Capital Markets →

The Stock Market Value of Human Capital Creation

Measuring human capital creation is complex but increasingly important to managers for understanding the relationship between employee expenditures and firm performance. This paper develops a strategy to examine aspects of the intangible human capital investment embedded in a firm’s personnel expense. Closed for comment; 0 Comments.

Can Capitalism Be Fixed by Making Companies More Just?

JUST Capital seeks to make public companies more "just" by measuring and ranking their overall impact on society, based on priorities most important to average Americans. Ethan Rouen and Charles Wang explore whether JUST Capital's performance evaluation methodology can improve corporate behavior. Open for comment; 0 Comments.

Lazy Prices

The most comprehensive information windows that firms provide to the markets—in the form of their mandated annual and quarterly filings—have changed dramatically over time, becoming significantly longer and more complex. When firms break from their routine phrasing and content, this action contains rich information for future firm stock returns and outcomes.

Government Incentives and Financial Intermediaries: The Case of Chinese Sell-Side Analysts

This study is the first to examine analysts’ incentives vis-à-vis the government in a context where government has the ability and motives to influence capital market institutions. The paper highlights the role of government incentives in analysts’ behavior and output.

Do Banks Have an Edge?

Reliance on high leverage is one distinctive component of the bank business model. This study suggests that the aggregate United States banking sector was relatively inefficient between 1960 and 2015. The falling costs of new production technologies in capital markets may further advantage capital markets over banks.

Monetary Policy and Global Banking

Global banks commonly move funds across markets to respond to differential monetary policy changes. This paper finds that cross-currency flows affect the cost of foreign exchange hedging, ultimately affecting credit supply in different currencies. The traditional view of how global banks respond to local shocks is weakened and, for major currencies, breaks down.

Behind Apple's Tax Situation, an Unprecedented Financial Policy

The European Union recently hit Apple with a $14.5 billion tax bill, but that’s hardly the first or worst financial challenge the technology giant has faced. Mihir Desai explains the financial wiring behind the inventors of the iPhone. Open for comment; 0 Comments.

How Small Investors Can Bet Big on Brands They Love

LOYAL3 allows consumers to make small stock purchases of companies they love. In this Cold Call podcast, Luis M. Viceira discusses LOYAL3's move into IPOs and the idea that shareholders make better customers. Open for comment; 0 Comments.

Managers and Market Capitalism

In whose interests should managers act, particularly when structuring market regulations in highly technical or specialized matters that are largely outside public purview? This paper raises questions about the role of managers in sustaining the conditions for market capitalism to achieve its normative objectives. Rebecca Henderson and Karthik Ramanna begin with a discussion of the normative arguments for fully competitive markets as a resource allocation mechanism in complex societies. They suggest that Milton Friedman's assertion that the business of business is to increase its profits was in fact a moral assertion rooted in this normative framework. Next, they discuss the conditions for the existence of competitive markets and offer a brief overview of the institutions that provide them, noting that a combination of for-profit, pure public, and public-private institutions are needed to sustain capitalism. This perspective has two implications for managers. First, in many cases the opportunity to provide market completing institutions is a significant profit opportunity. Second, in those cases in which the provision of an institution is a scarcely attended political process or a public good that cannot be easily realized by managers, managers may have a duty to mitigate this market incompleteness even if it is not immediately profit maximizing to do so. Ultimately, managers' actions are likely to shape the moral and political legitimacy of market capitalism. Key concepts include: Managers may have a responsibility to structure market institutions so as to preserve the legitimacy of market capitalism, even if doing so is at the expense of corporate profits. Both conceptually and empirically, it is difficult to specify where legal self-serving lobbying ends and overt corruption of regulation begins. Even in those cases in which self-interested lobbying is clearly legal, it may not be consistent with the ethical objectives of capitalism. Distorting market rules, whether through legal lobbying or through overt corruption, distorts market outcomes and erodes political and social support for market capitalism. Finding a way to reconcile economic models of the role of the corporation and of business activity with the reality of events such as the financial crisis and the prevalence of "crony capitalism" and corporate corruption is one of the most important challenges of our time. Closed for comment; 0 Comments.