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. 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 about 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
  2. 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
  3. 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
  4. 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
  5. 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
  6. 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
  7. 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
  8. 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
  9. 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
  10. Apple Pay

    Sunil Gupta, Shelle Santana and Margaret L. Rodriguez

    On September 9, 2014, in front of a packed audience in Cupertino, CA, Tim Cook, the chief executive officer of Apple, announced the much anticipated launch of Apple Pay. "Our vision is to replace this [wallet] and we are going to start with payments." Cook then invited Eddy Cue, Apple's senior vice president of Internet Software and Services, to the stage to explain how Apple Pay would transform the mobile payments industry. He explained how Apple Pay would allow consumers to complete the check-out process within apps with a single touch, and without needing to repeatedly enter credit card information, the billing address, or shipping address.
    On October 20, 2014, U.S. consumers could start using Apple Pay in stores with their iPhone 6 or iPhone 6 Plus (and later Apple Watch) and within apps using iPhone 6, iPhone 6 Plus, iPad Air 2 and iPad mini 3. By March 2015, Apple Pay was accepted in 700,000 retail locations including Coca-Cola vending machines. "We are the fastest adopted mobile payment service by a long shot," noted Jennifer Bailey, vice president of Apple Pay. However, Cue and Bailey were aware that the landscape of mobile wallets and payment services was littered with failures. Reflecting on these challenges, Bailey wondered, "What should Apple do to continue the early momentum for the adoption and use of Apple Pay?"

    Keywords: marketing; technology; digital services and strategy; product launch; launch; mobile; mobile payments; Apple; Credit Cards; finance; payments; smartphone; apple pay; eddy cue; jennifer bailey; iOS; iphone; Marketing; Product; Mobile Technology; Product Launch; Finance; Credit Cards; Wireless Technology; Technology Industry; Banking Industry; United States; United Kingdom;


    Gupta, Sunil, Shelle Santana, and Margaret L. Rodriguez. "Apple Pay." Harvard Business School Case 516-027, August 2015. View Details
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