Gwen Yu

Assistant Professor of Business Administration

Gwen Yu is an assistant professor of business administration in the accounting and management unit at Harvard Business School.  She teaches the second year MBA “Business Analysis and Valuation” class and occasionally, in HBS’s Executive Education programs (“Strategic Financial Analysis for Business Evaluation”).  Previously, Gwen taught the first-year M.B.A. course “Financial Reporting and Control.”

Gwen’s research focuses on the role of information frictions in the global economy. Globalization has led to a series of events that lowered information barriers around the world. Despite the falling communication costs, firms continue to face information problems when they expand abroad. Gwen’s research investigates the cross-border frictions that cause differences in information quality to persistent around the world. She also examines how these differences have real effects on various economic outcomes.

Her work dissects the underlying drivers of cross-border information frictions. She identifies three sources of information frictions (i.e., formal barriers, informal barriers, and innate barriers) and examines how each barrier affects various economic outcomes. Also, her work delves into settings (e.g., cross-listing) where firms attempt to overcome these cross border frictions and examines the challenges therein. The common theme throughout her work is that simply reducing formal barriers, such as rules and regulations, does not necessarily lead to harmonized information quality across countries. This is because transparency is a complex outcome of numerous institutions that shape the information environment. Thus, simply transplanting the rules of one country to another may not be the most efficient way to achieve global integration.

Another area of work is the globalization process of emerging countries such as China. The rapid, yet controlled, globalization process of China offers an interesting laboratory setting for examining how countries can better leverage their local institutions in this process. In a series of papers and cases, she argues that successful globalization can be achieved not only by overcoming but also by exploiting the differences in its local institutions. Her findings have implications for local regulators, investors, and managers, who are at a crossroads in designing a new economic system that will shape one of the world’s largest and fastest growing economies.

Gwen’s work has been published in academic and practitioner journals such as the Journal of Financial Economics,The Accounting ReviewAmerican Economic Journal: MacroeconomicsReview of Accounting Studies and the World Financial Review, and it has been cited and discussed in The New York Times, in The Financial Times, CBS Money Watch,The Wall Street Journal, and in other outlets of the financial press. She is on the Editorial board of The Accounting Review.

Gwen holds a Ph.D. in accounting from the University of Michigan, where she also earned a master’s degree in applied economics. Her undergraduate degree is from Yonsei University in Seoul. Before pursuing her graduate studies, she worked at McKinsey & Company and the global reinsurer Swiss Re.

  1. Financial reporting quality and its consequences

    by Gwen Yu

    Does reporting quality have real economic consequences? Professor Yu addresses this question in her research, which examines the channels through which reporting quality affects the behavior of economic agents, namely managers and investors. Her particular focus is on how changes in certain accounting regimes or in the reporting behavior of a firm influence the way different agents view the firm.

    Professor Yu’s current research highlights three aspects of financial reporting and its consequences.

    In light of the recent global push toward accounting harmonization, and particularly the adoption of International Financial Reporting Standards (IFRS), she has investigated accounting standards and cross-border holdings. She has found that reducing differences in accounting standards increases foreign holdings of international mutual funds by directly reducing the information processing cost of foreign investors. Even more important is her finding that harmonizing accounting standards reduces the effect of other private information barriers by making investors rely more on public information sources and less on private ones.

    Professor Yu also examines the ability of accounting to predict major events, such as currency crises. While neoclassical models suggest that improving the quality of financial information tightens the link between the realization of the information and the underlying fundamentals, models of recent crises suggest that higher information quality can generate multiplicity, divorcing the signals from the fundamentals. In the first empirical study of its kind, Professor Yu has discovered that accounting signals predict crises only in countries with low accounting precision, suggesting that precise public signals can coordinate traders’ beliefs and therefore increase volatility and generate multiplicity.

    The third avenue of Professor Yu’s research examines hedge fund returns. As these funds have grown larger, could they hamper their own ability to hedge risks and generate superior returns? By making the critical distinction between the returns of hedge funds themselves and the returns of investors in these funds, Professor Yu has found that, based on the specification and time period examined, investors’ annualized, dollar-weighted returns are 3 to 7 percent lower than those on corresponding buy-and-hold returns. The implication is that, after considering risk, hedge-fund investors’ returns are much lower than generally expected.