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• Article | Brookings Papers on Economic Activity | Fall 2020

  Business Credit Programs in the Pandemic Era

  Samuel Gregory Hanson, Adi Sunderam, Jeremy C. Stein and Eric Zwick

  We develop a pair of models that speak to the goals and design of the sort of business-lending and corporate-bond purchase programs that have been introduced by governments in response to the ongoing COVID-19 pandemic. An overarching theme is that, in contrast to the classic lender-of-last-resort thinking that underpinned much of the response to the 2007–2009 global financial crisis, an effective policy response to the pandemic will require the government to accept the prospect of significant losses on credit extended to private sector firms.

  Keywords: COVID-19; business lending; government intervention; econometric models; Health Pandemics; Credit; Governance; Policy;

  Citation:

  Hanson, Samuel Gregory, Adi Sunderam, Jeremy C. Stein, and Eric Zwick. "Business Credit Programs in the Pandemic Era." Brookings Papers on Economic Activity (Fall 2020).  View Details

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• Case | HBS Case Collection | October 2019 (Revised August 2020)

  The Predictive Index

  Lynda M. Applegate and James Weber

  Mike Zani and Daniel Muzquiz needed to decide next steps to create a new category in the human resources consulting industry and scale their company.
  Zani and Muzquiz, serial entrepreneurs, acquired Predictive Index in 2014. Previously, as clients of the 65-year-old Predictive Index, they had used its behavioral assessment tool to help them hire staff and build teams and they strongly believed in its value. They also believed, however, that Predictive Index had the potential to be something more. After acquiring the company, they invested in technology and people to modernize the business, and Predictive Index earned recognition as a “best place to work.” In 2018, they developed a Talent Optimization platform, an offering that had the potential to transform the industry by helping companies align their business strategies with their human capital and leadership development strategies. In late 2019, as they prepared a broad rollout of Talent Optimization, and planned to scale their business by an order of magnitude, the pair wondered what hurdles they might face along the way and what other steps they should take to reach their goals.

  Keywords: Human Resources; Selection and Staffing; Talent and Talent Management; Recruitment; Corporate Entrepreneurship; Venture Capital; Change Management; Disruptive Innovation; Market Platforms; Growth and Development Strategy; Consulting Industry; Service Industry; United States;

  Citation:

  Applegate, Lynda M., and James Weber. "The Predictive Index." Harvard Business School Case 820-034, October 2019. (Revised August 2020.)  View Details

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• Article | Journal of Financial and Quantitative Analysis | August 2020

  Leverage and the Beta Anomaly

  Malcolm Baker, Mathias F. Hoeyer and Jeffrey Wurgler

  The well-known weak empirical relationship between beta risk and the cost of equity—the beta anomaly—generates a simple tradeoff theory: As firms lever up, the overall cost of capital falls as leverage increases equity beta, but as debt becomes riskier the marginal benefit of increasing equity beta declines. As a simple theoretical framework predicts, we find that leverage is inversely related to asset beta, including upside asset beta, which is hard to explain by the traditional leverage tradeoff with financial distress that emphasizes downside risk. The results are robust to a variety of specification choices and control variables.

  Keywords: risk anomaly; leverage; Capital Structure; Risk and Uncertainty;

  Citation:

  Baker, Malcolm, Mathias F. Hoeyer, and Jeffrey Wurgler. "Leverage and the Beta Anomaly." Journal of Financial and Quantitative Analysis 55, no. 5 (August 2020): 1491–1514.  View Details

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