Finance

- January 2022
- Case
The Impact Developers Fund

By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
- January 2022
- Case
The Impact Developers Fund

By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
- 2022
- Working Paper
Many Markets Make Good Neighbors: Multimarket Contact and Deposit Banking

By: Jonathan Wallen and John Hatfield

We investigate the relationship between the interest rates offered to consumers in a deposit banking market and the contact that banks in that market have with each other in other markets. We show, in a simple theoretical model, that such overlapping relationships lead to less competitive behavior by banks. Furthermore, we empirically test this result across U.S. deposit banking markets and find that markets in which banks have many other points of contact with each other act significantly less competitive. Our results are particularly alarming as multimarket contact has increased significantly over the last two decades while the passthrough rate between the Federal Funds rate and deposit banking rates has fallen dramatically.
- 2022
- Working Paper
Many Markets Make Good Neighbors: Multimarket Contact and Deposit Banking

By: Jonathan Wallen and John Hatfield

We investigate the relationship between the interest rates offered to consumers in a deposit banking market and the contact that banks in that market have with each other in other markets. We show, in a simple theoretical model, that such overlapping relationships lead to less competitive behavior by banks. Furthermore, we empirically test this...
- January 2022
- Article
Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

By: Erik Stafford

The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental leverage to a publicly traded stock portfolio increases both risks and mean returns in this sample. Direct investments in private equity funds earn lower mean returns than a replicating strategy designed to mimic these key economic features of their investment process with public equities and brokerage loans. (JEL G11, G12, G23, G32)
- January 2022
- Article
Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

By: Erik Stafford

The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental...

About the Unit

Our strategy is to assemble and nurture a faculty whose interests and skills complement each other, and who work well together:

a) to produce a broad range of finance-related research that is published in top-tier scientific and practitioner journals, and that addresses issues of present and future importance to managers (including regulators and policy makers);

b) to develop highly-relevant and intellectually rigorous MBA and executive education courses; and

c) to mentor future academics through the Business Economics doctoral program.

Our applied focus and access to business organizations are major advantages which are reinforced by our students and our case-based approach. We have a faculty with broad expertise, and we have resources, field contacts, and institutional support, all of which we can leverage to do richer work and be more productive than we could at other institutions.

Recent Publications

The Impact Developers Fund

By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes

January 2022 |
Case |
Faculty Research

Citation

Educators

Many Markets Make Good Neighbors: Multimarket Contact and Deposit Banking

By: Jonathan Wallen and John Hatfield

2022 |
Working Paper |
Faculty Research

We investigate the relationship between the interest rates offered to consumers in a deposit banking market and the contact that banks in that market have with each other in other markets. We show, in a simple theoretical model, that such overlapping relationships lead to less competitive behavior by banks. Furthermore, we empirically test this result across U.S. deposit banking markets and find that markets in which banks have many other points of contact with each other act significantly less competitive. Our results are particularly alarming as multimarket contact has increased significantly over the last two decades while the passthrough rate between the Federal Funds rate and deposit banking rates has fallen dramatically.

Citation

Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

By: Erik Stafford

January 2022 |
Article |
Review of Financial Studies

The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental leverage to a publicly traded stock portfolio increases both risks and mean returns in this sample. Direct investments in private equity funds earn lower mean returns than a replicating strategy designed to mimic these key economic features of their investment process with public equities and brokerage loans. (JEL G11, G12, G23, G32)

Keywords: Replicating Portfolio; Private Equity; Investment Portfolio

Citation

Find at Harvard

Bed Bath & Beyond: The New Strategy to Drive Shareholder Value

By: Benjamin C. Esty

December 2021 |
Supplement |
Faculty Research

Citation

Purchase

Bed Bath & Beyond: The New Strategy to Drive Shareholder Value

By: Benjamin C. Esty and Daniel W. Fisher

December 2021 |
Case |
Faculty Research

At one time, Bed Bath & Beyond was one of the most successful specialty retailers in the United States—it’s growth and profit margins far exceeded both peer retailers in the home goods market as well as many other discount retailers. But in 2014, its stock price peaked, growth slowed, and margins began to shrink. By 2018, it was losing money and sales were declining as online and discount retailers (e.g., Amazon, Walmart, and Wayfair) entered the industry. Noting the underperformance, a group of activist investors tried to replace the entire board and leadership team in early 2019. Although they did not succeed, the company replaced five directors, asked the founders to retire, and appointed a new CEO named Mark Tritton in October 2019. About a year later, Tritton and a newly installed leadership team announced a new strategy “to unlock growth and drive significant shareholder value.” They also announced a new “financial roadmap” and capital allocation framework to deliver strong and sustainable total shareholder returns. The question is whether this turnaround plan could save the once-venerable retailer and help it regain a competitive advantage in the new, more competitive retail environment.

Keywords: Competitive Strategy; Competitive Advantage; Value Creation; Diversification; Corporate Governance; Leading Change; Performance Evaluation; Valuation; Investment Activism; Retail Industry; Consumer Products Industry; United States

Citation

Educators

Limits to Bank Deposit Market Power

By: Juliane Begenau and Erik Stafford

2021 |
Working Paper |
Faculty Research

Claims about the market power of bank deposits in the banking literature are numerous and far reaching. Recently, a causal narrative has emerged in the banking literature: market power in bank deposits, measured as imperfect pass-through of short-term market rates on deposit rates, allows banks to eliminate their asset interest rate exposure and to achieve near constant net interest margin (NIM). We show that the empirical evidence does not support these conclusions. We show that neither deposits nor market power are essential for achieving stable NIM in long short fixed income portfolios. We show that matching interest income and interest expenses sensitivities to market rate movements is a consequence of achieving stable NIM, not necessarily the mechanism that allows it. Stable NIM does not imply near zero interest rate risk according to standard risk measures. Common measures of imperfect pass-through of market rates to bank deposit rates commingle two distinct mechanisms: (1) intentional rate setting and (2) mechanical consequence of comparing the changes in the periodic interest earned on positive maturity fixed coupon portfolios to changes in a short-term interest rate. The mechanical maturity consequence dominates the measured imperfect pass-through of market rates on time deposits.

Keywords: Bank Deposits; Market Power; Net Interest Margin (NIM); Banks and Banking; Interest Rates; Risk and Uncertainty

Citation

Read Now

Thrive Earlier Detection

By: Malcolm Baker and William Vrattos

December 2021 (Revised December 2021) |
Case |
Faculty Research

Citation

Educators

The Instant Payment Mandate: The Central Bank of Brazil and Pix

By: Lauren Cohen and Spencer C. N. Hagist

December 2021 |
Case |
Faculty Research

João M. P. De Mello and his team at the Central Bank of Brazil are preparing a move that would seek to tilt the scales in favor of financial inclusion for the entire country. The innovation at hand is the unprecedented nation-wide instant payment scheme: Pix. The fruit of years of planning and patience in the face of a banking industry refusing to change, De Mello seeks to kick start a wave of pro-consumer FinTech advancements for a sector whose growth has been relatively halted. While the success of similar wide-spread payment structures using mobile technology have drawn a clear roadmap in other countries, no other central bank has ever dared to undertake the task itself, preferring instead to let the private sector push ahead and regulate later. Pix would be the first instance of a government taking such massive upskilling into its own hands. At the same time, the risks De Mello and his team face will be entirely new as well. Will Pix be the highway to modernity so many imagine? Or will its challenges prove insurmountable, tarnishing growth and turning the country away from trusting the BCB at such a scale ever again?

Keywords: Fintech; Finance; Entrepreneurship; Innovation Strategy; Banking Industry; Brazil

Citation

Educators

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