More from these Authors

• Article | Brookings Papers on Economic Activity | Fall 2020

  Sizing Up Corporate Restructuring in the COVID Crisis

  Robin Greenwood, Benjamin Iverson and David Thesmar

  In the wake of the COVID-19 pandemic, the financial and legal system will need to deal with a surge of financial distress in the business sector. Some firms will be able to survive, while others will face bankruptcy and thus need to be liquidated or reorganized. Many surviving firms will need to be downsized or acquired. In normal times, this triage is supported by the court system, banks, and financial markets. The goal of this paper is to size up the coming surge of financial distress, list the challenges it presents in the current environment, and offer potential policy solutions. Overall, our analysis suggests that the two key issues will be court congestion and excess liquidation and failure of small firms.

  Keywords: COVID-19; Health Pandemics; Economy; System Shocks; Financial Crisis; Restructuring;

  Citation:

  Greenwood, Robin, Benjamin Iverson, and David Thesmar. "Sizing Up Corporate Restructuring in the COVID Crisis." Brookings Papers on Economic Activity (Fall 2020).  View Details

  CiteView Details Read Now

  Related

• Case | HBS Case Collection | August 2020

  Satrix: Competing in the Passive Asset Management Industry in South Africa

  Mark Egan, Pippa Tubman Armerding and Dilyana Karadzhova Botha

  In late 2017, Satrix, one of the largest passive asset management firms in South Africa and a pioneer in the industry since 2000, had to decide its strategy going forward in a market where passive asset management had become increasingly commoditized and competitive.
  Over the previous three years, as a result of increased competition and changing investor expectations, Satrix had faced increased pressure to reduce its management fees. The total expense ratio (TER) of the Satrix 40, Satrix’s flagship ETF, was 38 basis points (bps), more than double that of many of its new competitors. To maintain the company's position in the industry, Satrix's leaderhip was considering cutting the TER on its flagship ETF by almost 75% from 38 bps to 10 bps. The fee change would dramatically lower Satrix’s margins, but the company's leadership was concerned that Satrix couldn’t afford to not make the change; nearly 10% of assets the company managed came from the Satrix 40. What should they do?

  Keywords: Asset Management; Investment Funds; Competition; Competitive Strategy; Financial Services Industry; South Africa; Africa;

  Citation:

  Egan, Mark, Pippa Tubman Armerding, and Dilyana Karadzhova Botha. "Satrix: Competing in the Passive Asset Management Industry in South Africa." Harvard Business School Case 221-020, August 2020.  View Details

  CiteView DetailsEducators

  Related

• Working Paper | HBS Working Paper Series | 2020

  Conflicting Interests and the Effect of Fiduciary Duty—Evidence from Variable Annuities

  Mark Egan, Shan Ge and Johnny Tang

  We examine the drivers of variable annuity sales and the impact of a proposed regulatory change. Variable annuities are popular retirement products with over $2 trillion in assets in the United States. Insurers typically pay brokers a commission for selling variable annuities that ranges from 0% to over 10% of investors' premium payments. Brokers earn higher commissions for selling inferior annuities, in terms of higher expenses and more ex-post complaints. Our results indicate that variable annuity sales are roughly six times more sensitive to brokers' financial interests than investors'. To help limit conflicts of interest, the Department of Labor proposed a rule in 2016 that would hold brokers to a fiduciary standard when dealing with retirement accounts. We find that after the proposed fiduciary rule, the sales of high-expense variable annuities fell by 52% as sales became more sensitive to expenses and insurers increased the relative availability of low-expense products. Based on our structural model estimates, investor welfare improved as a result of the fiduciary rule under conservative assumptions.

  Keywords: variable annuity; Brokers; conflict of interests; Fiduciary Duty; Finance; Investment; Insurance; Financial Services Industry; Insurance Industry; United States;

  Citation:

  Egan, Mark, Shan Ge, and Johnny Tang. "Conflicting Interests and the Effect of Fiduciary Duty—Evidence from Variable Annuities." Harvard Business School Working Paper, No. 21-018, August 2020. (Revised August 2020. NBER Working Paper Series, No. 27577, July 2020; SSRN Working Paper Series, July 2020)  View Details

  CiteView Details Read Now

  Related