Finance

Finance

Overview Faculty Curriculum Seminars & Conferences Awards & Honors Doctoral Students
    • 2024
    • Working Paper

    The Real Effects of Bankruptcy Forum Shopping

    By: Samuel Antill and Aymeric Bellon

    Many non-Delaware firms strategically file for bankruptcy in Delaware. Should this "forum shopping" be allowed? This question has motivated six congressional bill proposals over decades of policy debate. Using a novel natural experiment and Census-Bureau microdata, we inform this debate. Comparing observably similar firms within a Delaware-adjacent state, we show that physical proximity to Delaware predicts forum shopping. Instrumenting with proximity, we find that forum shopping causally: (i) prevents closures and liquidations, (ii) shortens bankruptcies, (iii) boosts creditor recovery, and (iv) increases post-bankruptcy employment by 62%. Proximity to Delaware is uncorrelated with pre-bankruptcy employment trends, validating the exclusion restriction.

    • 2024
    • Working Paper

    The Real Effects of Bankruptcy Forum Shopping

    By: Samuel Antill and Aymeric Bellon

    Many non-Delaware firms strategically file for bankruptcy in Delaware. Should this "forum shopping" be allowed? This question has motivated six congressional bill proposals over decades of policy debate. Using a novel natural experiment and Census-Bureau microdata, we inform this debate. Comparing observably similar firms within a...

    • 2024
    • Working Paper

    Assessing Assessors

    By: Huaizhi Chen and Lauren Cohen

    Property tax revenues – the largest discretionary source of revenue for local governments - adjust at a pace that is inconsistent with property values in the US. We show that this form of revenue smoothing may be rooted in the political economy of municipalities. Measures of local budget stressors are positively related to upward assessments of a property’s value. Moreover, municipalities are significantly more likely to reassess in up markets as opposed to down – consistent with maximizing tax base and revenue collected. Using micro-level evidence from just-passing school referenda in Illinois, these shocks to municipal liabilities lead to significant increases in property assessments without any associated increases in market values or transactions. Passing a referendum over the prior 3 years increases the probability that a house is reassessed upward by 23%. This flexible form of revenue smoothing creates avenues for personal rent extraction. We find that local tax assessors: 1) have tax assessments on their own properties significantly lower than neighboring properties; and 2) these tax assessments grow significantly slower than neighbors – lowering their tax bills. We further document a significant connection between the underassessment of tax assessors’ own properties and the tax-maximizing assessment gaps documented in the districts they operate.

    • 2024
    • Working Paper

    Assessing Assessors

    By: Huaizhi Chen and Lauren Cohen

    Property tax revenues – the largest discretionary source of revenue for local governments - adjust at a pace that is inconsistent with property values in the US. We show that this form of revenue smoothing may be rooted in the political economy of municipalities. Measures of local budget stressors are positively related to upward assessments of a...

    • November 2024
    • Case

    Planning For the Brown Family

    By: Sara Fleiss, Emily R. McComb and Josh Radman

    • November 2024
    • Case

    Planning For the Brown Family

    By: Sara Fleiss, Emily R. McComb and Josh Radman

About the Unit

Our strategy is to assemble and nurture a faculty whose interests and skills complement each other, and who work well together:

a) to produce a broad range of finance-related research that is published in top-tier scientific and practitioner journals, and that addresses issues of present and future importance to managers (including regulators and policy makers);

b) to develop highly-relevant and intellectually rigorous MBA and executive education courses; and

c) to mentor future academics through the Business Economics doctoral program.

Our applied focus and access to business organizations are major advantages which are reinforced by our students and our case-based approach. We have a faculty with broad expertise, and we have resources, field contacts, and institutional support, all of which we can leverage to do richer work and be more productive than we could at other institutions.

Recent Publications

The Real Effects of Bankruptcy Forum Shopping

By: Samuel Antill and Aymeric Bellon
  • 2024 |
  • Working Paper |
  • Faculty Research
Many non-Delaware firms strategically file for bankruptcy in Delaware. Should this "forum shopping" be allowed? This question has motivated six congressional bill proposals over decades of policy debate. Using a novel natural experiment and Census-Bureau microdata, we inform this debate. Comparing observably similar firms within a Delaware-adjacent state, we show that physical proximity to Delaware predicts forum shopping. Instrumenting with proximity, we find that forum shopping causally: (i) prevents closures and liquidations, (ii) shortens bankruptcies, (iii) boosts creditor recovery, and (iv) increases post-bankruptcy employment by 62%. Proximity to Delaware is uncorrelated with pre-bankruptcy employment trends, validating the exclusion restriction.
Keywords: Insolvency and Bankruptcy; Government Legislation; Policy; Geographic Location; Delaware
Related

Assessing Assessors

By: Huaizhi Chen and Lauren Cohen
  • 2024 |
  • Working Paper |
  • Faculty Research
Property tax revenues – the largest discretionary source of revenue for local governments - adjust at a pace that is inconsistent with property values in the US. We show that this form of revenue smoothing may be rooted in the political economy of municipalities. Measures of local budget stressors are positively related to upward assessments of a property’s value. Moreover, municipalities are significantly more likely to reassess in up markets as opposed to down – consistent with maximizing tax base and revenue collected. Using micro-level evidence from just-passing school referenda in Illinois, these shocks to municipal liabilities lead to significant increases in property assessments without any associated increases in market values or transactions. Passing a referendum over the prior 3 years increases the probability that a house is reassessed upward by 23%. This flexible form of revenue smoothing creates avenues for personal rent extraction. We find that local tax assessors: 1) have tax assessments on their own properties significantly lower than neighboring properties; and 2) these tax assessments grow significantly slower than neighbors – lowering their tax bills. We further document a significant connection between the underassessment of tax assessors’ own properties and the tax-maximizing assessment gaps documented in the districts they operate.
Keywords: Revenue; Taxation; Value; Local Range; Prejudice and Bias
Related

Are Bankruptcy Professional Fees Excessively High?

By: Samuel Antill
  • December 2024 |
  • Article |
  • Review of Financial Studies
Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are substantial. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I test this empirically. I study trustees, the most important professionals in Chapter 7, who liquidate assets in exchange for legally-mandated commissions. Exploiting kinks in the commission function, I estimate a structural model of moral hazard by trustees. I show that a policy change lowering trustee fees would harm trustee incentives, reducing liquidation values. Nonetheless, such a policy would dramatically improve creditor recovery, increasing small-business-lender recovery by 15.7%.
Keywords: Insolvency and Bankruptcy; Motivation and Incentives; Policy
Related

Planning For the Brown Family

By: Sara Fleiss, Emily R. McComb and Josh Radman
  • November 2024 |
  • Case |
  • Faculty Research
Related

Grab Returns: Riding the SPAC-tacular Highway?

By: Paul Gompers, Graham Blanks and Sachin Srivastava
  • November 2024 |
  • Case |
  • Faculty Research
Related

The Evolution of Financial Services in the United States

By: Robin Greenwood, David S. Scharfstein and Robert Ialenti
  • 2024 |
  • Working Paper |
  • Faculty Research
This article surveys the literature on the historical growth and transformation of the U.S. financial sector. The sector expanded rapidly between 1980 until 2006, when its contribution to GDP rose from 4.8% to 7.6%. After the Global Financial Crisis, the size of the sector stabilized at approximately 7% of GDP. After reviewing this literature, we extend this research to cover recent developments, including the continued growth of high fee alternative asset management and a shift away from banks to lending by nonbank financial intermediaries. We interpret both the growth of the sector and the recent evolution as reflecting a continued transition to a more market-based financial system, with risk migrating away from banks and into markets.
Keywords: Financial Crisis; Financial Institutions; Financial Markets; Growth and Development; Economic Sectors; Financial Services Industry
Related

Moonfare and the Democratization of Private Equity

By: Victoria Ivashina and Srimayi Mylavarapu
  • November 2024 (Revised December 2024) |
  • Case |
  • Faculty Research
Founded in 2016, Moonfare headquartered in Europe, was a pioneer in the “democratization” of private equity investments. Historically, private equity was accessible only to institutional investors like pension funds, endowments, sovereign wealth funds, and large family offices. However, as personal wealth has grown among broader segments of the population, along with advancements in technology and a slowdown in traditional fundraising, figuring out how to facilitate individual investors access to private equity has become increasingly attractive. Moonfare was among the first to enable individual investors to access a range of private equity funds by developing proprietary technology with fully digitalized onboarding and investment processes. Initially, Moonfare’s model facilitated direct access to funds for high-net-worth individuals and family offices. However, with the broader alternative industry facing pressure to find solutions for fundraising from "retail" investors, competitive pressures evolved rapidly. In this context, Moonfare considered creating an investment vehicle with an unprecedented minimum investment of 10,000. Given that retail investors' participation in private equity was still a relatively new trend, there was no established playbook for effectively managing this investor base. The Moonfare team had to address several considerations: the unit economics of onboarding retail investors, the increased risk of default, and the challenge of both attracting and retaining these investors. On the flip side, tapping into smaller check sizes could strengthen Moonfare’s position as a leader in the industry and unlock the potential of a large, untapped investor base. The key question remained: what would be the ideal investor segment to target, and which product would be best to launch?
Related

Categorical Processing in a Complex World

By: Marco Sammon, Thomas Graeber and Christopher Roth
  • 2024 |
  • Working Paper |
  • Faculty Research
In real-world news environments, quantitative information is rarely presented in isolation; it is characterized through qualitative comparisons with various reference levels. Company earnings, for example, are commonly compared to analyst forecasts, previous earnings, and other benchmarks. We propose comparative noisy processing as a cognitive simplification strategy according to which people accurately incorporate qualitative comparisons to form category priors but integrate numerical signals imprecisely. In our framework, processing constraints induce excess sensitivity around category boundaries and insensitivity everywhere else. We study stock market reactions to about 200,000 earnings announcements, documenting that proxies for processing noise are associated with a more pronounced S shape around comparison points. The behavioral mechanism is corroborated by naturalistic experiments that exogenously manipulate processing constraints. We test two theories of what determines processing noise in the field. First, more common surprises might be processed with less noise as in models of efficient coding. We find that regions with more frequent surprises exhibit far higher return sensitivity and lower medium-term price corrections. Second, surprise may capture attention, leaving less capacity to process the numerical signal. We find that surprising qualitative realizations, e.g., a profit when a loss was expected, are associated with diminished sensitivity to quantitative information.
Keywords: Announcements; Cognition and Thinking; Communication Strategy
Related
More Publications

In the News

More Faculty News

HBS Working Knowledge

More Working Knowledge Articles

Harvard Business Publishing

→More Harvard Business Publishing

Seminars & Conferences

There are no upcoming events.

→More Seminars & Conferences

Faculty Positions

Harvard Business School seeks candidates in all fields for full time positions. Candidates with outstanding records in PhD or DBA programs are encouraged to apply.
Learn More

Contact Information

Finance Unit
Harvard Business School
Baker Library | Bloomberg Center
Soldiers Field
Boston, MA 02163
financeunit@hbs.edu