Tuesday, May 1, 2007


Why Full Disclosure in Securities Markets May Not Fix Finance

Creating securities with no details about the underlying mortgages "was a perfectly sensible thing to do. No greed was necessary," says economist Bengt Holmstrom. Investors often prefer investments with no publicly available information and may move on to other investments if security creators are required to disclose too much information.

Formal Management Systems Help Startups Succeed Says Award-Winning Paper

Young companies that adopt structured systems to run their operations in their early years grow three times faster than competitors and have a lower rate of CEO turnover, according to an award-winning research paper.

Understand Young Companies in Your Own Backyard, Report Urges Global Leaders

Policy makers need to understand how early-stage companies in their own area work, rather than try to create another Silicon Valley, says Stanford management professor George Foster. He is coauthor of a new report published by the World Economic Forum.

Exploring Auction Models for Peer-to-Peer Lending

In the emerging market for peer-to-peer loans, the auction method used can make an important difference to the borrower, says Stanford Graduate School of Business economist Nicolas Lambert.

When Is Bad Publicity Good?

In a new study from Stanford Graduate School of Business, researchers say in some cases negative publicity can increase sales when a product or company is relatively unknown, simply because it stimulates product awareness.

Paying Star Employees Well is a Good Strategy for Innovation

Observers of Silicon Valley have always assumed that the most successful companies get their competitive edge by paying their star employees more than the competition to fuel innovation. Now research, co-authored by Professor Kathryn Shaw, and using the academic field of insider econometrics, has been able to prove that this assumption is indeed true.

Industrial Organization Expert John Roberts Honored

Former students, colleagues, and fellow coauthors of John Roberts gathered in September to present reflections of how his work and mentorship affected both the course of economic research and their lives.

Academic Researchers Need to Learn to Talk Across Disciplines

The academic reward system, and indeed the very way experts become trained in their academic disciplines, make it difficult for researchers to learn to talk to peers from other areas of academia, says Professor Myra Strober in a new book.

Don't Be Too Specialized If You Want a Top Level Management Job

Generalists, men and women who have amassed experience with a broad spectrum of management areas, stand a better chance of making it to top management positions than those with more specialized resumes, says economist Ed Lazear of the Stanford Graduate School of Business.

India’s Slums Represent Complex Political and Social Issues

India's slums, like those depicted in the popular film "Slumdog Millionaire," are complex communities with residents of different income levels, sometimes complex relations between ethnic groups, and systems of political patronage, that interest Saumitra Jha, an assistant professor of political economy

Are Wall Street Careers Just the Luck of the Draw?

Paul Oyer’s past research shows that many young MBAs who graduate during a bear market may never get the chance later to start a Wall Street career—a fact that dramatically cuts down on their lifetime earnings. Recent research supports that the same holds true for undergrads.

Small Islands, Big Economic Lessons

Barbados and Jamaica are living proof that government protectionist policies hurt the economy in the long run, say Stanford researchers. Once sporting nearly identical economies, today Barbados outstrips Jamaica’s GDP by more than $5,000 per capita.

Spence Paints Optimistic Picture for Developing Countries

"There is, perhaps for the first time in history, a reasonable chance of transforming the quality of life and the creative opportunities for the vast majority of humanity," says Dean Emeritus Michael Spence, describing the report of the Independent Commission on Growth in Developing Countries, which he chaired.

Voting by Mail May Have Unintended Effects on Elections

Absentee ballots have made voting easier and more accessible to millions of Americans, but the process may have unintended effects on election outcomes, says Professor Neil Malhotra.

Achieving Financial Stability

Professor Darrell Duffie argues that redesigning the U.S. financial system after the current financial crisis will focus on creating financial stability. “Most of us thought we had it, but we did not,” he notes.

Wages and Productivity Thrive When Developing Countries Open Their Stock Markets

When a developing country opens its stock market to foreign capital, the resulting economic effect usually helps more than just big business. Manufacturing workers find their salaries rise rapidly while the nation realizes an even more rapid growth in productivity, according to a study of 18 developing nations, says Professor Peter Henry.

American Symphonies Often Spend More Than They Earn

Most major symphony orchestras in the United States regularly spend more money than they take in, and some dip so far into endowments that they risk their long-term survival, according to a new report commissioned by the Andrew W. Mellon Foundation.

Corruption Hurts Business as Well as a Nation’s Reputation Corruption, whether in government or in private industry, serves as a serious drag on a nation’s wealth and creates a less favorable climate for business, say researchers including Ernesto Dal Bó. For one thing, corruption swells the number of employees needed, driving up costs and sidetracking workers from jobs that could help grow an economy.

Mutual Funds Vote Strategically in Board of Director Elections By analyzing more than 3 million votes by 3,600 mutual funds, Michael Ostrovsky has come to the conclusion that funds vote to protect themselves from negative reprisals. Some consistently approve slates of directors proposed by corporate management while the majority typically won’t say “no” unless they sense that a critical mass of other funds will do the same. (May 2007)

Even Costly Mergers Can Be Good Although a firm’s stock value generally drops after it announces it has acquired a new company, few of its shareholders generally oppose the merger. Michael Ostrovsky argues this is because shareholders in acquiring companies often simultaneously own a near equal number of shares in target firms. (April 2007)

Dictatorships Often Survive with Local Support While dictatorships are associated with armed force and even terror, many survive because of deep ethnic divisions in the general populace that act as insurance to keep dictators in power, says research by Assistant Professor Gerard Padro i Miquel. (January 2007)

Fiscal Failings of the Government’s Tobacco Settlement The landmark 1998 agreement between the U.S. government and the nation’s major tobacco companies to pay fees on future sales of cigarettes benefited lawyers and handed politicians bragging rights, but hasn’t been a benefit to smokers’ health or pocketbooks says Professor Jeremy Bulow. (January 2007)

Understanding the Linkage Between ROI and the Economic Rate of Return What does return on investment really mean? A new tool gives investors and managers help decoding the true economic profitability of a business based on reported accounting metrics. (January 2007)

Equity Market Liberalizations Benefit Developing Nations Developing countries do indeed benefit from the liberalization of capital markets, says economist Peter Henry, but only if their domestic financial system is functioning efficiently and is properly regulated to allow firms to invest more easily in expansion. (November 2006)

Just Hearing About a Stock Bubble Won’t Keep Investors Out of Trouble Just hearing about the economic chaos of an economic bubble with over-hyped and overvalued stocks won’t necessarily save investors from future economic disaster. First-hand experience appears to be necessary to avoid future bubbles say researchers. (June 2008)

Genetics, Politics, and Economics Join to Solve Global Poverty Business School Associate Professor Romain Wacziarg is bridging the fields of population genetics, anthropology, political science, and economics to determine how cultural differences promote or hinder wealth creation across nations. Among other recent findings, recent research argues that the greater the genetic distance between populations, the greater the cultural barriers to the flow of ideas and technologies. (October 2006)

Disclosure Adds Shareholder Value: Lessons from Sarbanes-Oxley’s Predecessor The recent convictions of Ken Lay and Jeff Skilling have drawn renewed scrutiny to the effectiveness of such government regulation as the Enron-precipitated Sarbanes-Oxley Act of 2002. But what do we know about the success of these regulations, asks Professor Paul Oyer. To find out, he recently examined the impact of Sarbanes-Oxley’s predecessor, the 1964 Securities Acts Amendments. (July 2006)

You Can Auction That Rembrandt Online Auctioning items online can be profitable, say researchers, if the auction firm does a good job of helping bidders understand the value of the item being sold. Uncertainty, they say, is what holds down online bids. (June 2006)

Are Wall Street Careers Just the Luck of the Draw? The proportion of graduating MBAs hired into lucrative investment banking positions shrinks or expands depending on how well the stock market is performing, yet this bit of happenstance can have a dramatic effect on lifetime earnings, says Business School professor Paul Oyer. (May 2006)

The High Price of Internet Keyword Auctions Internet search engines use an auction system for business advertising on their sites. Researchers say firms buying that advertising could save time and money by using a different bidding strategy. (January 2006)

Franchisers Protect Valuable Brands Through Higher Company Ownership Companies that spend heavily on advertising to build their brand’s reputation own a higher percentage of franchise outlets, according to recent research, and those same franchisers will choose a set percentage of outlets to operate and stick with that number. (November 2005)

Irrational Financial Decisions Linked to Brain Activity A second Stanford Graduate School of Business researcher has identified a link between portions of the brain and rational and irrational financial decisions. Camelia Kuhnen, a PhD candidate at the GSB, and Bryan Knutson, assistant professor of psychology, say their findings show that economists should consider emotions when they write investing models. Previously Baba Shiv of the Business School faculty found that people suffering certain kinds of brain injuries earned more money investing than a comparison group. (September 2005)

Emotions Can Negatively Impact Investment Decisions Emotions can get in the way of making prudent financial decisions, according to researchers who found that people with certain kinds of brain injuries earned more money investing than a comparison group. (September 2005)

Manage Risk Through Diversification Companies and individual investors both must consider issues of diversifying to achieve a risk-return balance. Their actual needs to diversify, however, are quite different. (August 2005)

Getting More Bang for the Buck Out of Health Insurance Most health plans in the United States base coverage decisions on clinical studies of how well the procedure, device, or medication works, without considering costs. Professor Alan M. Garber argues that more attention to cost-effectiveness would reduce health care costs and insurance premiums without lowering the quality of care. (August 2005)

Debt Relief Doesn’t Help Poor Countries The move to forgive $40 billion in debt to 18 of the world’s poorest nations is winning political support but is unlikely to help these countries in any fundamental way, argues Professor Peter Henry. The world’s poorest countries lack the basic economic infrastructure that would provide the foundation for cost-effective debt relief. If the G8 wants to promote development, then more foreign aid to help these countries build their economic infrastructure makes a lot more sense. (June 2005)

Unlocking the Mystery of Poverty One-fifth of the planet lives on less than $1 a day. "If we can unlock the mystery of why that is, the consequences for the welfare of billions of people will be huge," says Business School economics professor Romain Wacziarg. (April 2005)

A True Expert Knows What Question to Ask Whether the topic is weather forecasting or the futures market, how do you identify a real expert in the field? Knowing what question to ask is the key. There is always some question—identified by people in the field in question—that a true expert will answer correctly, say researchers. (November 2004)

Broadcasting Your Opinion: Is It Noise or News? The key to culling information from the Web is in sorting useful nuggets from background noise. We are most likely to hear from overconfident senders—for instance people who rate a book on Amazon as four stars—and that is probably not a bad thing. (August 2004)

Recognize Economic Realities to Expense Stock Options A simple accounting system based on 90-day option prices may be the answer to the current debate over expensing stock options. Economists Jeremy Bulow and John Shoven say their proposal gives firms flexibility and produces objective, transparent, and decision-relevant information. (July 2004)

How Democracy Was Subverted in Peru In the 1990s in Peru the chief of the secret police systematically bribed opposition parties, the media, and the judiciary—and kept detailed records. Research into those records shows that in efforts to undermine a democracy, the biggest bribes went to the news media. (May 2004)

Housing Inflation Does Not Hurt Consumers The rising housing market has been a mainstay of the U.S. economy in recent years. Despite the pain to first-time buyers, researchers say these increases are not having an adverse effect on consumers overall. (April 2004)

Kreps Publishes New Microeconomics Text Microeconomics for Managers, a new textbook by Prof. David Kreps, tries to motivate and illustrate frameworks and theories with real-world examples: from General Motors trying to settle a class-action lawsuit with coupons to Porsche trying to reorganize how its cars are retailed in the United States; to an explanation for how and why Toyota increases the power of its suppliers. (March 2004)

Fewer Borders, Trade Liberalization Support Economic Growth Moving national borders can have major economic effects. Researchers say creating bigger countries and adopting open trade policies in most cases benefit national economies. (January 2004)

When the CEO Leaves, Do Others Follow? The departure of the CEO doesn't necessarily mean the entire top management is in jeopardy, says Prof. Paul Oyer. What really matters when top corporate leadership changes is how much the CEO and the top-level executive have invested in their relationship. (October 2003)

Top-down Market Design Sometimes Works and Sometimes Doesn't Reforming an entire economy from the top down is as difficult as planning one centrally. While economic theories can suggest fruitful directions to politicians, finding good economic policies requires experimentation and a recognition that grassroots folks also create economic change. (May 2003)

Debt Relief Doesn't Help Some Small Countries Is debt relief a viable solution to worldwide poverty or a waste of time and money? While it helps many countries, Prof. Peter Henry finds for 42 of the world's poorest countries, debt relief will not produce the salutary effects that it did for the successfully developing nations. (March 2003)

The Reasons Behind the Annual Gasoline Price Spikes Rising gasoline prices have become almost as much a spring tradition as baseball training camps, but with a greater impact on household budgets. Research by economist Jeremy Bulow has studied price spikes and concludes that they are the outcome of reoccurring factors including different blends of fuel for different geographic areas, the cost of shipping fuel from Texas to California, and even if you can buy a quart of milk at the same place you get your gas. (August 2002)

A Natural History of Markets John McMillan, W. W. Norton & Co., 2002 In his new book, economics professor John McMillan explores markets ranging from ancient bazaars to eBay and explains what makes or breaks a marketplace. (May 2002)

Colleagues Honor Robert Wilson's Life's Work Some of the leading scholars in game theory and related fields gathered at the Business School in May for a day-long conference honoring the life's work of Robert Wilson, the Adams Distinguished Professor of Management at the Business School. (May 2002)

Don't Blame Trade Liberalization for Labor Market Chaos Activists blame trade liberalization policies in developing countries for a variety of problems they argue slow growth and lead to tectonic shifts in labor sectors. Romain Wacziarg found very little change in the structure of labor sectors within five years of liberalization. (May 2002)

Is Reducing Inflation Good for an Economy? Expectations play a key role in economic well-being. In recent years, economists have learned a great deal about how interest rates can help keep inflation at bay. Now, Stanford Business School economist Peter Henry has marshaled more evidence in support of the view that expectations matter and that inflation can be successfully managed. (May 2001)

Economic Globalization Creates More, Smaller Countries The number of countries in the world nearly tripled between 1946 and 1995, say researchers including Stanford Business School's Romain Wacziarg. Free trade makes small countries economically viable and you can probably expect to see more new countries created, they say. (February 2001)

Going Once, Going Twice... SOLD on Auctions Thanks to the Internet and an international tidal wave of governments seeking to privatize state-owned or regulated industries, auction fever has spread faster than a flu virus. Today there are auctions for the sale of everything from Treasury bills to electromagnetic spectrum licenses, electricity, gas, railroads, and universal communication service contracts. (February 2001)

Game Theory: A New Tool for Economists In the last 25 years, many and perhaps most significant innovations in economics have been driven by the use of game theory, which provides economists with a language and analytical tools to study many economic interactions that older tools, such as price theory, couldn't touch. (November 2000)

Emerging Markets and Economic Reform The decade between 1984 and 1994 was an extravaganza for emerging markets. To better understand the mechanics of emerging market finance for the future, Business School economist Peter Henry has analyzed the effect of stock market liberalization on stock prices. (May 1999)

Researchers Put a Price Tag on London Stock Trades Research analyzing trades on the London Stock Exchange found that medium to large trades on average received discounts from "the touch" the term that describes the difference between investor transaction costs and the best bid-ask spreads. (March 1995)

Auctioning off the Nation’s Airwaves In 1994 the Federal Communications Commission used "simultaneous ascending-bid auctions" devised in part by two Stanford faculty members, to sell radio spectrum licenses for wireless. (June 1994)