Research@Smith
MARCH 2009
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Corporate
Governance
2
Encouraging good
corporate behavior
4
Entrepreneurship
Exploring the
reasons for a new
venture’s initial
network position
6
Accounting
The affect of
earnings surprises
on information
asymmetry
Research@Smith
VOL
NO
10 1
Research@Smith summarizes research conducted by the
faculty of the Robert H. Smith School of Business at the
University of Maryland.
Research@Smith is published three times a year by the
Robert H. Smith School of Business, University of Maryland;
3570 Van Munching Hall, College Park, MD 20742.
www.rhsmith.umd.edu
Dean
G. Anandalingam
Director of Research
Michael Ball
Editor
Rebecca Winner
Design
Lori Newman
Research@Smith is published three times a year by the
Robert H. Smith School of Business, University of Maryland;
3570 Van Munching Hall, College Park, MD 20742.
www.rhsmith.umd.edu
We’d like to put Research@Smith directly into the hands of
faculty and administrators who are interested in learning
about the latest research conducted by Smith School
faculty. To request a copy of this publication or make an
address correction, contact Rebecca Winner via e-mail,
editor@rhsmith.umd.edu, or phone, 301.405.9465.
Visit the Smith Research Network:
www.rhsmith.umd.edu/smithresearch/
Research@Smith
MARCH 2009
Coming Forward VOL
NO
10 1
page 2
Research by Ken G. Smith and Kathryn M. Bartol
Industry norms are more effective than sanctions in encouraging
good corporate behavior.
Causes and Consequences of Initial Network Positions page 4
Research by Benjamin Hallen
Who you know matters, but only within the first year of the new venture’s life.
Earnings Surprises and Information Asymmetry page 6
Research by Stephen Brown
New evidence shows how earnings surprises affect a stock’s investment
visibility and trading activity.
Doctoral Program
page 8
Faculty Awards and Honors, Conferences,
Wellman Teaching Award, CHIDS Research Briefing
page 10
Featured Researchers
page 11
Smith Faculty on the Finance Crisis page 12
Coming
Industry norms are more effective
than sanctions in encouraging good
corporate behavior.
forward
C
EOs are under immense pressure to deliver
Bartol and Smith examined 919 firm restatement
on earnings performance, a pressure which only
announcements from 845 firms between 1994-
intensifies in difficult economic times. So it is not
2001, taken from a report issued by the U.S.
surprising that so many CEOs—up to 74 percent in
General Accounting Office (GAO). The publicly-
one study—believe it is acceptable to manipulate
traded, relatively large firms were selected from the
their earnings reports to achieve performance goals.
Execucomp database, which includes more than
Manipulation of corporate earnings through income
2,500 past and present members of the S&P 1,500.
smoothing, earnings management, or explicitly
Firms in the database restated their earnings due to
fraudulent behavior is more common than many
accounting irregularities that included aggressive
would like to admit, but it is easy to understand. It is
accounting practices, intentional misuse of facts, and
hard to be honest when the alternative is to lay off
fraud. One hundred seventy of these restatements
workers or close the doors.
were considered to be voluntary. Restatements due
to innocent mistakes, human error or discontinued
When discrepancies between report and reality
operations were excluded from the sample.
become apparent, some public firms restate their
reported financial earnings voluntarily. Others are
Firms were more likely to voluntarily restate earnings
forced to restate by a law-enforcement body like the
when their peers, industry leaders, and network
Securities and Exchange Commission (SEC). Voluntary
associates have also voluntarily come forward to
disclosure of wrongdoing creates an initially negative
restate earnings. Coming forward voluntarily can
response from stakeholders, often reflected in a
mitigate punishment and lessen the damage to a
decline of the firm’s market value. It can generate civil
firm’s reputation, a process that everyone in the
lawsuits and result in the loss of income or position
industry can observe. Seeing peers, industry leaders
for corporate executives. What would motivate a
and other members of their network weather the
firm to voluntarily restate its earnings despite the
initial negative impact and emerge stronger and
negative impact?
healthier for it encourages other firms to also brave
the initial negative consequences that accompany a
Recent research by Ken G. Smith, Dean’s Chaired
voluntary disclosure of wrongdoing.
Professor of Business Strategy, and Kay Bartol, Robert
2
H. Smith Professor of Management and Organization,
Network connections also play an important role.
indicates that social forces may be more effective than
Indirect connections such as personnel exchange,
regulation in compelling firms to do right. In other
board interlocks, membership in trade associations,
words, good behavior is catching.
and shared auditors may communicate norms and
march 2009 : VOLUME 10 : NUMBER 1
Research by
Ken Smith and Kay Bartol
values through a social context. When network
Smith and Bartol found that formal regulatory
members voluntarily restated earnings, it increased
forces actually discourage voluntary
the likelihood that a firm in the network would
follow suit.
restatements, a result the authors found
surprising and counter-intuitive.
Some argue for additional or more stringent
“These companies—the Enrons of the world—may
oversight, controlling firm behavior through stricter
feel immune to the negative consequences of
regulation and control. But Smith and Bartol found
restatement because of their history of success and
that formal regulatory forces actually discourage
their status in the industry,” says Smith. So neither
voluntary restatements, a result the authors found
the fear of punishment nor the effect of peer pressure
surprising and counter-intuitive.
seems to influence the behavior of the biggest and
most influential firms.
“If you were speeding on the freeway and saw
other cars being pulled over, you’d slow down,”
“Our finding that network connections influence
says Smith. But seeing other firms being prosecuted
firm behavior suggests that it may be possible to
for wrongdoing doesn’t seem to inspire firms to
identify better connected firms in an industry and
amend their behavior or come forward to restate
elicit their aid in encouraging more positive corporate
their earnings. It may be that CEOs believe that
citizenship,” says Bartol. “Such a direction is
enforcement agencies have the wherewithal to
warranted because strong regulatory sanctions do not
prosecute only a certain number of wrongdoers.
seem to work and may even be counterproductive.”
CEOs may be gambling on the chance that their
firm will not be among the small number caught
“Coming Forward: The effect of social and regulatory
and prosecuted.
forces on the voluntary restatement of earnings
subsequent to wrongdoing” was published in
The authors also found that the higher the status
Organization Science. For more information about
of a firm, the less it feels pressure to conform to
this research, contact ksmith@rhsmith.umd.edu or
industry norms or social regulatory forces.
kbartol@rhsmith.umd.edu.
RESEARCH@SMITH
3
Causes and
consequences of
initial network
positions
Who you know matters, but
only within the first year of the
new venture’s life.
E
ntrepreneurs begin their ventures lacking
As you might expect, new ventures are more likely to
a lot of things—employees, funding, customers,
form a relationship with a potential partner if they are
technology, among others. A large part of success is
already connected through the founder’s network of
the ability to get these things, and that depends in
relationships. But Hallen found that the entrepreneurs
large part on the entrepreneur’s ability to network
only benefit from founder ties for a short period
with people and organizations that can provide
after founding. So who you know does matter, but
them with everything from further connections to
only within the first year of the new venture’s life.
equipment to good advice. Network ties—alliances,
Entrepreneurs need to leverage their founder ties soon
board interlocks, equity investments between
after they begin their venture, finds Hallen.
organizations, and the like—can play an important
role in the success of a new venture, influencing
That leads to a tricky trade-off. Initial network
the venture’s ability to acquire capital and industry
position has a long-term effect on a venture’s ability
information, share resources and capabilities, or
to pursue other investors, because investors of similar
benefit from their peers’ relationships with buyers
status tend to invest in the same projects. A high-
and suppliers.
status investor—one who provides better benefits,
introductions and advice—is unlikely to be attracted
Benjamin Hallen, assistant professor of strategy,
to a project that already has a circle of lower-status
explored the mechanisms by which entrepreneurs
investors. This places entrepreneurs, who are often
create this crucial initial set of network ties in a
desperate for an initial inflow of cash, in a difficult
recent paper. Hallen examined 92 U.S. Internet
position, because while lower status investors can
security ventures from the VentureXpert database
provide needed funding, they also limit the circles
founded between 2000-02, and their investment
from which future investors might come.
ties with professional investors who provided capital
and advice in exchange for equity in the new firm.
“Some entrepreneurs actually end up bringing in
Drawing data from new ventures in the same industry
more money, but they may be endangering their
allowed the authors to more accurately compare
venture’s chances of getting a high status investor,”
founder human capital and accomplishments in
says Hallen.
each firm. Hallen used each venture’s original Web
pages to find background on founder’s educational
Entrepreneurs should think carefully, then, about the
background, previous accomplishments, previous
ties they form. The strong consequences of initial ties
work relationships, and skill sets.
suggest that a venture’s initial round of investments
is a unique opportunity. Even though low-status
4
march 2009 : VOLUME 10 : NUMBER 1
Research by
Ben Hallen
investors may be willing to invest at a higher rate,
Entrepreneurs, who are often desperate for
those relationships will make it more difficult to
an initial inflow of cash, find themselves in a
attract higher-status investors later on.
Hallen also found that well-connected entrepreneurs
difficult position—because while lower status
investors can provide needed funding, they
with high human capital—great resumes and skills—
also limit the circles from which future investors
will benefit from pursuing high status investors
might come.
immediately. But entrepreneurs without great
connections and less human capital will be better
That’s because pursuing investors outside of your
served by waiting to pursue high-status investors until
network may raise questions about why people in the
they have some significant accomplishments under
entrepreneur’s network aren’t funding the venture.
their belts. At that point, they will become more
“The implication is that if you can’t get funding from
attractive to the high-status investors they seek,
people you already know, your venture probably isn’t
and can hope to jump into a higher status circle
worth funding,” says Hallen.
of investors.
“The Causes and Consequences of Initial Network
However, Hallen cautions, once an entrepreneur has
Positions of New Organizations: From Whom Do
gotten out a product and has some distinguished
Entrepreneurs Receive Investments” is forthcoming
accomplishments, he or she should be careful about
from Administration Science Quarterly. For more
the investors with whom they choose to work,
information about this research, please contact
because an entrepreneur’s current network has
bhallen@rhsmith.umd.edu.
significant influence over what future investors the
entrepreneur can pursue.
RESEARCH@SMITH
5
Earnings surprises
and information
New evidence shows how earnings
surprises affect a stock’s investment
visibility and trading activity.
I
asymmetry
nformation asymmetry is one of the factors that
information or who trade for liquidity reasons. This
drives the spread between the buying and selling
latter group includes both individual investors and
price of a stock and pushes up the cost of capital
certain professional investors such as index funds, that
for firms, so there is real economic significance to
maintain balanced portfolios.
understanding what drives the activity of privately
informed investors and uninformed investors. Meeting
They found that information asymmetry decreased
or beating analyst’s earnings forecasts has also
in the quarter following a positive earnings surprise,
become important, not just to firms but to investors
when a firm beat earnings forecasts, and increased
whose behavior is driven by them. But while it is clear
during the quarter following a negative earnings
that earnings benchmarks are important to investors,
surprise, when firms failed to meet an earnings
and that earnings surprises have a short-term effect
forecast.
on investor’s pricing associations and short-term
trading reactions, little has been known about how
Earnings surprises attract media attention, and that
earnings surprises affected a stock’s investment
extra attention raises awareness of the firms in the
visibility and trading activity over the long term.
minds of investors. When the surprise is positive,
there is increased trading activity in the stock. Brown
Stephen Brown, assistant professor of accounting
expects this is because newly-aware investors believe
and information assurance, examined the effect of
that a firm that beat its earnings forecasts represent
earnings surprises on information asymmetry between
an attractive buying opportunity.
informed and uninformed investors. With co-authors
Stephen A. Hillegeist, INSEAD, and Kin Lo, University
There are thousands of stocks for investors to
of British Columbia, Brown conducted time-series
choose from, so publicity and media attention
tests of the association between earnings surprises
brings a stock to the awareness and attention of
and the change in information asymmetry before and
uninformed investors. Good attention in the form of
after the earnings announcement.
beating earnings expectations result in a decrease in
information asymmetry. Why?
Brown and his co-authors considered the trading
6
activity level of informed investors, those with some
“Beating expectations stop the private information
kind of private knowledge that would influence
events from occurring,” says Brown. “Firms that are
their trading decisions, and uninformed investors,
doing well are generally happy to share that good
i.e. those who rely solely on publicly available
news. You always hear about people getting engaged
MARCH 2009 : VOLUME 10 : NUMBER 1
Research by
Stephen Brown
before they actually get married, but you rarely hear
While it is commonly held belief that investors
about people getting divorced until it has already
place importance on earnings benchmarks, this
happened. We humans are eager to share good news
and reluctant to share bad news.”
study is valuable because it provides evidence
for what investors actually do, rather than what
The increase in uninformed trading provides additional
executives believe investors do.
camouflage for informed trading, because it is harder
A company that doesn’t meet its earnings forecasts
for the market maker to tell that any particular trade is
in a big way, particularly when that follows a string
based on private information. After a positive surprise,
of positive earnings surprises, is more likely to cause
the level of informed trading appears to increase
greater media attention, which will then cause
commensurately with the level of uninformed trading
greater asymmetry.
on those days when informed traders have private
information. However, there are fewer such days on
These changes in information asymmetry persisted for
which they have such information and so the overall
at least a year following the initial earnings surprise,
level of information asymmetry is reduced.
whether it was positive or negative.
Negative earnings surprises cause a reduction in the
While it is commonly held belief that investors place
level of trading by both uninformed and informed
importance on earnings benchmarks, this study
traders, despite the fact that the surprise may garner
is valuable because it provides evidence for what
just as much media attention. This may be because
investors actually do, rather than what executives
uninformed investors, particularly individual investors,
believe investors do.
aren’t in a position to sell the stock short. However,
the reduction in trading by uninformed investors
“The effect of earnings surprises on information
is disproportionately greater than the reduction
asymmetry,” is forthcoming from the Journal of
in trading by the informed and the overall level of
Accounting and Economics. For more information
information asymmetry increases.
about this research, contact sbrown@rhsmith.umd.edu.
RESEARCH@SMITH
7
Preparing
a new
generation
of
scholars
Last year, the Smith School committed $12 million
Since writing is an important skill for scholars, the
in additional resources to its PhD program. The
school recently offered a writing workshop for
program is also benefiting from new leadership:
doctoral students led by Roland Rust, Distinguished
Debra Shapiro, Clarice Smith Professor of
University Professor and David Bruce Smith Chair in
Management and Organization, became director of
Marketing; Ken G. Smith, Dean’s Chaired Professor
the Smith School’s PhD program July 1, 2008.
of Business Strategy; Ritu Agarwal, Robert H. Smith
Dean’s Chair of Information Systems; and Shapiro, all
One of Shapiro’s key concerns is the quality of
of whom are current or former editors or associate
doctoral students’ job placement. Over the past five
editors of top journals in their fields. More than a
years, 99 percent of Smith’s PhD students have been
third of all Smith’s PhD students attended, and the
successfully placed immediately after they graduate—
workshop was so well-received that Shapiro intends
about 95 percent as tenure track assistant professors
to provide a “Part 2.” This followup workshop will
at an accredited university, and the rest as researchers
provide students with specific feedback on papers
in either private or government organizations.
they bring to the workshop to improve their readiness
for submission.
Shapiro would like to see all doctoral students with
at least one or two top-ranked academic journal
Shapiro is also working to build an increasingly
publications in order to distinguish themselves on the
connected intellectual community that supports and
job market, as a tangible demonstration of scholarly
encourages cross-functional research. In the Smith
expertise. “Top placements will give our students
School’s informal environment, students spend a
access to resources such as research assistants;
lot of time working with faculty one-on-one, and
funding to support research, including summer
there is a significant amount of joint research going
money and ample travel funds; computer resources
on. But much of it is concentrated within academic
like software, relatively low teaching loads, and
disciplines. Shapiro recently began an intranet
relatively high compensation. That in turn will allow
community that she hopes will ease the ability of
them to continue doing high quality scholarship as
students and faculty to gather across as well as
well as great teaching. In order to get such resource-
within discipline-based areas around shared research
rich jobs, students need to produce research output
interests; indeed, Shapiro believes it may assist
while they are here,” says Shapiro.
students and faculty in discovering that they have
research interests in common.
To learn more about the Smith School’s
doctoral program, visit
http://www.rhsmith.umd.edu/doctoral/.
8
MARCH 2009 : VOLUME 10 : NUMBER 1
This year’s graduating doctoral
Peggy Tseng’s dissertation
Lori Kiyatkin’s dissertation
students have research that spans a
studies performance schedules
explores health promotion and
variety of academic areas.
of a live performance event and
health care cost management to
their impacts on ticket sales. She
demonstrate the significant positive
Yun Liu’s dissertation consists
decomposes the spatial effect into
organizational performance
of three essays that look at
geographic effect and temporal
implications of employee health
the influence of networks and
effect, examines heterogeneity
and an organizational culture of
connectedness on Chief Executive
across markets, and investigates
wellness, exploring the crucial
Officer (CEO) labor market
word of mouth effect.
impact of employee health on
outcomes, constructing measures
organizations and the potential role
that capture multiple aspects
Yingjie Lan’s dissertation
of organizations as agents of social
of connectedness and then test
examines how to make revenue
health promotion.
whether, how, and to what
management decisions when
direction they affect the hiring
information about demand is
Francine Espinoza’s dissertation
of CEOs, CEO replacement, and
limited. Lan has developed revenue
investigates how consumers’
compensation paid to CEOs.
management methods whose only
goals and motivations influence
requirement consists of upper and
compliance with a product
Chaodong Han’s dissertation
lower limits on demand within
recommendation or willingness to
examines how globalization—
various customer (price) classes.
pay for a product, illuminating the
particularly global sourcing,
Read more about Lan’s research
interplay of intrinsic and extrinsic
exports, and operations in
with Smith faculty Michael Ball and
motivations that affect consumers
foreign markets—may have
Itir Karaesman at Research@Smith
while bringing implications for
affected inventory and financial
Online.
advertising and selling.
performance, from both firm and
industry perspectives, enhancing
Andrew Hall’s dissertation applies
the understanding of inventory
Markov decision process and goal
management in a global context
programming to individual and
and helps management with
institutional decisions in military
decision making on both inventory
manpower planning; he also
management and
addresses gradient estimation in
global strategy.
stochastic simulation of a new class
of exotic options.
RESEARCH@SMITH
9
Faculty Awards and Honors
Michel Wedel, Pepsico Professor of
Conferences
Consumer Science, received the Werner
Doron Avramov, associate professor
Pommerehne Prize for best paper in the
The Center for Complexity in
of finance, received a Q-group award for
Journal of Cultural Economics, 2004-2005.
Business (CCB) will hold its inaugural
his paper, “Credit Ratings and the Cross
conference on April 24, 2009. Speakers
Russell Wermers, associate professor of
include Josh Epstein, director of the Center
finance, received the Banque Privee Espirito
on Social and Economic Dynamics, The
Hui Lao, associate professor of
Santo and Swiss Finance Institute Award,
Brookings Institute; Kathleen Eisenhardt,
management and organization, received
awarded at the Swiss Finance Institute
Stanford University; Doyne Farmer, Santa
the 2009 Distinguished Early Career
annual meeting in Geneva.
Fe Institute; Brian Uzzi, Northwestern
Section of Stock Returns.”
Contributions Award from the Society of
University; Smith School faculty Bill Rand,
Industrial and Organizational Psychology
the center’s research director and assistant
(SIOP) in recognition of her research.
Editorial Appointments
“The Transformation Age,” a book authored
Chrysanthos Dellarocas, associate
Distinguished University Professor, and
by Henry Lucas, Smith Professor of
professor of information systems, is senior
executive director of the center.
Information Systems, and turned into a
editor of Information Systems Research.
professor of marketing; and Roland Rust,
David Bruce Smith Chair in Marketing,
PBS documentary, received the Golden
The CCB was launched in 2008 to focus
Eagle Trophy from CINE recognizing
Wolfgang Jank, associate professor of
on the application of complex systems
excellence in broadcasting.
management science and statistics, joined
research to business problems. The center’s
the editorial boards of Management Science
focus includes applications of complex
Dilip Madan, professor of finance, gave
and the Journal of the American Statistical
systems methods, such as agent-based
the keynote address at the Third Annual
Association. He was elected program
simulation, to analyze and solve problems
Hedge Fund Conference at Imperial
chair for the marketing section of the joint
that arise when a large number of
College in London.
statistical meetings 2010.
entities—consumers, employees, traders,
A recent paper in the Journal of Finance
Rachelle Sampson, assistant professor
the limits of traditional management tools
by Vojislav Maksimovic, Dean’s Chair
of business, logistics and public policy,
like game theory, operations research,
Professor of Finance, and Gordon Phillips,
was appointed to the editorial board of
statistical analysis, controlled experiments,
Bank of America Professor, “The Industry
Organization Science.
qualitative methods, and the like. The
firms, etc.—interact in ways that stretch
Life-Cycle, Acquisitions and Investment:
center is interdisciplinary and draws on the
Does Firm Organization Matter?” is a
expertise of faculty from across the Smith
finalist for the Brattle Best Paper prize.
School and the University of Maryland,
including decision, operations and
Louiqa Raschid, professor of information
information technologies; marketing; and
systems, has been named a Distinguished
computer science.
Scientist by the ACM (the Association for
Computing Machinery) in recognition
The center’s leadership team includes
of her individual contributions to both
director Chrysanthos Dellarocas,
the practical and theoretical aspects of
associate professor of decision, operations
computing and information technology.
and information technologies; executive
The new ACM Distinguished Members
director Roland Rust, David Bruce
include computer scientists and
Smith Chair in Marketing, Distinguished
engineers from some of the world’s
University Professor, and executive director
leading corporations, research labs,
of the Center for Excellence in Service; and
and universities.
research director and assistant professor of
marketing William Rand.
For more information, contact
ccb@rhsmith.umd.edu.
10
MARCH 2009 : VOLUME 10 : NUMBER 1
Before returning to the classroom in 2001,
Stephen Brown, assistant professor of
Wellman served as the assistant dean of
accounting and information assurance,
the MBA/MS programs at the Smith School
received his PhD from Northwestern
from 1990-2001. During his tenure, he was
University. He is a Chartered Accountant
part of an ambitious effort to enhance the
and prior to entering academia, worked
reputation of the MBA program.
for Arthur Andersen in both the audit
and tax divisions. His research focuses on
$25 Billion Wasted By
Poor Communication in
Health Care System
the causes and effects of disclosures by
management on the capital market.
Benjamin L. Hallen, assistant professor
Inefficiences caused by poor
of strategy, received his PhD from Stanford
communication in the national health care
University. His research focuses on how
system wastes about $25 billion per year of
entrepreneurs may form network ties
caregiver time and resources, according to
with potential resource providers and
Smith Professor Named University’s
a research briefing published by the Smith
partners. He studies this question in the
Outstanding Faculty Educator
School’s Center for Health Information and
context of entrepreneurs raising equity
Decision Systems (CHIDS). The briefing is
investments from venture capital and
University of Maryland students and
based on research by Ritu Agarwal,
corporate investors, with a particular focus
their parents selected Mark Wellman,
Robert H. Smith Dean’s Chair of
on identifying strategies that entrepreneurs
Tyser Teaching Fellow, for the University
Information Systems and director of
may use when they are unknown within
of Maryland’s 2008 Outstanding Faculty
CHIDS; Daniel Z. Sands, senior medical
an industry and lack prior network ties
Educator Award. The award is presented
infomatics director, Cisco Internet Business
to investors.
each year by the Maryland Parents
Solutions Group and assistant clinical
Association to honor a faculty member
professor of medicine, Harvard Medical
Ken G. Smith, Dean’s Chaired Professor
who demonstrates a deep commitment
School; and Jorge Diaz-Schneider.
of Business Strategy, received his PhD from
to providing an exemplary education
University of Washington. His research
experience for students. Wellman is a
To read more about this research
focuses on the areas of competition,
faculty member in the Smith School’s
or learn more about CHIDS, visit
competitive advantage, and strategic
department of management and
www.rhsmith.umd.edu/chids.
decision-making. He was editor of the
organization and serves as director of
Academy of Management Review from
the Business, Society & Economy
program for the university’s College Park
1996-99, elected a fellow of the
Featured Researchers
Scholars program.
Academy of Management in 1998 and
from 2006-07 served as President of the
Kathryn M. Bartol, Robert H.
Academy of Management. He co-authored
Wellman teaches in the areas of global
Smith Professor of Management and
two books: The Dynamics of Competitive
strategy and organizational change. He has
Organization, received her PhD from
Strategy (Sage Publishing, 1992); and
received numerous awards for teaching,
Michigan State University. She is the past
Strategy as Action: Competitive Dynamics
including the Allen J. Krowe Teaching
dean of the fellows of the Academy of
and Competitive Advantage (Oxford
Excellence Award for his outstanding
Management, as well as a past president
Publishing, 2005) and co-edited the
contribution to business education. His
of the Academy of Management. Her
International Handbook of Organizational
approach includes innovative classroom
research focuses on knowledge sharing;
Teamwork and Cooperative Working
activities, such as a mountain-climbing
networks and influence; leadership and
(Wiley & Sons, 2003), and Great Minds in
simulation as a lesson in teamwork and
empowerment; virtual teams and vital
Management (Oxford Publishing, 2005).
decision making. In his role within the
work relationships; information technology
College Park Scholars program, Wellman
and organizations; and rewards, retention,
has organized several co-curricular
and creativity.
activities, including a trip to Walt Disney
World’s Disney Institute last May to learn
about the Disney approach to business
and management.
RESEARCH@SMITH
11
Smith
Faculty
on the
Smith School faculty have been
Finance Crisis
Here ’ s a sampl i ng of thei r opi n ions :
actively involved in advising key
players and proposing potential
Alexander Triantis
Albert “Pete” Kyle
solutions to the finance crisis. Albert
Professor and Department Chair
Smith Chair Professor of Finance
“Pete” Kyle, Smith Chair Professor
of Finance
of Finance, worked as an expert
“The trend recently, before the
for the SEC in conjunction with the
“One of the questions that emerges
last year or so, has been toward
OIG report on the collapse of Bear
from all this is what will happen to
deregulation. What you’re going
Stearns, briefing congressional staffers
financial engineering? I’ve heard
to see in the next two or three
for Henry Waxman’s Committee on
people say that the whole structured
years is that the government will be
Government Oversight. Kyle and
mortgage market will be wiped out;
extremely, heavily involved in the
Haluk Unal, professor of finance,
no one will do these packages of
financial markets. Fannie Mae and
held a briefing session for members
securitized loans anymore. That would
Freddie Mac will continue to be big
of the Senate and House Committees
be unfortunate. Financial engineering
problems and government will have
on Banking, reporters from
in some cases is a way to get around
stakes in banks it will need to decide
BusinessWeek, Dow Jones and U.S.
taxes and accounting, and that’s not
what to do with. After two or three
News & World Report, and Department
helpful from a societal aspect. But
years of active involvement, I can see
of Justice officials, at the Smith
financial engineering can create a
the focus shifting toward how to get
School’s downtown Washington,
way for people to manage their risks
government regulation into balance.”
D.C., campus in the Reagan Building.
and tailor their risk return, and I don’t
Lemma Senbet, William E. Mayer
want to get rid of that.“
Chair Professor of Finance, and N.R.
N. R. Prabhala
Prabhala, associate professor of
Associate Professor of Finance
finance, were invited by Maryland
Lemma Senbet
Congressman John Sarbanes to brief
William E. Mayer Chair Professor
“This crisis is not entirely about credit
his chief of staff and the legislative
of Finance
or liquidity, but about consumer
staff of the federal Oversight and
confidence in the residential home
Government Reform Committee on
“We need to be sure compensation
market. Some kind of direct relief to
issues relating to the execution of the
design is providing executives with
homeowners, or to buyers of homes,
Paulson economic rescue plan. They
incentives to perform, as opposed to
such as a tax break or perhaps direct
and many other Smith finance faculty
incentives to manipulate performance.
subsidies of closing costs, might
have provided expert commentary
Research and development has a long-
stimulate interest in buying homes.
to numerous press outlets and news
term influence on a company, but it
Of course that assumes that home
programs, including ABC, CNN, the
does not have a short-term affect on
prices are depressed below their
Washington Post, Forbes magazine,
profits, so there may be an incentive
actual value.”
Bloomberg, and NPR.
to delay R&D in favor of short-term
profit…that is why we need to look at
how compensation is structured.”
Read more about Smith School thought leadership at our Web site.
12
MARCH 2009 : VOLUME 10 : NUMBER 1
University of Maryland
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In this issue
• Why some companies come forward
• Networking advice for new ventures
• Earnings surprises and information asymmetry
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A lso A va i lable i n
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Go to: www.rhsmith-umd.cn/bi to learn more.
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