Finance

Finance is a featured research topic at Harvard Business School.
 
Our intellectual roots are based in a long line of scholars from Robert Merton whose collaborative work on risk management and option pricing won him the Nobel Prize in Economics in 1997, to John Lintner who co-created the Capital Asset Pricing Model and made significant contributions to dividend policy, and Gordon Donaldson whose work helped shape the field of corporate finance. We strive to understand how managers and firms make value-enhancing decisions; and how financial institutions, markets, and instruments contribute to this process. Our approach to research is distinguished by its unique combination of theory, empirical analysis, mathematical modeling, and field observations at companies. 
  1. Deutsche Bank: Structured Retail Products

    Boris Vallée and Jérôme Lenhardt

    Describes how Deutsche Bank, a leading bank in Europe, is deciding whether or not to launch a new structured retail product in Germany: an auto callable note. Will this product find a market and how does it fit into the bank’s product portfolio? The case investigates how Deutsche Bank manufactures and distributes its structured retail products, and more broadly explores the opportunities and challenges of offering financial products to households. The case also dwells on the scale and scope of business of retail banking in an increasingly regulated environment.

    Keywords: structured products; structured retail products; Germany; commercial banking; Financial Markets; asset management; asset pricing; auto callable note; financial product; financial product development; financial product marketing; financial product launch; financial product positioning; Finance; Assets; Asset Pricing; Asset Management; Capital Markets; Financial Institutions; Banks and Banking; Commercial Banking; Financial Instruments; Annuities; Bonds; Stocks; Financial Management; Financial Markets; Financial Strategy; Interest Rates; Investment;

    Citation:

    Vallée, Boris, and Jérôme Lenhardt. "Deutsche Bank: Structured Retail Products." Harvard Business School Case 217-037, November 2016. View Details
  2. Why They Do It: Inside the Mind of the White-Collar Criminal

    Eugene F. Soltes

    From the financial fraudsters of Enron, to the embezzlers at Tyco, to the Ponzi schemer Bernie Madoff, the failings of corporate titans are regular fixtures in the news. But what drives wealthy and powerful people to white-collar crime? I draw from extensive personal interaction and correspondence with nearly fifty former executives as well as research in psychology, criminology, and economics to investigate how once-celebrated executives become white-collar criminals.

    Keywords: Crime and Corruption; Corporate Finance;

    Citation:

    Soltes, Eugene F. Why They Do It: Inside the Mind of the White-Collar Criminal. New York: PublicAffairs, 2016. View Details
  3. Sovereign Risk, Currency Risk, and Corporate Balance Sheets

    Wenxin Du and Jesse Schreger

    Nominal debt provides consumption-smoothing benefits if it can be inflated away during recessions. However, we document empirically that countries with more countercyclical inflation, where nominal debt provides better consumption smoothing, issue more foreign-currency debt. We propose that monetary policy credibility explains the currency composition of sovereign debt and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during recessions, generating excessively countercyclical inflation in addition to the standard inflationary bias. With countercyclical inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have significantly larger nominal bond risk premia and borrow less in local currency.

    Keywords: Sovereign Finance; Business Cycles; Currency;

    Citation:

    Du, Wenxin, and Jesse Schreger. "Sovereign Risk, Currency Risk, and Corporate Balance Sheets." Harvard Business School Working Paper, No. 17-024, September 2016. View Details
  4. Western Technology Investment

    Ramana Nanda, William A. Sahlman and Nicole Keller

    Based in Portola Valley, California, WTI specialized in this hybrid form of debt and equity financing for early-stage companies. Like traditional venture capital and private equity firms, WTI raised funds from institutional investors and evaluated deals. However, instead of making initial investments in the form of equity, WTI focused primarily on lending money to start-ups, charging them interest and receiving warrants that could later be converted to stock in the case of a liquidity event. Most initial investments—usually in the range of $3-$5 million—were made in tandem with or following a company’s early rounds of venture capital equity financing. In addition, like more traditional venture capital investors, WTI hoped to participate in follow-on debt and equity investments in its successful portfolio companies.

    Keywords: entrepreneurial finance; venture capital; entrepreneurship; finance; Equity; Finance; California;

    Citation:

    Nanda, Ramana, William A. Sahlman, and Nicole Keller. "Western Technology Investment." Harvard Business School Case 817-019, September 2016. (Revised November 2016.) View Details
  5. MyTime

    Juliane Begenau and Robin Greenwood

    Ethan Anderson, the CEO of San Francisco-based e-commerce company MyTime, must decide on the company's growth strategy. MyTime’s first product was a website and mobile app that offered consumers a convenient way to book appointments with local merchants throughout the United States. Student must assess the company's growth strategy and develop a model to value a prospective customer to the company's website.

    Keywords: Customer valuation; discounted cash flow; software; valuation; valuation methodologies; subscriber models; Financial Management; Corporate Finance; Information Technology Industry; North and Central America;

    Citation:

    Begenau, Juliane, and Robin Greenwood. "MyTime." Harvard Business School Case 217-026, September 2016. (Revised September 2016.) View Details
  6. Financial Services at Falabella (A)

    C. Fritz Foley and Agustin M. Hurtado

    In 2010, the board and senior management team of Falabella, a leading retailer with operations throughout Latin America, faced choices about what to do with its financial services division. More than 4.5 million customers had CMR credit cards that could be used in Falabella stores, and Banco Falabella competed with other banks by offering personal banking services. The case covers many of the key questions the leaders of the firm faced, including whether to allow credit card holders to use their cards for purchases outside of Falabella stores, whether to develop personal banking services further, and whether to make substantial changes to the strategy or to exit the business.

    Keywords: Consumer credit; financial management; corporate strategy; financial institutions; Personal Finance; Financial Management; Financial Strategy; Corporate Strategy; Banking Industry; Retail Industry; Latin America; Chile; Argentina; Colombia; Peru;

    Citation:

    Foley, C. Fritz, and Agustin M. Hurtado. "Financial Services at Falabella (A)." Harvard Business School Case 217-016, September 2016. View Details
  7. Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy

    Wenxin Du, Carolin E. Pflueger and Jesse Schreger

    Nominal debt provides consumption-smoothing benefits if it can be inflated away during recessions. However, we document empirically that countries with more countercyclical inflation, where nominal debt provides better consumption-smoothing, issue more foreign-currency debt. We propose that monetary policy credibility explains the currency composition of sovereign debt and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during recessions, generating excessively countercyclical inflation in addition to the standard inflationary bias. With countercyclical inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have significantly larger nominal bond risk premia and borrow less in local currency.

    Keywords: Sovereign Finance;

    Citation:

    Du, Wenxin, Carolin E. Pflueger, and Jesse Schreger. "Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy." NBER Working Paper Series, No. 22592, September 2016. View Details
  8. The Stock Market and Bank Risk-Taking

    Antonio Falato and David Scharfstein

    We present evidence that pressure to maximize short-term stock prices and earnings leads banks to increase risk. We start by showing that banks increase risk when they transition from private to public ownership through a public listing or an acquisition. The increase in risk is greater than for a control group of banks that intended but failed to transition from private to public ownership, a result that is robust to using a plausibly exogenous instrument for failed transitions. The increase in risk is also greater than for a control group of banks that were acquired but did not change their listing status. We establish that pressure to maximize short-term stock prices helps to explain these findings by showing that the increase in risk is larger for newly public banks that are more focused on short-term stock prices and performance.

    Keywords: Risk and Uncertainty; Financial Markets; Investment; Corporate Finance; Banks and Banking;

    Citation:

    Falato, Antonio, and David Scharfstein. "The Stock Market and Bank Risk-Taking." NBER Working Paper Series, No. 22689, September 2016. View Details
  9. Blue D Pharmaceuticals

    Kevin Schulman, Emma Rasiel and Suresh Balu

    Susan Durham has just been hired as the Chief Financial Officer of Blue Devil Pharmaceuticals (BDP). Her charge is to understand the optimal pathway for the development of a novel molecule, BDP-1, to understand the cost of drug development, the market opportunity, and the optimal financing strategy for the development of this technology. The case includes a unique simulation model that examines key unknowns in making this assessment including the volatility in the financial markets, volatility in in-licensing markets. Financial strategies include: go-alone, partner with a pharmaceutical company, receive financing from a private equity firm, or there is an option to sell the molecule. Students can see how uncertainty in the development and financing strategy can impact the value of the firm to shareholders.

    Keywords: finance; entrepreneurship; Finance; Entrepreneurship;

    Citation:

    Schulman, Kevin, Emma Rasiel, and Suresh Balu. "Blue D Pharmaceuticals." Harvard Business School Case 317-014, July 2016. View Details
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