to information services. This is consistent with better audit quality from knowledge spillovers due to the joint offering of audit and consulting services. Events related to the repeal of these NAS disclosures in 1982 are associated with a small positive stock price reaction suggesting no adverse economic consequences of withdrawing NAS disclosures. Further, following the repeal of disclosure requirements we find no change in the earnings quality of client firms. In sum, data drawn from an earlier time period suggest that auditors' reputational incentives, possible synergies, and knowledge transfers imply that NAS offered by audit firms can be associated with improved audit and reporting quality in client firms.
Keywords: Conflict of Interests;
Financial Reporting;
Accounting Audits;
Knowledge Dissemination;
Quality;
Corporate Disclosure;
Motivation and Incentives;
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Article
| Accounting Review
|
Audit Quality and Auditor Reputation: Evidence from Japan
Douglas Skinner and Suraj Srinivasan
We study events surrounding ChuoAoyama's failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC's Japanese affiliate and one of Japan's largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama's reputation. We use these events to provide evidence on the importance of auditors' reputation for quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama's clients defected from the firm after its suspension, consistent with the importance of reputation. Larger firms and those with greater growth options were more likely to leave, also consistent with the reputation argument.
Keywords: Accounting Audits;
Crime and Corruption;
Reputation;
Beauty and Cosmetics Industry;
Japan;
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Article
| Journal of Financial Economics
|
Corporate Governance When Founders Are Directors
Feng Li and Suraj Srinivasan
We examine CEO compensation, CEO retention policies, and M&A decisions in firms where founders serve as a director with a non-founder CEO (founder-director firms). We find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay for performance sensitivity for non-founder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared to non-founder firms. Overall, the evidence suggests that boards with founder-directors provide more high powered incentives in the form of pay and retention policies than the average U.S. board. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared to non-founder firms.
Keywords: Corporate Governance;
Executive Compensation;
Retention;
Policy;
Motivation and Incentives;
Performance;
Governing and Advisory Boards;
Mergers and Acquisitions;
Wages;
United States;
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Article
| Contemporary Accounting Research
|
Signaling Firm Performance Through Financial Statement Presentation: An Analysis Using Special Items
Edward J. Riedl and Suraj Srinivasan
This paper investigates whether managers' presentation of special items within the financial statements reflects economic performance or opportunism. Specifically, we assess special items presented as a separate line item on the income statement (income statement presentation) to those aggregated within another line item with disclosure only in the footnotes (footnote presentation). Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Empirical results reveal that special items receiving income statement presentation are less persistent relative to those receiving footnote presentation. These results are consistent across numerous alternative specifications. Overall, the findings are consistent with managers using the income statement versus footnote presentation to assist users in identifying those special items most likely to differ from other components of earnings-that is, for informational, as opposed to opportunistic, motivations.
Keywords: Managerial Roles;
Financial Statements;
Economics;
Performance;
Research;
Opportunities;
Business Earnings;
Motivation and Incentives;
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Journal Article
| Journal of Accounting Research
|
Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings
Suraj Srinivasan and Joseph Piotroski
In this paper, we examine the economic impact of the Sarbanes-Oxley Act (SOX) by analyzing foreign listing behavior onto U.S. and U.K. stock exchanges before and after the enactment of the Act in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995-2006, we develop an exchange choice model that captures firm-level, industry-level, exchange-level and country-level listing incentives, and test whether these listing preferences changed following the enactment of the Act. After controlling for firm characteristics and other economic determinants of these firms' exchange choice, we find that the listing preferences of large foreign firms choosing between U.S. exchanges and the LSE's Main Market did not change following the enactment of Sarbanes-Oxley. In contrast, we find that the likelihood of a U.S. listing among small foreign firms choosing between the Nasdaq and LSE's Alternative Investment Market decreased following the enactment of Sarbanes-Oxley. The negative effect among small firms is consistent with these marginal companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with
Keywords: Decision Choices and Conditions;
Stocks;
Government Legislation;
Market Transactions;
Motivation and Incentives;
United Kingdom;
United States;
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Article
| Journal of Accounting Research
|
Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members
Suraj Srinivasan
I use a sample of 409 companies that restated their earnings from 1997 to 2001 to examine penalties for outside directors, particularly audit committee members, when their companies experience accounting restatements. Penalties from lawsuits and Securities and Exchange Commission (SEC) actions are limited. However, directors experience significant labor market penalties. In the three years after the restatement, director turnover is 48% for firms that restate earnings downward, 33% for a performance-matched sample, 28% for firms that restate upward, and only 18% for technical restatement firms. For firms that overstate earnings, the likelihood of director departure increases in restatement severity, particularly for audit committee directors. In addition, directors of these firms are no longer present in 25% of their positions on other boards. This loss is greater for audit committee members and for more severe restatements. A matched-sample analysis confirms this result. Overall, the evidence is consistent with outside directors, especially audit committee members, bearing reputational costs for financial reporting failure.
Keywords: Outcome or Result;
Business Earnings;
Financial Statements;
Lawsuits and Litigation;
Labor;
Markets;
Financial Reporting;
Accounting Audits;
Cost;
Reputation;
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Article
| Journal of Accounting Research
|
Disclosure Practices of Foreign Companies Interacting with U.S. Markets
Tarun Khanna, Krishna G. Palepu and Suraj Srinivasan
We analyze the disclosure practices of companies as a function of their interaction with the U.S. markets for a group of 794 firms from 24 countries in Asia-Pacific and Europe. Our analysis uses the Transparency and Disclosure scores developed recently by Standard & Poor's. These scores rate the disclosure of companies from around the world using U.S. disclosure practices as an implicit benchmark. Results show a positive association between these disclosure scores and a variety of market interaction measures, including US Listing, US investment flows, export to and operations in the US. Trade with US, however, has an insignificant relationship with the disclosure scores. Our empirical analysis controls for the previously documented association between disclosure and firm size, performance, and country legal origin. Our results are broadly consistent with the hypothesis that cross-border economic interactions are associated with similarities in disclosure and governance practices.
Keywords: Management Practices and Processes;
Markets;
Investment;
Size;
Performance;
Cross-Cultural and Cross-Border Issues;
Corporate Governance;
Corporate Disclosure;
Trade;
United States;
Asia;
Europe;
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Working Paper
| 2012
Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates
Peter R. Joos, Joseph D. Piotroski and Suraj Srinivasan
We use a dataset of sell-side analysts' scenario-based valuation estimates to examine whether analysts reliably assess the risk surrounding a firm's fundamenatal value. We find that the spread in analysts' state-side contingent valuations captures the riskiness of operations and predicts the absolute magnitude of future long-run valuation errors and changes in fundamentals. Similarly, asymmetry embedded in the analysts' scenario-based valuations conveys information about asymmetric risk-reward exposure and predicts skewness in future long-run valuation errors; however, embedded asymmetry is not correlated with changes in fundamentals. The results confirm that analysts' valuations reflect both state-contingent risk assessments and non-fundamental factors.
Keywords: valuation;
analyst forecasts;
scenarios;
uncertainty;
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Working Paper
| HBS Working Paper Series
| 2012
Securities Litigation Risk for Foreign Companies Listed in the U.S.
Beiting Cheng, Suraj Srinivasan and Gwen Yu
We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S.
Keywords: Litigation Risk;
Cross Listing;
bonding;
10b-5;
Securities Litigation;
U.S.Listing;
Class Action;
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Other Unpublished Work
| 2011
Do Shareholders Hold Independent Directors Accountable? Evidence from Firms Subject to Securities Litigation
Francois Brochet and Suraj Srinivasan
We examine if investors hold independent directors accountable when firms are sued for financial fraud. Investors can sue directors and can vote against their re-election to express displeasure over monitoring effectiveness. Using a sample of securities class action lawsuits over the time period 1996 to 2008, we find that about 10% of directors of sued firms are named as defendants (named directors); the likelihood of being named is greater for audit committee directors and directors who sell stock during the class period. Lawsuits with named directors are less likely to be dismissed and settle for larger dollar amounts than other lawsuits. Independent directors in sued firms, especially named directors, receive fewer favorable votes from shareholders and more negative recommendations from proxy advisory firm ISS. Named directors are more likely to leave their positions in sued firms, whereas other independent directors are not. Independent directors, especially named directors, are more likely to lose directorships in other firms but this effect is not reflected in lower shareholder votes in other directorships. While the likelihood of being named as defendant has not increased over time—despite concerns to the contrary—the likelihood of losing board position in the sued firm has increased in the post-2002 period, suggesting a greater sensitivity to retaining sued directors on corporate boards in recent times.
Keywords: Crime and Corruption;
Corporate Accountability;
Governing and Advisory Boards;
Lawsuits and Litigation;
Business and Shareholder Relations;
Citation: Brochet, Francois, and Suraj Srinivasan. "Do Shareholders Hold Independent Directors Accountable? Evidence from Firms Subject to Securities Litigation." 2011.
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Working Paper
| HBS Working Paper Series
| 2012
Admitting Mistakes: Home Country Effect on the Reliability of Restatement Reporting
Suraj Srinivasan, Aida Sijamic Wahid and Gwen Yu
We study the frequency of restatements by foreign firms listed on the U.S. exchanges. We find that the restatement rate by U.S. listed foreign firms is significantly lower than that of comparable U.S. firms and the difference depends on the home country characteristics of the foreign firm. Foreign firms from countries with a weak rule of law are less likely to restate than firms from strong rule of law countries are, despite companies from the weaker rule of law countries having higher levels of earnings management. After controlling for the materiality of the restatement, firms from weak rule of law countries are more likely to opt for less visible restatement disclosure methods. We interpret these findings as home country enforcement affecting firms' likelihood of reporting existing accounting irregularities. This suggests that for U.S. listed foreign firms, less frequent restatements can be a signal of opportunistic reporting rather than high quality earnings.
Keywords: Accounting restatements;
earnings management;
home country enforcement;
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Working Paper
| HBS Working Paper Series
| 2011
Market Competition, Government Efficiency, and Profitability Around the World
Paul M. Healy, George Serafeim, Suraj Srinivasan and Gwen Yu
We examine how cross-country differences in product, capital, and labor market competition, and government efficiency affect the rate of mean reversion of corporate profitability. Using a sample of 42,337 unique firms from 49 countries, we find that corporate profitability mean reverts faster in countries where product and capital markets are more competitive. Moreover, holding constant product, capital, and labor market competition we find that profitability mean reverts faster in countries with less efficient governments. The findings suggest that country-level factors have an economically significant impact on the rate of corporate profitability mean reversion. The study has implications for forecasting profitability and equity valuation in a global context.
Keywords: Profit;
Competition;
Government and Politics;
Labor;
Markets;
Capital Markets;
Valuation;
Forecasting and Prediction;
Equity;
Performance Efficiency;
Product;
Country;
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Working Paper
| 2009
Do Capital Market Relations Travel: An Analysis of Executives Changing Employers
Francois Brochet, Gregory S. Miller and Suraj Srinivasan
We examine whether strong relations between managers and market participants lead to market participants "following" the managers to new firms. Our analyses focus primarily on analysts since much of their interaction with management occurs in public. Specifically, we investigate sell-side analyst coverage decisions in the context of CEO and CFO moves between publicly listed firms. We find that top executive moves from an origin firm to a destination firm often trigger analysts following the origin firm to initiate coverage of the destination firms. Consistent with structural constraints on the sell-side analyst profession, we find that analyst-manager "co-migration," is much stronger when both firms are within the same industry. In support of the importance of relations, analysts who move with manager's to the destination firm exhibit more intense and accurate coverage of the origin firm than they do in other firms and than other analysts covering the origin firm. However, this no longer holds after the executive's departure. Turning to institutional investors, we find similar evidence of a "co-migration" which is related to the extent of institutional investment in the managers new firm and the amount of analyst co-migration, among other factors. Overall, the evidence suggests that relationships between managers and capital market participants play a significant role in the capital market participants' coverage and investment decisions in a dynamic setting.
Keywords: Business and Stakeholder Relations;
Capital Markets;
Decisions;
Managerial Roles;
Financial Institutions;
Investment;
Market Participation;
Public Ownership;
Relationships;
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Working Paper
| HBS Working Paper Series
| 2008
CEO and CFO Career Penalties to Missing Quarterly Analysts Forecasts
Rick Mergenthaler, Shiva Rajgopal and Suraj Srinivasan
We find that missing the quarterly analyst consensus earnings forecast is associated with career penalties in the form of a reduced bonus, smaller equity grants, and a greater chance of forced dismissal for both CEOs and CFOs during the period 1993-2004. These results are obtained after controlling for several proxies for earnings and stock return performance suggesting that boards appear to penalize managers for failing to meet analysts' quarterly earnings forecasts per se. Career penalties for failing to meet the analyst consensus estimate are no different for firms where forecasting earnings is harder. Moreover, such penalties have increased in the post-SOX period. Our evidence suggests that incentives of the CEO and CFO to meeting analysts' consensus forecast might be driven at least partly by career concerns.
Keywords: Earnings Management;
Governing and Advisory Boards;
Compensation and Benefits;
Managerial Roles;
Personal Development and Career;
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Supplement
| HBS Case Collection
|
2013
Coca Cola Valuation Spreadsheet for Students (CW)
Suraj Srinivasan
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Case
| HBS Case Collection
|
2013
NovaStar Financial: A Short Seller's Battle
Suraj Srinivasan and Amy Kaser
The NovaStar case describes the challenges faced by short seller Marc Cohodes of hedge fund Rocker Partners as he tried to expose what he thought was widespread fraud in mortgage lender NovaStar Financial. The case is set in the time period from 2001 to 2007 and tracks the growth of the subprime industry and its collapse leading to the financial crisis. The case describes the business model of NovaStar, a leading subprime mortgage lending company, and its accounting practices with a focus on the key risks and opportunities facing the company. The case requires students to put themselves in the shoes of Marc Cohodes and understand the business model and accounting numbers and to identify if the financial performance is a good representation of the true economic performance. In particular, students learn accounting concepts related to securitization, gain on sale accounting, valuation of available for sale securities, and analyzing the statement of cash flows. The case also allows students to understand the role and incentives of various capital market participants like sell-side analysts, the media, auditors, and the Securities and Exchange Commission (SEC).
Keywords: short selling;
Financial Accounting;
financial analysis;
financial analysts;
valuation;
Business analysis;
financial statement analysis;
financial statements;
securitization;
Securities analysis;
fraud;
accounting quality;
accounting red flags;
Accounting restatements;
hedge fund;
hedge funds;
accounting scandal;
accounting fraud;
financial crisis;
financial intermediaries;
financial firms;
corporate governance;
corporate accountability;
subprime lending;
mortgage lending;
fair value accounting;
Accounting;
Accrual Accounting;
Fair Value Accounting;
Governance;
Governance Compliance;
Corporate Governance;
Governance Controls;
Financial Services Industry;
United States;
California;
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Supplement
| HBS Case Collection
|
2013
Coca Cola Valuation Spreadsheet (CW)
Suraj Srinivasan
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Teaching Note
| HBS Case Collection
|
2013
Coca-Cola: Residual Income Valuation Exercise (TN)
Suraj Srinivasan and Edward J. Riedl
Teaching note for a case of the same title that introduces students to the residual income (also known as the abnormal earnings) valuation model using the firm Coca-Cola. Students are provided with the primary financial statements (through fiscal 2010) and forecast data/assumptions. These data are used as input into a simple spreadsheet model to derive pro-forma summary financial statements (balance sheet and income statement), as well as Coca-Cola's firm and per share equity valuation at the beginning of 2011.
Keywords: valuation;
Valuation;
United States;
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Case
| HBS Case Collection
|
2013
Diamond Foods, Inc.
Suraj Srinivasan and Tim Gray
The Diamonds Foods, Inc. case describes the major accounting blow up at the company in late 2011 that was triggered by a report by Off Wall Street, a prominent short selling research firm. Diamond Foods, a high flying growth company in 2011, grew from a walnut farmers' cooperative in 2005 into a branded snack foods manufacturer on the strength of a series of acquisitions. The accounting scandal that involved improper accounting for walnut purchases led to Diamond dropping its high profile acquisition of Pringles, an SEC and DOJ investigation, departure of the CEO and CFO, and the grounding of a high flying growth company. The case describes the history and growth of the company, the investigative and analytical work conducted by OWS and allows students to understand implications of the growth strategy for financial performance and valuation. Additionally, the case highlights the role of corporate boards and audit committees in managing strategic and financial reporting risks.
Keywords: Accounting restatements;
accounting scandal;
accounting;
financial analysis;
financial statement analysis;
financial statements;
valuation;
short selling;
revenue recognition;
board of directors;
audit committees;
auditing;
Financial Reporting;
Financial Statements;
Agribusiness;
Accrual Accounting;
Earnings Management;
Corporate Accountability;
Corporate Disclosure;
Corporate Governance;
Valuation;
Revenue;
Agriculture and Agribusiness Industry;
California;
Cambridge;
Citation: Srinivasan, Suraj, and Tim Gray. "Diamond Foods, Inc." Harvard Business School Case 113-055, February 2013.
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Exercise
|
2012
Coca-Cola: Residual Income Valuation Exercise
Suraj Srinivasan, Beiting Cheng and Edward J. Riedl
This note accompanies the case of the same title that introduces students to the residual income valuation model, using Coca-Cola as the example.
Citation: Srinivasan, Suraj, Beiting Cheng, and Edward J. Riedl. "Coca-Cola: Residual Income Valuation Exercise." Harvard Business School Exercise 113-056, December 2012.
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Case
| HBS Case Collection
|
2013
First Solar: CFRA's Accounting Quality Concerns
Suraj Srinivasan and Ian McKown Cornell
The case relates to accounting quality analysis conducted by the leading research firm Center for Financial Research and Analysis (CFRA) on companies in the solar industry with a focus on First Solar Inc. In 2009, CFRA was concerned that First Solar, like much of the solar industry, was facing deterioration in business prospects and exposed to risks arising from revenue recognition, high inventory levels, lack of customer and geographic diversification, aggressive warranty policies, excessive production capacity growth, and supply chain risks. The case places students in the shoes of CFRA analysts who need to assess First Solar's accounting quality and business prospects after the company releases its second quarter financial numbers in 2009. The case provides students with background information on the solar power industry, First Solar, data from CFRA research, and First Solar's quarterly reports and the earnings conference call to analyze and draw conclusions about First Solar's accounting practices and strength as a company. Students have to decide whether CFRA should flag First Solar as a concern and add it to CFRA's "Biggest Concerns" list. Order: http://hbr.org/search/113044-PDF-ENG
Keywords: accounting;
accounting quality;
earnings management;
Financial Accounting;
financial statement analysis;
financial statements;
accounting fraud;
accounting red flags;
accounting scandal;
valuation;
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Case
| HBS Case Collection
|
2012
Trouble Brewing for Green Mountain Coffee Roasters
Suraj Srinivasan and Michael Norris
In October 2011, noted hedge fund manager David Einhorn of Greenlight Capital delivered a presentation at an investors' conference analyzing the business and accounting quality weaknesses of Green Mountain Coffee Roasters. Until then Green Mountain had exhibited rapid business and stock price growth. He questioned Green Mountain, the maker of Keurig single-serve coffee machines and their famous K-Cups about their growth prospects, their handling of acquisitions, their plan for the expiration of an important patent, accounting practices and other issues. Following Einhorn's presentation Green Mountain's stock experienced a significant decline despite claims by many analysts that Einhorn had not presented any new information. The case presents Einhorn's argument and the counter claims by the analysts. Students are charged with assessing the merits of Einhorn's arguments and the counter claims. The case exposes students to a detailed strategic, financial and accounting analysis of a business and provides an example of how a thorough business and accounting analysis using primarily public information can change market's perception of valuation of a company.
Keywords: earnings management;
accounting;
accounting fraud;
accounting quality;
accounting red flags;
Accounting restatements;
accounting scandal;
accounting information;
Financial Accounting;
financial analysts;
financial analysis;
financial intermediaries;
hedge funds;
Financial ratios;
financial statement analysis;
financial statements;
Mergers ＆ Acquisitions;
financial reporting;
valuation;
valuation methodologies;
earnings quality;
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Case
| HBS Case Collection
|
2013
(Revised from original 2012 version)
Jim Johnson's Re-election to the Goldman Sachs Board
Suraj Srinivasan and Kelly Baker
The case presents the opposition by a leading institutional investor in Goldman Sachs to the re-election of Jim Johnson to the board of directors of the company. The investor, Sequoia Fund, opposes the re-election citing Jim Johnson's prior track record as the CEO of Fannie Mae, which has been criticized for its role in the financial crisis and for serving on the compensation committees of two companies that experienced option backdating scandals. The case allows students to discuss issues surrounding director performance assessment, director elections, investor engagement with companies, and director reputation.
Keywords: board of directors;
corporate governance;
director elections;
Goldman Sachs;
reputation;
institutional investing;
Governing and Advisory Boards;
Corporate Accountability;
Banking Industry;
New York (city, NY);
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Supplement
| HBS Case Collection
|
2012
Olympus (B)
Jay W. Lorsch, Suraj Srinivasan and Kathleen Durante
This case outlines Michael Woodford's awards and honors, after having been fired from Olympus in October 2011. It discusses the repercussions following an investigation into the fraud and the report that was released thereafter. It also discusses the lawsuit that followed (filed by Woodford against Olympus), its settlement, and the new Olympus board and the fate of the Olympus executives who were at Olympus while the scandal occurred.
Keywords: accounting;
corporate governance;
Accounting;
Corporate Governance;
Health Industry;
Electronics Industry;
Japan;
Citation: Lorsch, Jay W., Suraj Srinivasan, and Kathleen Durante. " Olympus (B)." Harvard Business School Supplement 413-075, October 2012.
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Case
| HBS Case Collection
|
2012
Ahold versus Tesco—Analyzing Performance
Suraj Srinivasan and Penelope Rossano
The case relates to understanding and comparing the performance of two leading retail companies—Ahold and Tesco. The case introduces the tools of Dupont and Modified Dupont Decomposition. While performance as measured by return on equity has been similar for the two companies, Ahold has had significantly better stock market performance compared to Tesco. Ahold also has a significant amount of cash on its balance sheet leading to low levels of net debt. The case requires students to analyze performance using Modified Dupont Decomposition techniques to assess if firm performance is resulting from operating profitability or from financial leverage and then suggest strategies to improve performance. To perform the modified Dupont Decomposition, students learn how to reformat and condense the balance sheet and income statement to separately measure profitability arising from operating activities and financing activities. Students also see how excess cash holdings can depress profitability and what factors should drive the appropriate level of leverage for a company.
Keywords: Performance Evaluation;
Retail Industry;
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Case
| HBS Case Collection
|
2011
The Risk-Reward Framework at Morgan Stanley Research
Suraj Srinivasan and David Lane
The case describes the Risk-Reward framework that Morgan Stanley analysts use as a systematic approach to communicate a broader range of fundamental insights about a company rather than the traditional single point estimates. The goal of the framework is to focus the analysts' work on critical uncertainties and model a limited number of scenarios relevant to key investment debates. By outlining a bear, base and a bull case, the analysts can present the risk surrounding the expected outcome over the forecast horizon. The case outlines the key elements of the methodology and the process Morgan Stanley undertook to implement the framework on a world-wide basis starting in 2007, and discusses the challenges and opportunities that managers of the research department face as the framework is increasingly identified with their firm.
Keywords: Financial Statements;
Forecasting and Prediction;
Equity;
Framework;
Management Analysis, Tools, and Techniques;
Risk Management;
Business Processes;
Research;
Valuation;
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Case
| HBS Case Collection
|
2011
Brink's Company: Activists Push for a Spin-off
Suraj Srinivasan, Aldo Sesia and Amy Kaser
The case studies the decision of the security services corporation Brink's Company to spin-off its home security division from the rest of the company. The decision followed intense pressure on the company by three activist hedge funds that felt that Brink's was chronically undervalued and the individual businesses were worth more than the combined company. The company resisted the decision for over a year before agreeing to the break up. The case follows the argument made by the company and each of the investors. It also describes the actions by the company to convince its shareholders of the merits of keeping the company together, as well as the actions the activist investors took to get the attention of management, the board, and other investors. The businesses, secure transportation, and home security monitoring are described from both a business strategy and a financial perspective so that the potential value of different value enhancing options can be analyzed.
Keywords: Investment Activism;
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Teaching Note
| HBS Case Collection
|
2012
Brink's Company: Activists Push for a Spin-off (TN)
Suraj Srinivasan
The case this Teaching Note addresses studies the decision of the security services company Brink's Corporation to spin off its home security division from the rest of the company. The decision followed intense pressure on the company by three activist hedge funds that felt that Brink's was chronically undervalued and the individual businesses were worth more than the combined company. The company resisted the decision for more than a year before agreeing to the break-up. The case follows the argument made by the company and each investor. It also describes the actions by the company to convince its shareholders of the merits of keeping the company together as well as the actions activist investors took to get the attention of management, the board, and other investors. The businesses, secure transportation and home security monitoring, are described from both a business strategy and a financial perspective so that the potential value of different value enhancing options can be analyzed.
Keywords: Activist Investors;
Spin-off;
leveraged recapitalization;
debt;
valuation;
hedge funds;
conglomerates;
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Case
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2011
Strategy and Governance at Yahoo! Inc.
Krishna G. Palepu, Suraj Srinivasan, David Lane and Ian McKown Cornell
Yahoo! faces a number of governance and strategic challenges in late 2011 as it tries to compete with rivals such as Google and find ways to monetize its shareholding and business links with Alibaba Group in China and Yahoo! Japan. The company is now valued at almost half the offer that Microsoft had made in its acquisition offer in 2008. The depth of the challenge is underscored by the frequent CEO changes the company has had, culminating in the recent firing of the latest CEO, Carol Bartz. The case examines the successes and failures at Yahoo! and the decisions now facing its board as it encounters investor pressure to improve performance.
Keywords: Competitive Strategy;
Corporate Governance;
Web Services Industry;
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Case
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2012
(Revised from original 2011 version)
Mike Mayo Takes on Citigroup (A)
Suraj Srinivasan and Amy Kaser
The case details the conflict between Mike Mayo, an influential banking analyst and Citigroup about what Mayo considers aggressive accounting policies. Mike Mayo questions Citigroup's lack of a valuation allowance against their Deferred Tax Assets despite Citi's recent loss. The case discusses the economics and accounting for deferred tax assets. It also focuses on management-analyst relations and challenges faced by analysts in providing bad news on companies. The inclusion of deferred tax assets in Tier 1 capital and implications for regulatory capital are also discussed.
Keywords: Accounting;
Taxation;
Capital;
Financial Reporting;
Corporate Disclosure;
Valuation;
Banks and Banking;
Financial Strategy;
Money;
Conflict Management;
Capital Budgeting;
Asset Management;
Banking Industry;
Citation: Srinivasan, Suraj, and Amy Kaser. " Mike Mayo Takes on Citigroup (A)." Harvard Business School Case 112-025, July 2012. (Revised from original August 2011 version.)
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Supplement
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2012
(Revised from original 2011 version)
Mike Mayo Takes on Citigroup (B)
Suraj Srinivasan and Amy Kaser
Mike Mayo takes on Citigroup (B) is a supplementary exercise to go along with Mike Mayo takes on Citigroup (A) case and is designed to give students an opportunity to understand the creation of deferred tax liabilities (DTLs) and the life cycle of a DTL using an example based on the difference between Modified Accelerated Cost Recovery System (MACRS) depreciation which is allowed for tax purposes, and straight line depreciation which is typically the method used for financial statements.
Keywords: Taxation;
Accounting;
Banking Industry;
Citation: Srinivasan, Suraj, and Amy Kaser. " Mike Mayo Takes on Citigroup (B)." Harvard Business School Supplement 112-051, July 2012. (Revised from original October 2011 version.)
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Teaching Note
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2011
Mike Mayo takes on Citigroup (TN) (A) and (B)
Suraj Srinivasan
Keywords: Banks and Banking;
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Case
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2011
(Revised from original 2010 version)
Ken Langone: Member GE Compensation Committee
Suraj Srinivasan and Lizzie Gomez
On September 2003, Richard Grasso stepped down as chairman and CEO of the New York Stock Exchange, following weeks of intense public criticism over the size of his $190 million compensation package. As chairman of the committee that oversaw Grasso's payout, Ken Langone believed firmly that the payment was fair and reasonable. However, NYSE members, government regulators, and the media alike blamed the board for its oversight and viewed Langone as the mastermind behind Grasso's huge payout. Calls to oust Langone as director from all his board positions came within days of Grasso's resignation. This case follows immediate backlash against Langone over his role at the NYSE as well as the connection this scandal had on his eventual departure from General Electric's board of directors. Should Langone have resigned from GE's board?
Keywords: Accounting;
Corporate Governance;
Governing and Advisory Boards;
Employee Stock Ownership Plan;
Executive Compensation;
Governing Rules, Regulations, and Reforms;
Labor and Management Relations;
Wages;
Change Management;
Energy Industry;
New York (city, NY);
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Case
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2011
(Revised from original 2010 version)
Kanebo Ltd. (A)
David F. Hawkins, Suraj Srinivasan, Akiko Kanno and Lizzie Gomez
Speculation as to how Japanese companies might implement IFRS with particular emphasis on consolidation accounting.
Keywords: History;
Business Conglomerates;
Misleading and Fraudulent Advertising;
Consolidation;
Financial Statements;
International Finance;
International Accounting;
Standards;
Goodwill Accounting;
Manufacturing Industry;
Japan;
Citation: Hawkins, David F., Suraj Srinivasan, Akiko Kanno, and Lizzie Gomez. " Kanebo Ltd. (A)." Harvard Business School Case 111-037, September 2011. (Revised from original December 2010 version.)
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Supplement
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2011
(Revised from original 2011 version)
Kanebo Ltd. (B)
David F. Hawkins, Suraj Srinivasan and Akiko Kanno
Financial statements before and after restatement following revelation of fraud.
Keywords: Cost Accounting;
Financial Statements;
Crime and Corruption;
Business Conglomerates;
Japan;
Citation: Hawkins, David F., Suraj Srinivasan, and Akiko Kanno. " Kanebo Ltd. (B)." Harvard Business School Supplement 111-038, August 2011. (Revised from original January 2011 version.)
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Supplement
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2011
(Revised from original 2011 version)
Kanebo Ltd. (C)
David F. Hawkins, Suraj Srinivasan and Akiko Kanno
The exposure of the Kanebo Ltd. fraud raises questions of Japan's preparedness to adopt International Financial Reporting Standards.
Keywords: International Accounting;
Standards;
Financial Reporting;
Crime and Corruption;
Japan;
Citation: Hawkins, David F., Suraj Srinivasan, and Akiko Kanno. " Kanebo Ltd. (C)." Harvard Business School Supplement 111-068, August 2011. (Revised from original January 2011 version.)
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Teaching Note
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2011
Kanebo Ltd. (TN) (A), (B), and (C)
David Hawkins and Suraj Srinivasan
Teaching Note for 111-037, 111-038, and 111-068.
Keywords: Manufacturing Industry;
Japan;
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Case
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2011
(Revised from original 2011 version)
The Crisis at Tyco - A Director's Perspective
Suraj Srinivasan and Aldo Sesia
In 2002, Wendy Lane had been a member of the board of directors at Tyco International a little more than a year when the company's CEO Dennis Kozlowski and other top executives were accused of fraud, which ultimately led to resignations, imprisonments, lawsuits, and SEC filings. In a short period of time Tyco lost 2/3rds of its market value. Many outside the company questioned the board's leadership and diligence. Lane, who had a successful career in investment banking before becoming a professional director, was caught in the firestorm. The case discusses the events that led to the crisis, her reflections on managing the crisis both personally and professionally, the reputational risk she encountered, and the lessons she learned as a director.
Keywords: Management Teams;
Reputation;
Governing and Advisory Boards;
Crisis Management;
Accounting Audits;
Problems and Challenges;
Risk Management;
Finance;
Managerial Roles;
Lawsuits and Litigation;
Service Industry;
United States;
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Case
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2011
(Revised from original 2009 version)
Target Corporation: Ackman versus the Board
Krishna G. Palepu, Suraj Srinivasan and James Weber
After 15 years of great performance, Target's faltering performance during an economic downturn led an activist shareholder to initiate a proxy fight. Target Corporation, the second largest discount store retailer in the U.S., had competed successfully against industry leader Wal-Mart for years by promoting an upscale discount shopping experience in comparison to Wal-Mart's focus on low prices. This strategy worked well for Target in good economic times. The economic crisis of 2008–2009, however, caused shoppers to abandon Target in favor of Wal-Mart. In the spring of 2009, one of Target's largest shareholders initiated a proxy fight to place his five director nominees on the board. Target won the proxy fight, but still faced questions about whether it had a strategy that could work in both good times and bad.
Keywords: Financial Crisis;
Investment Activism;
Governing and Advisory Boards;
Business and Shareholder Relations;
Business Strategy;
Value;
Retail Industry;
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Teaching Note
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2010
Target Corporation: Ackman versus the Board (TN)
Krishna G. Palepu and Suraj Srinivasan
Teaching Note for 109010.
Keywords: Business Strategy;
Problems and Challenges;
Governing and Advisory Boards;
Conflict and Resolution;
Voting;
Investment Activism;
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Case
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2012
(Revised from original 2010 version)
Citigroup 2007: Financial Reporting and Regulatory Capital
Suraj Srinivasan, Edward J. Riedl and Sharon Katz
This case introduces 1) financial statements for banks, 2) basic regulatory capital calculations, and 3) actions Citigroup must consider under a scenario of continued losses/fair value declines in 2008 (leading to potential violation of regulatory capital).
Keywords: Fair Value Accounting;
Financial Reporting;
Financial Statements;
Financial Crisis;
Capital;
Financial Strategy;
Governing Rules, Regulations, and Reforms;
Banking Industry;
United States;
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Teaching Note
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2010
Citigroup 2007: Financial Reporting and Regulatory Capital (TN)
Edward J. Riedl, Suraj Srinivasan and Sharon Katz
Teaching Note for 111041.
Keywords: Financial Statements;
Capital;
Governing Rules, Regulations, and Reforms;
Financial Services Industry;
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Case
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2012
New Century Financial Corporation (Abridged)
Krishna G. Palepu, Suraj Srinivasan and Ian Cornell
After years of rapid growth and stock price appreciation, New Century Financial Corporation, one of the largest subprime loan originators in the U.S., reported accounting problems in early 2007. The resulting liquidity crisis forced the company to file for Chapter 11 bankruptcy protection. According to the Bankruptcy Examiner assigned to investigate New Century, the company's troubles "were an early contributer to the subprime meltdown" which fueled a financial crisis in the U.S. and beyond. The case study examines New Century's business model and accounting practices and focuses on the role of management, audit committee, and external auditors in the problems at New Century based on the findings of the Bankruptcy Examiner.
Keywords: accounting;
audit committees;
financial management;
control systems;
securities;
loan evaluation;
Accounting;
Value;
Financial Services Industry;
United States;
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Case
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2009
(Revised from original 2008 version)
New Century Financial Corporation
Krishna G. Palepu, Suraj Srinivasan and Aldo Sesia
After years of rapid growth and stock price appreciation, New Century Financial Corporation, one of the largest subprime loan originators in the U.S., reported accounting problems in early 2007. The resulting liquidity crisis forced the company to file for Chapter 11 bankruptcy protection. According to the Bankruptcy Examiner assigned to investigate New Century, the company's troubles "were an early contributor to the subprime meltdown" which fueled a financial crisis in the U.S. and beyond. The case study examines New Century's business model and accounting practices and focuses on the role of management, audit committee, and external auditors in the problems at New Century based on the findings of the Bankruptcy Examiner.
Keywords: Accounting Audits;
Financial Reporting;
Business Model;
Financial Crisis;
Insolvency and Bankruptcy;
Mortgages;
Financial Services Industry;
United States;
Citation: Palepu, Krishna G., Suraj Srinivasan, and Aldo Sesia. " New Century Financial Corporation." Harvard Business School Case 109-034, October 2009. (Revised from original October 2008 version.)
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Teaching Note
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2009
New Century Financial Corporation (TN)
Suraj Srinivasan and Krishna G. Palepu
Teaching Note for [109034].
Keywords: Management Practices and Processes;
Business Model;
Financial Liquidity;
Insolvency and Bankruptcy;
Managerial Roles;
Accounting Audits;
Financial Crisis;
Financial Services Industry;
United States;
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