Finance

- December 2024
- Article
Are Bankruptcy Professional Fees Excessively High?

By: Samuel Antill

Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are substantial. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I test this empirically. I study trustees, the most important professionals in Chapter 7, who liquidate assets in exchange for legally-mandated commissions. Exploiting kinks in the commission function, I estimate a structural model of moral hazard by trustees. I show that a policy change lowering trustee fees would harm trustee incentives, reducing liquidation values. Nonetheless, such a policy would dramatically improve creditor recovery, increasing small-business-lender recovery by 15.7%.
- December 2024
- Article
Are Bankruptcy Professional Fees Excessively High?

By: Samuel Antill

Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are substantial. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I test this empirically. I study trustees, the most important professionals in Chapter 7, who liquidate assets in exchange for...
- November 2024
- Case
Planning For the Brown Family

By: Sara Fleiss, Emily R. McComb and Josh Radman
- November 2024
- Case
Planning For the Brown Family

By: Sara Fleiss, Emily R. McComb and Josh Radman
- November 2024
- Case
Grab Returns: Riding the SPAC-tacular Highway?

By: Paul Gompers, Graham Blanks and Sachin Srivastava
- November 2024
- Case
Grab Returns: Riding the SPAC-tacular Highway?

By: Paul Gompers, Graham Blanks and Sachin Srivastava

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

Are Bankruptcy Professional Fees Excessively High?

By: Samuel Antill

December 2024 |
Article |
Review of Financial Studies

Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are substantial. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I test this empirically. I study trustees, the most important professionals in Chapter 7, who liquidate assets in exchange for legally-mandated commissions. Exploiting kinks in the commission function, I estimate a structural model of moral hazard by trustees. I show that a policy change lowering trustee fees would harm trustee incentives, reducing liquidation values. Nonetheless, such a policy would dramatically improve creditor recovery, increasing small-business-lender recovery by 15.7%.

Keywords: Insolvency and Bankruptcy; Motivation and Incentives; Policy

Planning For the Brown Family

By: Sara Fleiss, Emily R. McComb and Josh Radman

November 2024 |
Case |
Faculty Research

Citation

Educators

Grab Returns: Riding the SPAC-tacular Highway?

By: Paul Gompers, Graham Blanks and Sachin Srivastava

November 2024 |
Case |
Faculty Research

Citation

Educators

The Evolution of Financial Services in the United States

By: Robin Greenwood, David S. Scharfstein and Robert Ialenti

2024 |
Working Paper |
Faculty Research

This article surveys the literature on the historical growth and transformation of the U.S. financial sector. The sector expanded rapidly between 1980 until 2006, when its contribution to GDP rose from 4.8% to 7.6%. After the Global Financial Crisis, the size of the sector stabilized at approximately 7% of GDP. After reviewing this literature, we extend this research to cover recent developments, including the continued growth of high fee alternative asset management and a shift away from banks to lending by nonbank financial intermediaries. We interpret both the growth of the sector and the recent evolution as reflecting a continued transition to a more market-based financial system, with risk migrating away from banks and into markets.

Keywords: Financial Crisis; Financial Institutions; Financial Markets; Growth and Development; Economic Sectors; Financial Services Industry

Citation

Read Now

Moonfare and the Democratization of Private Equity

By: Victoria Ivashina and Srimayi Mylavarapu

November 2024 |
Case |
Faculty Research

Founded in 2016, Moonfare headquartered in Europe, was a pioneer in the “democratization” of private equity investments. Historically, private equity was accessible only to institutional investors like pension funds, endowments, sovereign wealth funds, and large family offices. However, as personal wealth has grown among broader segments of the population, along with advancements in technology and a slowdown in traditional fundraising, figuring out how to facilitate individual investors access to private equity has become increasingly attractive. Moonfare was among the first to enable individual investors to access a range of private equity funds by developing proprietary technology with fully digitalized onboarding and investment processes. Initially, Moonfare’s model facilitated direct access to funds for high-net-worth individuals and family offices. However, with the broader alternative industry facing pressure to find solutions for fundraising from "retail" investors, competitive pressures evolved rapidly. In this context, Moonfare considered creating an investment vehicle with an unprecedented minimum investment of 10,000. Given that retail investors' participation in private equity was still a relatively new trend, there was no established playbook for effectively managing this investor base. The Moonfare team had to address several considerations: the unit economics of onboarding retail investors, the increased risk of default, and the challenge of both attracting and retaining these investors. On the flip side, tapping into smaller check sizes could strengthen Moonfare’s position as a leader in the industry and unlock the potential of a large, untapped investor base. The key question remained: what would be the ideal investor segment to target, and which product would be best to launch?

Citation

Educators

The Problem of Good Conduct Among Financial Advisers

By: Mark Egan, Gregor Matvos and Amit Seru

Fall 2024 |
Article |
Journal of Economic Perspectives

Households in the United States often rely on financial advisers for investment and savings decisions, yet there is a widespread perception that many advisers are dishonest. This distrust is not unwarranted: approximately one in fifteen advisers has a history of serious misconduct, with this rate rising to one in six in certain regions and firms. We explore the economic foundations of the financial advisory industry and demonstrate how heterogeneity in household financial sophistication and conflicts of interest allow poor financial advice to persist. Using data on the universe of financial advisers and the Survey of Consumer Finances, we document who uses financial advisers and the prevalence of misconduct in the industry. Our findings suggest that a lack of financial sophistication is a key friction, making enhanced disclosure a potentially effective policy response. Supporting this, we show through a difference-in-differences approach that "naming and shaming" firms with high misconduct rates was associated with a 10 percent reduction in misconduct.

Keywords: Personal Finance; Behavioral Finance; Trust; Financial Services Industry

Citation

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Political Polarization and Finance

By: Elisabeth Kempf and Margarita Tsoutsoura

2024 |
Article |
Annual Review of Financial Economics

We review an empirical literature that studies how political polarization affects financial decisions. We first discuss the degree of partisan segregation in finance and corporate America, the mechanisms through which partisanship may influence financial decisions, and available data sources to infer individuals’ partisan leanings. We then describe and discuss the empirical evidence. Our review suggests an economically large and often growing partisan gap in the financial decisions of households, corporate executives, and financial intermediaries. Partisan alignment between individuals explains team and financial relationship formation, with initial evidence suggesting that high levels of partisan homogeneity may be associated with economic costs. We conclude by proposing several promising directions for future research.

Keywords: Government and Politics; Investment Portfolio; Decisions; Governance

Citation

Find at Harvard

Perceptions About Monetary Policy

By: Michael D. Bauer, Carolin Pflueger and Adi Sunderam

November 2024 |
Article |
Quarterly Journal of Economics

We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, including over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about this rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings.

Keywords: Monetary Policy; Policy; Interest Rates; Perception; Economy; Forecasting and Prediction