Alumni Association

Just Hearing About a Stock Bubble Won't Keep
Investors Out of Trouble
Learning about the chaos of an economic bubble with over-hyped and over-valued stocks won't necessarily save investors from future economic disaster. First-hand experience appears to be necessary to avoid future bubbles, says GSB Professor Stefan Nagel. Hearing About a Stock Bubble Details

Cost of Reducing CO2 Emissions Could Plunge
The financial impact of regulating coal-fired power plants that produce carbon dioxide emissions under a cap-and-trade system will be much less than previously projected according to research by GSB Professor Stefan Reichelstein and doctoral student Ozge Islegen. Cost of Reducing CO2 Emissions Details

Debt Costs to Rise as Bank Collateral Re-use Falls
"When securities are less available to freely circulate in the market, the liquidity of those securities goes down," said GSB Professor Darrell Duffie. Reuters, September 21, 2009 as Bank Collateral Re-use Falls Details

A Central Clearing House Doesn't Reduce CDS Risk
A plan by global financial regulators to fix the mess created by the misuse of credit default swaps is flawed, says GSB Professor Darrell Duffie. Details

Michael Spence Signals Slow Economic Recovery
2001 Economics Nobel Laureate and GSB Professor Emeritus, Michael Spence, said in a transcribed interview that the world would have to be prepared for a slow economic recovery and growth would take time. Moneycontrol.com, September 8, 2009 Michael Spence Signals Slow Economic Recovery Details

Stanford Business School Research Underpins SEC Scrutiny
of Scheduled Insider Trades
In the wake of alleged misconduct by executives at Countrywide Savings, Novatel, and Qwest, research by GSB Professor Alan Jagolinzer may be prompting the Securities and Exchange Commission to rethink rules that permit scheduled trading by insiders. SEC Scrutiny of Scheduled Insider Trades Details

Small Islands, Big Economic Lessons
Barbados and Jamaica are living proof that government protectionist policies hurt the economy in the long run. Once sporting nearly identical economies, today Barbados outstrips Jamaica's GDP by more than $5,000 per capita says GSB Professor Peter Henry. Details

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 GSB Dean Emeritus Michael Spence, describing the report of the Independent Commission on Growth in Developing Countries, which he chaired. Video Available. Spence Paints and Optimistic Picture Details

Marketing Obama's Stimulus Package: It Depends
Obama's political strategists might have gotten an even bigger stimulus package if they had relied less on Democratic Party lawmakers to sell it. Or, taking another tack, they could have gotten more Republican support by not blaming that party for the financial crisis and by being more alarmist about the consequences, according to GSB Professor Neil Malhotra. Marketing Obama's Stimulus Package Details

Financial Restoration for the United States
GSB Professor Emeritus Van Horne offers a set of reforms to reduce systemic risk in the financial services industry and save taxpayers money in the process. Details

Achieving U.S. Financial Stability
GSB Professor Darrell Duffie argues that redesigning the U.S. financial system after the current crisis will focus on creating stability. "Most of us thought we had it, but we did not." Achieving U.S. Financial Stability Details

Containing the Credit Crisis
Stanford GSB Professor Darrell Duffie participates in a panel discussion on the ongoing credit crisis. Duffie focuses on financial markets and derivatives.

Containing the Credit Crisis Video (66:37 minutes)

Solutions and Predictions Offered at Forum on Economic Crisis
Economists, including Stanford GSB faculty members Darrell Duffie and Mark Wolfson, and Anne Casscells, MBA '85, took stock of the world's gloomy financial situation during an Alumni Weekend panel discussion. (Video available) Solutions and Predictions Details

Incentives and the Financial Crisis
In any financial crisis, it is possible with 20/20 hindsight to identify the specific causes. Rather than outlawing those activities, GSB Professor Jonathan Berk recommends designing legislation that better aligns the incentives of bankers with the public interest. Incentives and the Financial Crisis Details

Stanford, GSB Professors Debate Bailout Plan
Panel discussion ran the gamut from how the U.S. got into this mess; how this crisis fits in with past credit crises; and whether the financial sector is really sufficiently "different'' than the rest of the economy to warrant a $700 billion rescue courtesy of the American taxpayer. Achieving U.S. Financial Stability

Credit Crisis and the Bailout Video (57:56 minutes)

Jackson Library Hot Topic: Financial Crisis and Bailout
Jackson library provides full-text news, research articles, and books that highlight current hot issues. Hot Topic, Financial Crisis and Bailout Details

Depression Babies: How Our Economic Experiences
Affect Investment Behavior
GSB Professor Stefan Nagel has demonstrated that personally experiencing something like the Great Depression has a significant impact on how we invest our money. Depression Babies Details

Just Hearing About a Stock Bubble Won't Keep
Investors Out of Trouble
Investors who lived through the dot-com bubble are unlikely to forget it. But those who didn't experience it will probably not learn from history, says GSB Professor Stefan Nagel. Just Hearing About a Stock Bubble Details

How Dividends Encourage Consumer Spending
Consumers are likely to run out and spend stock dividends, while income from capital gains is more likely to be reinvested or saved, says the GSB Professor Stefan Nagel. Dividends Encourage Consumer Spending Details

Government Testing Ways to Avoid Foreclosures,
Says HUD Secretary Preston
Steven Preston, US Sec'y of HUD Preston offered an eager Stanford audience an insider's perspective on how bad our economic problems are likely to get, and what the government is doing about it. Incentives and the Financial Crisis Details

Time to Solve Problems in New Ways Video (53:07 minutes)

Real Wages and Productivity Thrive in Developing
Countries That Open Their 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 GSB Professor Peter Henry. Real Wages and Productivity Details

You Can't Mandate Better Management
GSB Professor Darrell Duffie feels regulations should be aimed at fostering robust and safe financial markets, for example, by increasing the amount of capital big financial firms hold in relation to the risks they take. That was always the point of our current regulatory capital requirements, but the risks were not carefully measured or managed. Better management, unfortunately, is not something that is easily regulated. You Can't Mandate Better Management Details Forbes.com, September 22, 2008

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 new research, by GSB Professor Emeritus Robert Flanagan, for a report commissioned by the Andrew W. Mellon Foundation. American Symphonies Often Spend More Than They Earn Details

Why Does Movie Popcorn Cost So Much?
The high price of popcorn at most movie theater concession stands actually benefits moviegoers, says GSB Professor Wesley Hartmann. It helps hold down the price of the movie ticket. Movie Popcorn Cost Details

Investors Fear Missing a Sure Thing
More Than They Fear Risk
GSB Professors Peter DeMarzo and Ilan Kremer say that what investors fear the most is not the risk of a loss per se, but the risk that they may do poorly relative to their peers. Investors Fear Missing a Sure ThingDetails

Who Is Paying for Uninsured Medical Patients?
Underfunding programs like Medicare - not the cost of paying for uninsured medical patients - is driving up private health care costs, argues economist and GSB Professor Daniel Kessler. Stock Bubble Won't Keep Investors Out of TroubleDetails

Time Is Money When You're Paid by the Hour
People who are used to being paid by the hour start thinking of time as a commodity almost equal to cash. They can tell you how much it will "cost" them to wash the car or go to a movie. And given the choice, they're nearly always willing to put in more hours to get more pay says GSB Professor Jeffrey Pfeffer. Time Is MoneyDetails

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 GSB Professor Paul Oyer. To find out, he recently examined the impact of Sarbanes-Oxley's predecessor, the 1964 Securities Acts Amendments. Disclosure Adds Shareholder ValueDetails

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, according to GSB Professor Paul Oyer. Are Wall Street Careers Just the Luck of the DrawDetails

You Can Auction That Rembrandt Online
John McMillan, prior professor of economics at the GSB, and co-author Eiichiro Kazumori of the University of Tokyo note in a recent study that industry wisdom contending that the internet is bad for selling high-end goods because potential buyers resist bidding big bucks for items they have not seen in person is simply false. You Can Auction That Rembrandt OnlineDetails

CEO Hubris Distorts Investment Decisions
Overconfident CEOs who overestimate their ability to generate value within their company, systematically make distorted decisions about when, how, and how much to invest in new projects according to research. GSB Professor Ulrike Malmendier, and Geoffrey Tate of Wharton, have studied how hubris affects CEOs' corporate investment decisions as a way to apply research on individual behavior to corporate settings. SCEO Hubris Distorts Investment DecisionsDetails

Consumer Boycotts Work - Just Ask French Winemakers
Around 40 percent of Fortune 50 companies may be subject to consumer boycotts at any given time, but it was thought that boycotting did not have any real negative effect on business. GSB Professor Phillip Leslie and PhD student Larry Chavis, are the first economists to use actual product-level sales data to demonstrate that boycotts do work. Consumer Boycotts WorkDetails

Co-Financing Doesn't Make Movies More Profitable
According to GSB Professor Philip Leslie, when Fox decided to make the movie Titanic, it covered itself by sharing risk for the picture with Paramount through a co-financing deal-but wound up ceding $600 million of the picture's earnings to Paramount. Co-Financing Doesn't Make Movies More ProfitableDetails

Manage Risk Through Diversification
GSB Professor Philip Leslie responds to a question he is often asked: Should a company diversify to manage risk and return? Managing Risk Through DiversificationDetails

Doing the "Wall Street Walk" as a Kind
of Shareholder Activism
For years major shareholders have registered their dissatisfaction corporate management through the Wall Street Walk, selling their shares. GSB researchers Anat Admati and Paul Pfleiderer find that this threat with its potential to cause a stock price fall can significantly impact the behavior of top management in the firm in question. Doing the "Wall Street Walk"Details

Economists Caution Investors on Hidden
Risks of Hedge Funds
High fees, inconsistent data, and difficult-to-understand risks are reasons for individual investors to avoid or minimize their investments in hedge funds, cautions a group of 32 senior financial economists including GSB Professors James Van Horne and William Sharpe (emeritus). Hidden Risks of Hedge FundsDetails

Smart Usage of Auctions Can Save Industrial Buyers Millions
Buyers for some major corporations may be able to shave time and substantial costs from purchasing goods and services simply by employing procurement auctions wisely, says GSB Professor Tunay Tunca. Smart Usage of AuctionsDetails

The Bond-Rating System Isn't Broken,
Say Researchers
Just days before WorldCom went bankrupt, Moody's rated the firm's stock "investment grade." This does not mean the current bond-rating system isn't working, say GSB Professors William Beaver and Mark Soliman. The rating was appropriate for Moody's specialized institutional clientele. Bond-Rating SystemDetails

A True Expert Knows What Question to Ask
We're bombarded with opinions from so-called experts on everything from the weather to economics and politics. But how do we, as non-experts, divide the genuine experts from those who don't really possess the relevant knowledge? GSB Professor Yossi Feinberg has developed a viable test. A True Expert Knows What Question to AskDetails

Prize Honors Work by GSB Professor
Michael Harrison wants to know how randomness affects the functioning of business processes, and how it should be accounted for in management policies. His work has covered a broad spectrum of topics, ranging from the valuation of derivative financial instruments to management of "processing networks," like telephone call centers and insurance claim processing organizations. Prize Honors Work by GSB ProfessorDetails

Use Weighted Averages to Determine Transfer Pricing
In a prize-winning research paper, Stefan Reichelstein, the William R. Timken Professor of Accounting at the GSB, with co-authors Tim Baldenius and Nahum Melumad, both of Columbia University, have developed a real-world answer to transfer pricing that balances both the economic criteria confronted by Hirshleifer and the puzzle of international tax rates. Using Weighted Averages to Determine Transfer PricingDetails

Admitting Missteps May Boost Stock Prices
GSB Professor Larissa Tiedens and her former colleagues at the University of Michigan studied 21 years' worth of annual reports from 14 major firms in three industries. They looked at how different companies in the pharmaceuticals, food and beverages, and industrial equipment industries used their annual report's letter to shareholders to explain company performance—and whether the type of explanation correlated to the company's stock price the following year. Admitting Missteps May Boost Stock PricesDetails

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. Recognizing Economic Realities to Expense Stock OptionsDetails

Pricing in a Networked World
During the Justice Department's suit against Microsoft, one of the unanswered questions was why the firm sold its Windows operating system so much more cheaply than its Office application. Brian Viard, assistant professor of Strategic Management, says Microsoft didn't want to choke off competition. In the long run, Microsoft benefits from any program that runs on Windows and thus increase demand for the operating system. Pricing in a Networked WorldDetails

Taking the Guesswork Out of Commercial Real Estate
Negotiating leases for commercial property is a difficult challenge even for professional real estate managers. GSB Professor Steven Grenadier says the process can be broken down into actions that mirror the fundamentals of finance. He is now developing a user-friendly tool to help managers take the guesswork out of negotiating leases. Taking the Guesswork Out of Commercial Real EstateDetails

Economic Incentives Do Inspire New Products —
But Only to a Point
This emphasis on rapid change means that finding ways to motivate product development managers has become critical to business success. In researching the question, GSB Professor Antonio Davila, has found that salary bonuses hovering in the 30 percent range tend to work — but if the stakes are high in a difficult technical market, a smaller bonus might get better results. Economic Incentives Inspiring New ProductsDetails