Ian D. Gow

Assistant Professor of Business Administration

Ian Gow is an assistant professor of business administration in the Accounting and Management Unit. He teaches Financial Reporting and Control in the MBA required curriculum.

His primary research interests relate to the use of accounting information in markets and contracts, valuation, regulation of capital markets, and corporate governance. Professor Gow’s work has been published in The Accounting Review and the Journal of Financial Economics.

Prior to joining the HBS faculty, Professor Gow was an assistant professor at the Kellogg School of Management, Northwestern University. His professional experience includes positions at Morgan Stanley, General Motors, Stern Stewart & Co., and Andersen Consulting. 

Professor Gow received a Ph.D. in business from the Stanford University Graduate School of Business; an MBA with distinction from Harvard Business School; and a bachelor of commerce in accounting and bachelor of laws, both from the University of New South Wales.

 

 

Journal Articles

  1. Why Do Pro Forma and Street Earnings Not Reflect Changes in GAAP? Evidence from SFAS 123R

    This study examines how key market participants—managers and analysts—responded to SFAS 123R's controversial requirement that firms recognize stock-based compensation expense. Despite mandated recognition of the expense, some firms' managers exclude it from pro forma earnings and some firms' analysts exclude it from Street earnings. We find evidence consistent with managers opportunistically excluding the expense to increase earnings, smooth earnings, and meet earnings benchmarks but no evidence that these exclusions result in an earnings measure that better predicts future firm performance. In contrast, we find that analysts exclude the expense from earnings forecasts when exclusion increases earnings' predictive ability for future performance and that opportunism generally does not explain exclusion by analysts incremental to exclusion by managers. Thus our findings indicate that opportunism is the primary explanation for exclusion of the expense from pro forma earnings and predictive ability is the primary explanation for exclusion from Street earnings. Our findings suggest the controversy surrounding the recognition of stock-based compensation expense may be attributable to cross-sectional variation in the relevance of the expense for equity valuation, as well as to differing incentives of market participants.

    Keywords: Motivation and Incentives; Employee Stock Ownership Plan;

    Citation:

    Gow, Ian D., Mary E. Barth, and Daniel Taylor. "Why Do Pro Forma and Street Earnings Not Reflect Changes in GAAP? Evidence from SFAS 123R." Review of Accounting Studies 17, no. 3 (July 4, 2012): 526–562.
  2. Rating the Ratings: How Good are Commercial Governance Ratings?

    Proxy advisory and corporate governance rating firms (such as RiskMetrics/Institutional Shareholder Services, GovernanceMetrics International, and The Corporate Library) play an increasingly important role in U.S. public markets. They rank the quality of firm corporate governance, advise shareholders how to vote, and sometimes press for governance changes. We examine whether commercially available corporate governance rankings provide useful information for shareholders. Our results suggest that they do not. Commercial ratings do not predict governance-related outcomes with the precision or strength necessary to support the bold claims made by most of these firms. Moreover, we find little or no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals.

    Keywords: Corporate Governance; Markets; Rank and Position; Quality; Business and Shareholder Relations; Voting; Change; Information; Outcome or Result; United States;

    Citation:

    Daines, Robert M., Ian D. Gow, and David F. Larcker. "Rating the Ratings: How Good are Commercial Governance Ratings?" Journal of Financial Economics 98, no. 3 (December 2010): 439–461.
  3. Correcting for Cross-Sectional and Time-Series Dependence in Accounting Research

    We review and evaluate the methods commonly used in the accounting literature to correct for cross-sectional and time-series dependence. While much of the accounting literature studies settings in which variables are cross-sectionally and serially correlated, we find that the extant methods are not robust to both forms of dependence. Contrary to claims in the literature, we find that the Z2 statistic and Newey-West corrected Fama-MacBeth standard errors do not correct for both cross-sectional and time-series dependence. We show that extant methods produce misspecified test statistics in common accounting research settings, and that correcting for both forms of dependence substantially alters inferences reported in the literature. Specifically, several findings in the implied cost of equity capital literature, the cost of debt literature, and the conservatism literature appear not to be robust to the use of well-specified test statistics.

    Keywords: History; Cost of Capital; Activity Based Costing and Management; Performance Evaluation; Cost Accounting; Time Management; Research; Mathematical Methods; Equity; Borrowing and Debt; Accounting Audits; Accounting Industry;

    Citation:

    Gow, Ian D., Daniel Taylor, and Gaizka Ormazabal. "Correcting for Cross-Sectional and Time-Series Dependence in Accounting Research." Accounting Review 85, no. 2 (March 2010): 483–512.
  4. Capital Budgeting: The Role of Cost Allocations

    A common issue for firms is how to allocate capital resources to various investment alternatives. An extensive and long-standing literature in finance has examined various aspects of capital budgeting, including capital constraints, the determination of discount rates, and alternative approaches to estimating cash flows and handling risk, such as real options techniques. It is generally accepted that preferences of these managers may not coincide with those of the firm's owners (the principal). Consequences of asymmetric information include strategic reporting by better-informed managers (for example, "sandbagging" or "creative optimism") and a need to measure performance ex post. There has been significant progress in recent years in understanding the role of intertemporal cost charges, specifically depreciation and capital charges, in the capital budgeting process. Cost allocations across time periods and business units are essential in creating time-consistent performance measures that compare initial reports to subsequently realized outcomes. But major challenges remain in making the existing models more complete on several fronts, including (i) richer settings of capacity investments and subsequent capacity utilization, (ii) projects with sequential decisions stages and (iii) the coordination of risk exposures across the divisions of a firm. This paper reviews extant research and suggests avenues for further research.

    Keywords: Capital Budgeting; Resource Allocation; Performance Evaluation; Cost Management; Research; Investment; Cash Flow; Risk Management; Performance Capacity;

    Citation:

    Gow, Ian D., and Stefan Reichelstein. "Capital Budgeting: The Role of Cost Allocations." Operations Research Proceedings (2006): 115–122.
  5. EVA in E&P: The Case of Nuevo Energy

    Keywords: Energy;

    Citation:

    McCormack, John Luhrs, and Ian D. Gow. "EVA in E&P: The Case of Nuevo Energy." Journal of Applied Corporate Finance 13, no. 4 (winter 2001): 76–86.

Book Chapters

  1. Fundamental Data Anomalies

    Citation:

    Gow, Ian D. "Fundamental Data Anomalies." Chap. 5 in The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies, edited by Len Zacks, 117–128. John Wiley & Sons, 2011.
  2. Measuring the Performance of Australian Enterprises

    Keywords: Performance Evaluation; Business Ventures; Australia;

    Citation:

    Gow, Ian D., and Stuart Sydney Kells. "Measuring the Performance of Australian Enterprises." In How Big Business Performs, edited by Peter Dawkins, Stephen King, and Michael Harris. St Leonards, NSW, Australia: Allen & Unwin, 1999.

Working Papers

  1. Consequences to Directors of Shareholder Activism

    We examine how shareholder activist campaigns affect the careers of directors of the targeted firms. Using a comprehensive sample of shareholder activism between 2004 and 2011, we find that directors are almost twice as likely to leave over a two-year period if the firm is the subject of a shareholder activist campaign. While it has been argued that proxy contests are an ineffective mechanism for replacing directors, as they rarely succeed in getting a majority of shareholder support, our results suggest that director turnover takes place following shareholder activism even without shareholder activists engaging in, let alone winning, proxy contests. Performance-sensitivity of director turnover is also higher in the presence of shareholder activism. We also find that director election results matter for director retention: directors are more likely to leave in the year following activism when they receive lower shareholder support. Contrary to consequences on the targeted firm's board, we find no evidence that directors lose seats on other boards, a proxy for reputational consequences, as a result of shareholder activism.

    Keywords: shareholder activism; hedge funds; independent directors; Director reputation; accountability; Shareholder voting; Voting; Retention; Investment Funds; Management Teams; Investment Activism;

    Citation:

    Gow, Ian D., Sa-Pyung Sean Shin, and Suraj Srinivasan. "Consequences to Directors of Shareholder Activism." Harvard Business School Working Paper, No. 14-071, February 2014.

Cases and Teaching Materials

  1. Cisco Systems and Offshore Cash

    Citation:

    Gow, Ian D., and Charles C.Y. Wang. "Cisco Systems and Offshore Cash." Harvard Business School Case 114-027, September 2013.
  2. Say on Pay at The Walt Disney Company

    This case focuses on the lead-up to Disney's 2012 annual meeting where Disney would face a vote on the compensation package of its CEO, Robert Iger. Leading proxy advisory firms were recommending that shareholders reject the proposed compensation.

    Keywords: Executive Compensation; shareholder votes; Executive Compensation; Business and Shareholder Relations; Media and Broadcasting Industry; United States;

    Citation:

    Gow, Ian D., and Gaizka Ormazabal. "Say on Pay at The Walt Disney Company." Harvard Business School Case 113-052, January 2013.

Other Publications and Materials

  1. The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

    This study examines the effects of shareholder support for equity compensation plans on subsequent chief executive officer (CEO) compensation. Using cross-sectional regression, instrumental variable, and regression discontinuity research designs, we find little evidence that either lower shareholder voting support for, or outright rejection of, proposed equity compensation plans leads to decreases in the level or composition of future CEO incentive-compensation. We also find that in cases where the equity compensation plan is rejected by shareholders, firms are more likely to propose and shareholders are more likely to approve a plan the following year. Collectively, our results suggest that shareholder votes have little impact on firms' compensation policies and that recent regulatory efforts aimed at strengthening shareholder voting rights, particularly in the context of executive compensation, may have limited effect on firms' compensation policies.

    Keywords: Voting; Equity; Executive Compensation; Rights; Performance Effectiveness; Business and Shareholder Relations; Mathematical Methods; Motivation and Incentives;

    Citation:

    Gow, Ian D., Christopher S. Armstrong, and David F. Larcker. "The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans." 2012.
  2. Disclosure and the Cost of Capital: Evidence of Information Complementarities

    Citation:

    Gow, Ian D., Daniel Taylor, and Robert E. Verrecchia. "Disclosure and the Cost of Capital: Evidence of Information Complementarities." 2011.