Assistant Professor of Business Administration
George Serafeim is an Assistant Professor of Business Administration in the Accounting and Management Unit. He teaches in the MBA and doctoral programs and co-chairs the Executive Education program "Aligning Sustainability with Corporate Performance." His work on how organizations integrate sustainability issues into their business models, integrated reporting, and sustainable investing has won numerous awards.
Professor Serafeim's research interests are international, focusing on equity valuation, corporate governance, and corporate reporting issues. His work has been published in prestigious academic and practitioner journals such as the Strategic Management Journal, Journal of International Business Studies, Review of Accounting Studies, Journal of Accounting Research, Journal of Finance, Contemporary Accounting Research, Management Science, Financial Analysts Journal, MIT Sloan Management Review, Journal of Applied Corporate Finance, Harvard Business Review and has also appeared in media outlets including Bloomberg, Financial Times, The Wall Street Journal, The Guardian, and NPR. He has written more than twenty business cases on organizations from around the world. He is the co-author with Professors Richard Macve and Joanne Horton of a book on the transparency and valuation of insurance companies and the co-author of a study, commissioned by the European Union, that evaluated the relevance of public information disclosed during the transition of European companies to IFRS.
Professor Serafeim's work with Professor Ioannis Ioannou on corporate sustainability and sell-side investment recommendations received the best paper award from the Academy of Management, and their work on corporate sustainability and access to finance received the best paper award from the United Nations Principles for Responsible Investment network. Professor Serafeim's research with Professor Paul Healy on anticorruption efforts and firm performance was awarded the Hermes Fund Manager best paper prize (second place), his work with Professors Mo Khan and Leonid Kogan on the effects of price pressure on equity issuance and corporate acquisitions was awarded the Whitebox Prize (runner up), and his work with Robert Eccles on "The Performance Frontier" was recognized as "The Big Idea" at Harvard Business Review. He currently serves on the Technical Review Committee of the Global Initiative for Sustainability Ratings and he is a member of the Standards Council of the Sustainability Accounting Standards Board. He has served as an advisor to numerous organizations around the world and he is a partner at KKS Advisors.
Professor Serafeim earned his doctorate in business administration at Harvard Business School, where his dissertation was recognized with the Wyss Award for Excellence in Doctoral Research. He received a master's degree in accounting and finance from the London School of Economics and Political Science, where he was awarded the Emeritus Professors' Prize for best academic performance.
Market Competition, Earnings Management, and Persistence in Accounting Profitability Around the World
We examine how cross-country differences in product, capital, and labor market competition, corruption, and earnings management affect mean reversion in accounting return on assets. Using a sample of 48,465 unique firms from 49 countries, we find that accounting returns mean revert faster in countries where there is more product and capital market competition, as predicted by economic theory. Country differences in labor market competition, earnings management, and corruption are also related to mean reversion in accounting returns - but the relation varies with firm performance. Country labor competition increases mean reversion when unexpected returns are positive, but dampens it when unexpected returns are negative. We argue that poor-performing firms operating in competitive labor markets find it difficult attract and retain the talent required for a turnaround. Earnings management incentives to slow or speed up mean reversion in accounting returns are accentuated in countries where there is a high propensity for earnings management. Finally, country corruption is associated with faster mean reversion, but only for poor-performing firms. Overall, these findings suggest that country factors explain mean reversion in accounting returns and are therefore relevant for firm valuation.
Firm Competitiveness and Detection of Bribery
Using survey data collected from senior corporate executives around the world I analyze how detection of bribery impacts firm competitiveness. The data suggest that the most significant impact is on employee morale, followed by business relations and reputation, and then regulatory relations. I find that who initiated the bribery act, how it was detected, and how the firm responded after detection are all associated with the impact on a firm’s reputation, business relations, regulatory relations, and employee morale. Internally initiated bribery from senior management is more likely to be associated with a significant impact on firm competitiveness. Bribery detected by the control systems of the firm is less likely to be associated with a significant impact on both business and regulatory relations. Finally, bribery cases where the initiator of the bribery is dismissed are less likely to be associated with a significant impact of firm competitiveness. These results shed light on which organizations’ competitiveness is more likely to be affected by the detection of bribery.
Causes and Consequences of Firms' Self-Reported Anticorruption Efforts
We use Transparency International’s ratings of self-reported anticorruption efforts for 480 corporations to analyze factors underlying the ratings. Our tests examine whether these forms of disclosure reflect firms’ real efforts to combat corruption, or are cheap talk. We find that firms with high ratings are domiciled in countries with low corruption ratings and strong anticorruption enforcement, operate in high corruption risk industries, have recently faced a corruption enforcement action, employ a Big Four audit firm, and have a higher percentage of independent directors. Controlling for these effects and other determinants, we find that firms with low residual ratings have relatively higher subsequent media allegations of corruption. They also report higher future sales growth and show a negative relation between profitability change and sales growth in high corruption geographic segments compared to firms with high anticorruption efforts. The net effect on valuation from sales growth and changes in profitability is close to zero. We conclude that, on average, firms’ self-reported anticorruption efforts signal real efforts to combat corruption and are not merely cheap talk.
A Tale of Two Stories: Sustainability and the Quarterly Earnings Call
One of the challenges companies claim to face in making sustainability a core part of their strategy and operations is that the market does not care about sustainability, either in general or because the time frames in which it matters are too long. The response of investors who say they care about sustainability—and their numbers are large and growing—is that companies do a poor job in providing them with the information they need to take sustainability into account in their investment decisions. Whatever the merits of each view, the fact remains that an effective conversation about sustainability requires the participation of both sides of the market. There are two main mechanisms for companies to communicate to the market as a way of starting this conversation: mandated reporting and quarterly conference calls. In this paper, the authors argue that neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into the quarterly earnings call. Until that happens, the core business and sustainability are two separate worlds, each of which has its own narrator telling a different story to a different audience. The authors illustrate their argument using the case of SAP, the German software company. SAP was the first company to host an “ESG Briefing,” a conference call for analysts and investors held on July 30, 2013 in which the company discussed both its sustainability performance and how its sustainability initiatives were contributing to its financial performance. The narrative of this call was very similar to the narrative of the company’s first “integrated report,” which was issued in 2012 and presented the company’s sustainability initiatives in the context of its operating and financial performance. However, the contents of the “ESG Briefing” and those of its traditional quarterly earnings conference
calls were very different—and so were the audiences. Whereas the quarterly call was attended mainly by sell side analysts the ESG briefing was delivered to an investor audience made up exclusively of the “buy side.”
The Performance Frontier
By now most companies have sustainability programs. They’re cutting carbon emissions, reducing waste, and otherwise enhancing operational efficiency. But a mishmash of sustainability tactics does not add up to a sustainable strategy. To endure, a strategy must address the interests of all stakeholders: investors, employees, customers, governments, NGOs, and society at large. To do that, it has to increase shareholder value while at the same time improving the firm’s performance on environmental, social, and governance (ESG) dimensions. This article outlines a process that can be used to execute a sustainable strategy and extend the boundaries of The Performance Frontier.
The Role of the Corporation in Society
A long-standing ideology in business education has been that a corporation is run for the sole interest of its shareholders. I present an alternative view where increasing concentration of economic activity and power in the world’s largest corporations, the Global 1000, has opened the way for managers to consider the interests of a broader set of stakeholders rather than only shareholders. Having documented that this alternative view better fits actual corporate conduct, I discuss opportunities for future research. Specifically, I call for research on the materiality of environmental and social issues for the future financial performance of corporations, the design of incentive and control systems to guide strategy execution, corporate reporting, and the role of investors in this new paradigm.