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. Local Currency Sovereign Risk

    Wenxin Du and Jesse Schreger

    We introduce a new measure of emerging market sovereign credit risk: the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk-free rate constructed using cross-currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign currency–denominated debt, local currency credit spreads have lower means, lower cross-country correlations, and lower sensitivity to global risk factors. We discuss several major sources of credit-spread differentials, including positively correlated credit and currency risk, selective default, capital controls, and various financial market frictions.

    Keywords: Risk and Uncertainty; Sovereign Finance; Currency; Emerging Markets;


    Du, Wenxin, and Jesse Schreger. "Local Currency Sovereign Risk." Journal of Finance 71, no. 3 (June 2016): 1027–1070. View Details
  2. JPMorgan Chase after the Financial Crisis: What is the optimal scope of the largest bank in the U.S.?

    David Collis and Ashley Hartman

    When Jamie Dimon took over as CEO of JPMorgan Chase & Co. (JPMorgan Chase) in 2005 he reaffirmed the commitment to pursue a "Universal Bank" strategy—providing a full range of products and services to both retail and wholesale clients. Yet the merits of the universal bank had long been disputed. After 2008, the Financial Crisis and subsequent Great Recession damaged many global and domestic financial services firms. While the Government bailed out universal banks and monoline financial institutions alike, both governments and public clamored for action against banks they deemed "too big to fail." Regulators around the world stepped in to increase capital requirements while the U.S. government passed the Dodd-Frank bill, which improved transparency and accountability, and, with the Volcker Rule, limited banks' ability to pursue proprietary trading. In response, many financial institutions reduced their scope and reshaped their portfolios.
    In this context, JPMorgan Chase, the largest bank in the U.S. by assets since 2011, which had successfully weathered the financial crisis in part due to the benefits of diversification, emerged with a "fortress balance sheet" and an improved position in the banking league tables. Nevertheless, the bank faced pressure from many directions, including large civil fines to settle, analysts' arguments about its "conglomerate discount," and regulation that penalized size, interconnectedness and complexity. Despite the pressure, Jamie Dimon remained vocal in advocating for the value of a broad scope, large scale financial services firm. However, questions remained about the optimal scope of the bank, and how JPMorgan Chase could best allocate resources across its diverse lines of business in the face of new regulations designed to limit size and complexity.

    Keywords: corporate strategy; scope; financial crisis; banking industry; financial services industry; Regulatory Reforms; Universal Banking; Synergy; optimization; Simplification; diversification; Finance; Strategy; Business Strategy; Consolidation; Corporate Strategy; Diversification; Banking Industry;


    Collis, David, and Ashley Hartman. "JPMorgan Chase after the Financial Crisis: What is the optimal scope of the largest bank in the U.S.?" Harvard Business School Case 716-448, March 2016. (Revised May 2016.) View Details
  3. Michael Milken: The Junk Bond King

    Tom Nicholas and Matthew G. Preble

    Michael Milken, an investment banker who dominated the junk bond market in the 1980s, was sentenced to jail in 1990 after pleading guilty to a number of securities and tax related felonies. In the preceding decade, Milken had helped usher in a new wave of leveraged buy outs (LBOs) and greatly changed the structure of corporate America. By the late 1980s though, Milken and junk bonds became more heavily scrutinized, and Milken was eventually implicated in a number of felonious acts. Even after his admission of guilt, however, observers remained divided on what Milken's true impact had been. Was he simply a misunderstood financial innovator who democratized access to capital? Or was he driven purely by greed and by nefarious personal financial motives?

    Keywords: junk bonds; high-yield bonds; financial innovation; shareholder value; Bonds; Capital; Capital Structure; Cost of Capital; Crime and Corruption; Entrepreneurship; Ethics; Finance; Investment Banking; Leveraged Buyouts; Mergers and Acquisitions; Ownership; Private Equity; Restructuring; United States;


    Nicholas, Tom, and Matthew G. Preble. "Michael Milken: The Junk Bond King." Harvard Business School Case 816-050, March 2016. View Details
  4. Debt and Democracy: The New York Constitutional Convention of 1846

    David Moss and Dean Grodzins

    On September 23, 1846, delegates to New York State's constitutional convention prepared to vote on a proposal that its principal proponent, Michael Hoffman, conceded would be “a serious change in our form of government.” The proposal would place tight restrictions on state debt, which had increased sharply over the previous eight years. Anti-debt reformers had long agitated for such an amendment. The version presented to the convention in 1846 would place a cap on state debt of one million dollars, which could only be exceeded for two reasons: if lawmakers faced an extraordinary emergency, such as an invasion or insurrection, or—alternatively—if they (1) contracted the additional debt for a specific purpose, (2) enacted an associated tax sufficient to pay off the additional debt within 18 years, and (3) obtained approval for the tax from a majority of voters in a state-wide referendum. Critics denounced the idea of a debt-restriction amendment as unnecessary, unworkable, and subversive of republican government; they also objected that it would reverse three decades of state policy regarding “public improvements,” dating back to 1817, when New York undertook the celebrated Erie Canal. Yet popular support for a constitutional restriction on state borrowing appeared to be rising. Now, at last, the convention was about to vote on the proposal.

    Keywords: Sovereign Finance; Governance; Laws and Statutes; Government and Politics;


    Moss, David, and Dean Grodzins. "Debt and Democracy: The New York Constitutional Convention of 1846." Harvard Business School Case 716-049, February 2016. View Details
  5. How to Turn Around a Country

    Paul Kazarian and George Serafeim

    Change is hard. Especially trying to change an entire country and its public sector that consists of more than 650,000 employees and has an annual budget of approximately 80 billion euros. This is the case of Greece, once the fastest-growing eurozone country, which has experienced devastating value destruction in the past seven years because of bad management.

    Keywords: Greece; Europe; European Union; turnaround; accounting; accountability; economic growth; leadership; Change; Sovereign Finance; Leadership; Corporate Accountability; Public Sector; Accounting; Economic Growth; Change; European Union; Greece;


    Kazarian, Paul, and George Serafeim. "How to Turn Around a Country." Kathimerini (January 19, 2016). View Details
  6. Introduction: New Perspectives on Corporate Capital Structure

    Viral Acharya, Heitor Almeida and Malcolm Baker

    The National Bureau of Economic Research held a symposium titled "New Perspectives on Corporate Capital Structures" on April 5–6, 2013 in Cambridge, Massachusetts. In its call for the submission of theoretical and empirical papers for the symposium, the NBER noted that the global financial crisis of 2007–2008 and its aftermath have focused attention on the growing use of leverage by financial intermediaries and on the evolving structure of corporate debt markets—and given rise to new questions about the private and social costs and benefits of leverage and, in particular, the role of leverage in affecting the likelihood and extent of systemic financial distress. On the other hand, rising levels of cash on hand at many non-financial firms have highlighted a "low-leverage puzzle" and raised questions about the implications of cash holdings for corporate investment and economic growth.

    Keywords: Capital Structure; Economic Growth; Financial Crisis; Corporate Finance;


    Acharya, Viral, Heitor Almeida, and Malcolm Baker. "Introduction: New Perspectives on Corporate Capital Structure." Journal of Financial Economics 118, no. 3 (December 2015): 551–552. View Details
  7. Are the 'Best and Brightest' Going into Finance? Skill Development and Career Choice of MIT Graduates

    Pian Shu

    Using detailed data on recipients of bachelor's degrees from MIT between 2006 and 2012, I examine the selection of students going into finance or science and engineering (S&E). I find that academic achievement in college is negatively correlated with a propensity to take a job in finance and positively correlated with a propensity to pursue a graduate degree or taking a job in S&E. This pattern is primarily driven by differences in skill development during college, not by differences in academic qualifications at college entry. In both high school and college, the two groups participate in different activities: students who ultimately choose finance are substantially more likely to be varsity-sports leaders in high school; they are also more likely to join fraternities and sororities, a decision typically made at college entry. Sizable differences in academic performance begin in freshman year and persist throughout college. The 2008 financial crisis, which substantially reduced the availability of entry-level positions in finance, prompted some students with relatively low college-entry qualifications to major in S&E instead of management or economics and/or to improve their academic performance. But there is no evidence that those with top qualifications changed their skill development in response to the crisis. Taken together, the results demonstrate that the preferences and skills of graduates who pursue finance are not comparable to those of graduates who choose a career in S&E.

    Keywords: Higher Education; Engineering; Personal Development and Career; Science; Finance;


    Shu, Pian. "Are the 'Best and Brightest' Going into Finance? Skill Development and Career Choice of MIT Graduates." Harvard Business School Working Paper, No. 16-067, December 2015. View Details
  8. Rubicon Global

    William A. Sahlman and Hunter Ashmore

    The case describes Rubicon Global, a startup that aimed to disrupt the waste management industry. The company started with a bold idea: create a cloud-based, full-service waste management company providing low-cost, highly efficient, and environmentally friendly service anywhere in the country through a national network of independent waste haulers and recyclers. A player in the sharing economy, Rubicon was developing an on-demand mobile application that did for waste management what Uber had done for taxi service.
    Rubicon had made great progress since introducing its service. They had signed up large multi-national customers and had a number of large potential contracts in the negotiation phase. The team needed more capital to build out the network and technology platform. Management and the board had to make a number of critical decisions: how much should the company raise, for what purpose, from whom, and on what terms?

    Keywords: entrepreneurial finance; rubicon; rubicon global; waste management; Startups; disruptive technology; Technological Innovation; Disruptive Innovation; Market Entry and Exit; Entrepreneurship; Wastes and Waste Processing; Business Startups; Corporate Finance; Service Industry;


    Sahlman, William A., and Hunter Ashmore. "Rubicon Global." Harvard Business School Case 816-015, November 2015. View Details
  9. Financial Patent Quality: Finance Patents After State Street

    Josh Lerner, Andrew Speen, Mark Baker and Ann Leamon

    In the past two decades, patents of inventions related to financial services ("finance patents"), as well as litigation around these patents, have surged. One of the repeated concerns voiced by academics and practitioners alike has been about the quality of these patents, in particular, and business method patents more generally. Because so much of the prior work in these areas has not been patented, concerns have been expressed as to the extent to which the awards reflect this knowledge. Inspired by these issues, this paper empirically examines the quality of finance patents in the years after the landmark litigation between State Street Bank and Signature Financial Group. We show that relative to two sets of comparison groups, finance patents in aggregate cite fewer non-patent publications and especially fewer academic publications. This finding holds across the major assignee groups. In addition, it appears that patents assigned to individuals and associated with non-practicing entities (NPEs) cite less academic work than those assigned to non-NPE corporations. While not statistically significant due to the small number of academic citations in finance patents, we observe qualitatively similar patterns of under-citation when we restrict our analysis to finance patents held by individuals and NPEs, as opposed to non-NPE corporations. These findings raise questions about the quality of finance patents. We also explore litigated finance patents and discuss how the results here may reflect differences in the quality of finance patents relative to other areas. We find that, as earlier work has suggested, finance patents are more likely to be litigated than non-finance patents, but increased academic citations appear to reduce that possibility relative to others. Collectively, these findings raise important questions about the quality of finance patents and the proliferation of litigation in this domain.

    Keywords: Patents; Lawsuits and Litigation; Finance;


    Lerner, Josh, Andrew Speen, Mark Baker, and Ann Leamon. "Financial Patent Quality: Finance Patents After State Street." Harvard Business School Working Paper, No. 16-068, December 2015. View Details
  10. Political Standards: Corporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules for the Market Economy

    Karthik Ramanna

    There are certain institutions underlying our modern market-capitalist system that are largely outside the interest and understanding of the general public—e.g., rulemaking for bank capital adequacy, actuarial standards, accounting standards, and auditing practice. In these areas, corporate managers and financial experts such as auditors and bankers possess the technical expertise necessary for informed regulation, enjoy strong economic interests in the outcome, and face little resistance to their lobbying activities from the general public. These areas are known as "thin political markets" to distinguish them from more vibrant and competitive "thick" political processes (e.g., healthcare regulation). This book develops the notion of thin political markets through a vivid exploration of the political processes determining our system of accounting rules upon which depends our ability to reliably measure corporate profits in the economy. The book shows how some corporate interests, in the spirit of increasing profits, have been manipulating the very definition of profit by changing accounting rules. On one level, this corporate behavior embodies the capitalist spirit articulated by Milton Friedman: "The social responsibility of business is to increase its profits." But the ethics of profit-increasing behavior are premised on the logic of competition, and this logic breaks down in thin political markets. The result is a structural flaw in the determination of critical institutions of our capitalist system, which, if ignored, can undermine the legitimacy of the system. The book closes with ideas on how to fix the problem.

    Keywords: accounting; business and society; financial institutions; financial reporting; GAAP; IFRS; leadership; lobbying; Capitalism; sustainability; Accounting; Finance; Business and Government Relations; Leadership; Accounting Industry; Financial Services Industry; United States; China; India;


    Ramanna, Karthik. Political Standards: Corporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules for the Market Economy. Chicago: University of Chicago Press, 2015. (Reviews by Anat Admati, S.P. Kothari, Lynn Stout, Lawrence Summers, and Luigi Zingales, among others.) View Details
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