Stock analysts—especially those at large brokerage firms—are known for their herding tendencies, but stock buyers need not be overly concerned at the possible destabilizing effects on stock prices, argue Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance at Emory University’s Goizueta Business School, and colleague Woojin Kim of Korea University. Their research, presented in a paper titled “Do Analysts Herd? An Analysis of Recommendations and Market Reactions,” shows that the market anticipates analysts’ herding proclivities and “responds appropriately.” Analyzing data from over two decades of stock price movements and analyst recommendations, the researchers found that investors seem to pay more attention to recommendations that go against the grain, compensating in part for any herding that pushes investors away from a true valuation of a stock based on company fundamentals. Their research suggests that market commentators should be wary of overstating the importance of herding as a major cause of market ills. A Growing Conflict of Interest in Mutual Funds?
At the end of 2009, more than half of the $2.8 trillion in 401(k) assets in the U.S. was invested in mutual funds, according to a report from the Investment Company Institute. For mutual find companies, winning a big employee retirement account can be exceedingly profitable. If serving as the trustee of a 401(k) plan is the key source of business, what's at stake for the individual investor? Recent research from Breno Schmidt, assistant professor of finance at Emory University's Goizueta Business School, and Lauren Cohen of the Harvard Business School indicates that there is some reason for concern. Their findings, "Attracting Flows by Attracting Big Clients," have been published in The Journal of Finance. Why are U.S. Executive Salaries So High?
On February 18, the Associated Press reported that the base salary for David Nelms, chairman and CEO of Discover Financial Services Co, increased to $4.55 million in 2010, up from $1 million the year before. He was also awarded a $1.7 million bonus. Many observers wonder what’s driving the increases in executive pay, particularly given that the unemployment rate in the U.S. continues to hover around the 9 percent mark in most states. According to Shivaram Rajgopal, a professor of accounting at Emory University’s Goizueta Business School who studies executive pay, this suggests that something is wrong with the compensation-setting system. In particular, he sees two problems: Wall Street’s preference for short-term profit over long-term investment, and cozy corporate boards. Is the U.S. Facing a Double-Dip Recession?
Concerns about a double-dip recession in the U.S. grew in early September when economist Nouriel Roubini predicted a 40 percent chance that America would slide back into recession by early 2011. Even U.S. President Barack Obama made recession concerns the centerpiece of a Cleveland, Ohio, speech on September 8. But some faculty at Emory University and its Goizueta Business School aren’t so quick to sound the alarm over a double dip. The economy may continue to be plagued by high unemployment and a withering real estate market for some time, they note, but past experience indicates that may not necessarily lead to another recession. Assessing the Pitfalls of Corporate Performance Measurements
While corporations routinely utilize scorecard measurements to evaluate strategic performance, the interpretation of this data can sometimes be clouded by the preconceptions and motivations of those in charge, says William B. Tayler, assistant professor of accounting at Emory University’s Goizueta Business School. In a new research paper titled “The Balanced Scorecard as a Strategy-Evaluation Tool: The Effects of Responsibility and Causal-Chain Focus," Tayler discusses the pitfalls of scorecards and ways to mitigate its potential problems. What Will Follow America's Financial Reform Act?
In late July, America's three dominant credit-ratings providers told some bond issuers that they can no longer quote their ratings to satisfy the SEC requirements as written in the recently passed Wall Street Reform and Consumer Protection Act. The consequence of this provision spooked the agencies and shut down part of the bond market, forcing the Securities and Exchange Commission to temporarily drop its rating requirement as an ad hoc fix. Faculty at Emory University's Goizueta Business School and industry experts dissect the bill and offer up the good, the bad, and the uncertain. BP Disaster: When Vision and Reality Collide
More than 50 days have passed since BP's offshore drilling rig Deepwater Horizon exploded, killing 11 workers and spewing an unchecked flow of oil into the Gulf of Mexico. The tragedy unleashed a global wave of fury against the British energy company, raising questions of competence, ethics, and risks. Recovering from such a tarred image will be tough, say faculty at Emory University's Goizueta Business School. Not only did the company break a cardinal rule of marketing, under-promise and over-deliver, but BP's vision of being an alternative energy firm appears to have overtaken other strategies, leading to increased risk taking. Is the Euro Bailout a Splendid Idea or a Greek Tragedy?
On May 10 the European Union and the International Monetary Fund pledged to bail out debt-ridden Greece to the tune of nearly a trillion dollars. The move calmed investors who feared the country would default on its massive international debt. But like the Troubled Asset Relief Program that saved U.S. banks, will this momentary reprieve be a wake-up call for reform in Greece—and other economically strapped EU countries—or is it just throwing good money after bad? Addressing this issue, Knowledge@Emory spoke with Jeff Rosensweig, associate professor of international business and finance and the director of the Global Perspectives Program at Emory University’s Goizueta School of Business. Banking on the Benefits of Regulation
Though the bulk of the bailouts took place over a year ago, many Americans are still upset over the billions handed over to banks and how some executives who took TARP funds still received big bonuses. If the Obama Administration has its way, one primary solution to these issues will come in the form of increased regulation for banks. But many argue that restricting banks may not solve the problems and point towards examples like the Sarbanes-Oxley Act and its issues. Faculty at Emory University and its Goizueta Business School weigh in on the possible effects of further regulations. Looking for a Quick Recovery? Why America's Recession Differs From the Great Depression
While some observers liken America's current economic condition to the Great Depression, others say the correlation is unjustified. In a Q&A with Knowledge@Emory, Leonard Carlson, associate professor of economics at Emory University and an expert in the economic history of the U.S, highlights some of the similarities and differences between the economic collapse of the 1930s and the “Great Recession” of 2007–2009. Carson discusses attitudes toward government intervention, the role of deficits in recessionary periods, changes in the workforce, and the “creative destruction” inherent in the economic downturns of both eighty years ago and today.