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. Crowdfunding as 'Donations': Theory & Evidence

    Kevin J. Boudreau, Lars Bo Jeppesen, Toke Reichstein and Francesco Rullani

    For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant "free-rider" problems in motivating contributions. Reviewing institutional features of today's crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation—(i) direct psychological rewards, (ii) reciprocity and (iii) social interactions—can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.

    Keywords: Crowdfunding platforms; entrepreneurial finance; free-riding; voluntary contributions to public goods; Online Technology; Entrepreneurship; Social and Collaborative Networks; Finance; Giving and Philanthropy;


    Boudreau, Kevin J., Lars Bo Jeppesen, Toke Reichstein, and Francesco Rullani. "Crowdfunding as 'Donations': Theory & Evidence." Harvard Business School Working Paper, No. 16-038, September 2015. View Details
  2. Unidentified Industries: Australia 2014

    Benjamin Esty and William E. Fruhan, Jr.

    Helps students to understand how the characteristics of a business are reflected in the firm's financial statements. In this exercise, students are given balance sheet data in percentage form (common-size balance sheets) and other selected financial ratios for a set of 12 unidentified firms from 12 different industries (all 12 companies are listed on the Australian Securities Exchange, ASX). Students must use the balance sheet data and the financial ratios along with their basic knowledge of the operating characteristics of these various industries to match each firm to the correct industry.

    Keywords: Accounting; Finance; Financial Management; Australia;


    Esty, Benjamin, and William E. Fruhan, Jr. "Unidentified Industries: Australia 2014." Harvard Business School Case 216-014, September 2015. View Details
  3. The Value of Corporate Citizenship: Protection

    Dylan Minor

    We explore the notion that corporate citizenship, as obtained through Corporate Social Responsibility (CSR), is used by managers to protect firm value, helping their firm better withstand negative business shocks. We formally explore two parallel mechanisms for such protection—one of building moral capital (CSR Contributions) and another of improving investor posteriors (CSR Investments). We find some theoretical and empirical support for both of these, but in different settings. In particular, we find that firms with higher CSR Investments enjoy an average of $1 billion of saved firm value upon an adverse event. In contrast, CSR Contribution firms lose value (on average) upon an event, possibly due to disingenuous contributions. Meanwhile, due to managerial moral hazard, firms with high levels of CSR Contributions face adverse events more often, whereas those with high levels of CSR Investments face them less often.

    Keywords: Value; Corporate Social Responsibility and Impact; Finance;


    Minor, Dylan. "The Value of Corporate Citizenship: Protection." Harvard Business School Working Paper, No. 16-021, August 2015. View Details
  4. Eastman Kodak Company: Restructuring a Melting Ice Cube

    Stuart C. Gilson, John D. Dionne and Sarah L. Abbott

    In May 2013, senior managers of GSO Capital Partners, an $80 billion credit-oriented investment firm owned by The Blackstone Group, are considering what to do next with their investment in the senior secured debt of Eastman Kodak Company. Once a great company and an icon of American business, Kodak had fallen on desperately hard economic times as its traditional business of manufacturing cameras and photographic film had all but disappeared with the rise of digital photography, causing its annual revenues to plummet from $13 billion to $6 billion, and its stock price to fall by 95%, between 2003 and 2011. Having taken various positions in Kodak's debt during the previous four years, GSO is now faced with a major decision. Under the company's recently proposed plan of reorganization, secured creditors were to be given 85% of the company's common stock, but unsecured creditors objected to the plan. Now, six months later, GSO has brought an amended plan to the table, under which it would commit to backstop a $406 million equity rights offering that would be made directly to all the unsecured creditors. This offer might bring the objecting creditors on board, but could also require an additional large capital commitment by GSO, which was already heavily invested in a highly troubled business that many viewed as a "melting ice cube."

    Keywords: Restructuring; Finance; Strategy; Investment; United States;


    Gilson, Stuart C., John D. Dionne, and Sarah L. Abbott. "Eastman Kodak Company: Restructuring a Melting Ice Cube." Harvard Business School Case 216-006, August 2015. View Details
  5. A Comparative-Advantage Approach to Government Debt Maturity

    Robin Greenwood, Samuel G. Hanson and Jeremy C. Stein

    We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short-term securities. In a setting where the government is the only issuer of such riskless paper, it trades off the monetary premium associated with short-term debt against the refinancing risk implied by the need to roll over its debt more often. We then extend the model to allow private financial intermediaries to compete with the government in the provision of short-term, money-like claims. We argue that if there are negative externalities associated with private money creation, the government should tilt its issuance more towards short maturities. The idea is that the government may have a comparative advantage relative to the private sector in bearing refinancing risk and, hence, should aim to partially crowd out the private sector's use of short-term debt.

    Keywords: Sovereign Finance; Debt Securities;


    Greenwood, Robin, Samuel G. Hanson, and Jeremy C. Stein. "A Comparative-Advantage Approach to Government Debt Maturity." Journal of Finance 70, no. 4 (August 2015): 1683–1722. (Internet Appendix Here.) View Details
  6. Dollar Funding and the Lending Behavior of Global Banks

    Victoria Ivashina, David S. Scharfstein and Jeremy C. Stein

    A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale dollar funding, while raising more of their euro funding through insured retail deposits, the shock leads to a greater withdrawal of dollar funding. Banks can borrow in euros and swap into dollars to make up for the dollar shortfall, but this may lead to violations of covered interest parity (CIP) when there is limited capital to take the other side of the swap trade. In this case, synthetic dollar borrowing becomes expensive, which causes cuts in dollar lending. We test the model in the context of the Eurozone sovereign crisis, which escalated in the second half of 2011 and resulted in U.S. money-market funds sharply reducing the funding provided to European banks. Coincident with the contraction in dollar funding, there were significant violations of euro-dollar CIP. Moreover, dollar lending by Eurozone banks fell relative to their euro lending in both the U.S. and Europe; this was not the case for U.S. global banks. Finally, European banks that were more reliant on money funds experienced bigger declines in dollar lending.

    Keywords: banks; global banks; credit supply; dollar funding; International Finance; Banks and Banking; Banking Industry;


    Ivashina, Victoria, David S. Scharfstein, and Jeremy C. Stein. "Dollar Funding and the Lending Behavior of Global Banks." Quarterly Journal of Economics 130, no. 3 (August 2015): 1241–1281. View Details
  7. The Valuation and Financing of Lady M Confections

    Mihir A. Desai and Elizabeth A. Meyer

    This case explores the decision-making process that small, private businesses must undertake when considering an expansion and when selling equity to outside investors. In the process, students are asked to complete two exercises: a break-even analysis and a valuation exercise.

    Keywords: lady m; bakery; foodservice industry; valuation; Breakeven analysis; restaurant industry; Forecasting; forecast; financial analysis; Borrowing and Debt; Corporate Finance; Equity; Financial Management; Financial Strategy; Finance; Food; Valuation; Food and Beverage Industry; New York (city, NY);


    Desai, Mihir A., and Elizabeth A. Meyer. "The Valuation and Financing of Lady M Confections." Harvard Business School Case 215-047, June 2015. View Details
  8. Venture Republic, 2011

    W. Carl Kester and Mayuka Yamazaki

    In December 2011, the founders of Venture Republic, a Japanese developer and operator of on-line search engines for shopping and travel, faced a decison about whether or not to take the company private in a management buyout transaction just three years after an initial public offering in Japan. To arrive at a suitable recommendation, students must value the enterprise at a time when its growth was just beginning to accelerate following the financial crisis; determine an appropriate capital structure and loan package for the company; and establish a viable management buyout process (MBO) in which potential conflicts of interest between the buying owner-managers and the selling shareholders can be appropriately managed. The advantages and disadvantages of public versus private ownership are also a focal point of this case study.

    Keywords: management buyout; MBO; valuation methodologies; Financing and Lloans; financing decisions; conflicts of interest; governance; Japan; search engines; going private; Valuation; Financing and Loans; Finance; Conflict of Interests; Corporate Governance; Web Services Industry; Japan;


    Kester, W. Carl, and Mayuka Yamazaki. "Venture Republic, 2011." Harvard Business School Case 215-076, May 2015. View Details
  9. West Coast Chill

    William A. Sahlman, Robert F. White and Stephanie Puzio

    The fall of 2010 marked the 20th year that Mitchell Joseph, a fourth generation beverage executive, serial entrepreneur, and the founder of the Joseph Company (the "Company"), had been working on developing the technology for a self-chilling can. Mitchell was at an impasse and had some important decisions to make. The latest versions of the self-chilling can technology (Phase 2 and 3) were showing encouraging progress, cooling liquid in aluminum cans by approximately 30°F in less than three minutes. He was sure that this product performance would make the can attractive to beverage companies around the world.

    Keywords: entrepreneurial finance; entrepreneurship; finance; Entrepreneurship; Finance; Food and Beverage Industry; United States;


    Sahlman, William A., Robert F. White, and Stephanie Puzio. "West Coast Chill." Harvard Business School Multimedia/Video Case 815-704, March 2015. View Details
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