http://knowledge.wharton.upenn.edu/ Knowledge@Wharton is an online resource that offers the latest business insights, information, and research from a variety of sources. Content includes analysis of current business trends, interviews with industry leaders and faculty, articles based on the most recent business research, book reviews, conference and seminar reports, and links to other websites. en-us Copyright (c) 2007 The Wharton School of the University of Pennsylvania Fri, 06 Nov 2009 00:00:00 EST Fri, 06 Nov 2009 14:33:38 EST http://www.wharton.upenn.edu/globals/images/katw_white.gif http://Knowledge.wharton.upenn.edu/category.cfm?cid=1 125 45 Knowledge@Wharton Finance and Investment Research Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2369 President Obama's recent move to funnel more credit to small businesses comes at a time when a fragile recovery appears to be underway in that sector. If Congress approves Obama's plan, the measures would enable community banks to borrow at low rates from the Treasury Department's Troubled Asset Relief Program, so long as the banks show they are increasing lending to small enterprises. Still, most small businesses continue to hunker down: Last month, a survey by the National Federation of Independent Business found that expansion plans for small businesses were at a 35-year low. How quickly will conditions improve for a sector that generates two-thirds of all new jobs in the U.S.? Wed, 28 Oct 2009 17:19:29 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2368 Last week, the Obama administration's "pay czar," Kenneth Feinberg, announced that the government will impose caps on compensation for the 25 highest-paid executives at seven companies that received "exceptional assistance" through the Troubled Asset Relief Program -- including American International Group (AIG), Bank of America, Citigroup, Chrysler, Chrysler Financial, General Motors and GMAC. Under the new regulations, salaries will be reduced by an average of 90%, and total compensation (including bonuses and stock options) will be lowered by 50%. Knowledge@Wharton spoke with Wharton accounting professor Wayne R. Guay and then with finance professor Alex Edmans about what these changes could mean for Wall Street, company shareholders and taxpayers. Wed, 28 Oct 2009 17:19:29 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2352 The phrase "too big to fail" debuted during the financial crisis as a buzzword for mega banks and institutions that pushed the world economy -- and themselves -- to the brink of meltdown. Yet, they could not be allowed to fail because of the havoc this would wreak on the economy at large. With the worst of the crisis apparently over, attention now focuses on how to rein in the behemoths without encouraging even riskier behavior. Wharton faculty members offer their suggestions.   Wed, 14 Oct 2009 15:33:51 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2345 According to some estimates, high-frequency trading by investment banks, hedge funds and other players accounts for 60% to 70% of all trades in U.S. stocks, explaining the enormous increase in trading volume over the past few years. But critics of the practice worry that those profits are coming out of ordinary investors' pockets. Defenders, on the other hand, say high-frequency trading improves market liquidity, helping to insure there is always a buyer or seller available when one wants to trade. Wharton faculty and others weigh in. Wed, 30 Sep 2009 17:48:04 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2342 On September 14, President Barack Obama gave a speech in New York to mark the anniversary of the Lehman Brothers failure. It was a year ago when -- during the course of a single jaw-dropping week -- the investment bank declared bankruptcy; Bank of America took over Merrill Lynch; and the U.S. federal government bailed out American International Group. How has Wall Street changed during the past year, and what will these changes mean for investors? What new financial regulations have been discussed, and how much longer will it take the U.S. economy to emerge from the woods? Knowledge@Wharton posed these and other questions to finance professors Jeremy Siegel and Richard Herring. Wed, 16 Sep 2009 16:45:37 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2336 One year after the financial market collapse that shook the world, U.S. banks look healthier. Many have repaid government bailout money, with a handful reporting solid profits, and the government is winding down some of its rescue programs. But it's not yet clear that the banking industry will accept the fundamental changes its harshest critics -- and even some of its staunchest defenders -- had hoped for. Some experts think the industry will avoid the high-risk practices that nearly destroyed it, while others worry that the banks' apparent turnaround is largely owed to government help, making another crisis highly likely. Wharton faculty weigh in. Wed, 16 Sep 2009 16:45:37 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2332 As the global economy appears headed toward recovery, concerns are growing that the United States' addiction to massive fiscal stimulus as an economic panacea could eventually lead to an even bigger crisis -- a loss of confidence in the U.S. dollar. Prominent voices are sounding dire warnings, worried that a gradual return to normalcy could undermine the political will needed to control deficit spending and prevent a disastrous long-term decline of the world's primary reserve currency. Wed, 02 Sep 2009 16:37:02 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2331 After the recent economic meltdown and trillions of dollars in shareholder losses, many Americans are questioning whether corporate boards have been doing their job. But the Securities and Exchange Commission's recently proposed "proxy access rule" could change the way board directors are nominated by making it easier for certain shareholders to include the names of opposing candidates on a company's proxy ballot. Proponents say the rule would make boards more shareholder-focused, while opponents argue that the change would drive up costs and leave companies vulnerable to the interests of minority shareholders. The proposal's comment period ended August 17. A decision by the SEC is expected this fall. Wed, 02 Sep 2009 16:37:02 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2304 According to Wharton finance professor Richard J. Herring, more than half of the lending to households over the last five to six years "has come from the securitization market, not from banks' balance sheets." For that reason, Herring and Allen Levinson, founder and principal of Credit Risk Advisors, say that the Obama administration's efforts to resuscitate the ailing economy should be focused not only on restoring bank lending, but also on enabling "the flow of securitizations." This can be accomplished through the establishment of a private-sector oversight committee that "reflects the full range of stakeholders in the securitization process" -- a market-based solution costing taxpayers nothing, they argue. Wed, 05 Aug 2009 16:41:52 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2309 From California to Connecticut, the global recession has squeezed state finances, forcing many state governments to slash services, raise taxes or find unusually creative ways to close the gap. According to experts, the widespread budget shortfalls -- expected to continue through at least 2011 -- threaten to put a drag on the nation's economic recovery and undermine President Obama's stimulus plan. "The states aren't really playing the game like Obama hoped they would," says one Wharton finance professor. Wed, 05 Aug 2009 16:41:52 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2300 Private equity faces a difficult environment as credit markets try to absorb maturing debt from large leveraged buyouts. Panelists at the 2009 Wharton Private Equity & Venture Capital Conference said financial sponsors are scrambling to prepare for the refinancings that will start coming onto markets in 2012. They also noted that firms are focusing on portfolio company operations, exploring new positions in the capital structure and considering strategic, synergistic transactions. Wed, 05 Aug 2009 13:11:12 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2302 Investment managers involved in the private equity (PE) secondaries industry -- the buying and selling of existing PE commitments -- see distressed sellers continuing to act as a source of growth through 2009 and 2010. In an interview with members of the Wharton Private Equity Club, three senior members of firms that focus on these transactions predicted the role of secondaries will grow over the medium and long term as they provide a solid source of short-term liquidity, allow larger PE positions to change hands and make it easier for investors to adjust their PE portfolios. Wed, 05 Aug 2009 13:10:49 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2299 Strong fundamentals in China and India continue to offer some highly attractive opportunities for prudent private equity investors. But successful PE investments require careful planning and a regional presence in order to identify lucrative opportunities and better understand potential competitive threats to Western companies. To learn more about private equity investment in these countries, members of Wharton's Private Equity Club recently interviewed Dalip Pathak of Warburg Pincus and Alastair Gibbons of Bridgepoint Capital about their views on the best investing practices in today's transformed environment. Wed, 05 Aug 2009 13:10:42 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2301 At the peak of the private equity boom, the largest leveraged buyouts ballooned in value and captured headlines. Traditional middle-market deals also grew at a robust pace, but with less fanfare. Now that the market has turned, both sectors are challenged. Panelists at the 2009 Wharton Private Equity & Venture Capital Conference said opportunities, or "gems," are nonetheless still available for investors in midsize deals if they approach transactions creatively and consider taking new and innovative positions in companies' capital structures. Wed, 05 Aug 2009 13:10:35 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2303 As the economic downturn continues and bankruptcies rise, private equity is turning away from traditional leveraged deals and toward investment in distressed companies, according to speakers at the 2009 Wharton Private Equity & Venture Capital Conference, "Multiplicity Without Rhythm: Investing in Chaotic Markets." Specialists in distressed businesses expect a tidal wave of private equity deals made in 2006 and 2007 to go bad in the next few years. Given the number of opportunities and the lack of bankruptcy credit, many restructurings will occur outside of bankruptcy court and could result in swift liquidation. Thu, 23 Jul 2009 23:14:09 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2291 In separate interviews, Wharton finance professors Franklin Allen and Jeremy J. Siegel offered contrasting reactions to the large second-quarter profits at Goldman Sachs and J.P. Morgan. Allen said that while the firms' quarterly results reflected overall gains on Wall Street, "by and large, you can't make large sums of money without taking risks." He worries that the government's intervention in the financial sector last fall, which benefitted these firms and others, created an environment of moral hazard. Siegel was less concerned about this issue, noting that "both these firms now have a lot to lose after having recovered a lot." Wed, 22 Jul 2009 15:41:58 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2284 Warren Buffett, arguably the most successful investor alive, inspires tens of thousands of fans to travel to Omaha, Nebraska, each year to attend the annual shareholder meeting of Berkshire Hathaway. Little wonder that Alice Shroeder's insightful biography, "The Snowball: Warren Buffett and the Business of Life," has proved popular among readers. She explores the ways Buffett built his wealth, and also the reasons why he plans to give most of it away to charity. Wed, 15 Jul 2009 16:36:16 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2281 The harsh economic downturn that has chastened credit-happy consumers, along with increased scrutiny by regulators, will force card issuers to rethink their business models as the economy begins to recover, according to Wharton faculty and credit industry analysts. Wed, 08 Jul 2009 16:18:09 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2276 According to a study by two accounting professors, even though hedge funds give their managers virtual autonomy in investment strategy, investors can successfully demand effective internal controls to discourage fraud. The paper, titled "Determinants of Hedge Fund Internal Controls and Fees" and written by Wharton professor Gavin Cassar and University of Chicago Business School professor Joseph Gerakos, also looks at the incentives hedge funds have in place to avoid excessive risk. Wed, 08 Jul 2009 16:18:09 EST Finance and Investment http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2267 Now that it's clear the recession will not turn into a depression, stocks are poised for a recovery, says Wharton finance professor Jeremy J. Siegel. In an interview with Knowledge@Wharton, he said last week's market decline in response to rising commodity prices -- especially for energy -- and fear of the ever-growing federal deficit was no more than a short-term setback. Wed, 24 Jun 2009 16:27:19 EST