Franklin Allen - Faculty Research in Knowledge@Wharton

Wall Street Report: Big Profits amid the Ruins

Wed, 22 Jul 2009 15:41:58 EST

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."

Economic Recovery: Are Happy Days Here Again?

Wed, 10 Jun 2009 17:08:51 EST

Stocks have rebounded on Wall Street during the past two months. The pace of job losses seems to be slowing down. Even quarterly reports from banks suggest that the banking sector is slowly struggling back to its feet. Do these signs portend the first indicators of an economic recovery? Not yet, according to experts at Wharton and elsewhere, who insist that despite some of the hopeful data, the recovery will be weaker and take longer to gain momentum than past slowdowns.

Reforming the Ratings Agencies: Will the U.S. Follow Europe's Tougher Rules?

Wed, 27 May 2009 17:04:13 EST

New restrictions proposed for ratings agencies -- including Moody's, Fitch and Standard & Poor's -- could have unintended consequences, warn experts in the United States. Europe, however, has clamped down on the agencies, whose stamps of approval on a broad spectrum of subprime mortgage securities helped pave the way to the credit crash of 2007 and the continuing global recession.

Deflation Fears: Could Falling Prices Let the Air Out of a Recovery?

Wed, 13 May 2009 16:53:27 EST

Experts are far from unanimous on the question, with some arguing that deflation could be widespread, while others insist an economic rebound and government stimulus efforts make deflation less likely. Some fear that a stimulus-driven recovery could trigger the opposite: inflation.

Why Economists Failed to Predict the Financial Crisis

Wed, 13 May 2009 16:53:27 EST

A sense that they failed to see the financial crisis brewing has led to soul searching among many economists. While some did warn that home prices were forming a bubble, others confess to a widespread failure to predict the damage the bubble would cause when it burst. Some economists are harsher, arguing that a free-market bias in the profession, coupled with outmoded and simplistic analytical tools, blinded many of their colleagues to the danger. A recent paper from a conference of economists calls for changes in the way they are trained.

Attached at the Wallet: The Delicate Financial Relationship between the U.S. and China

Wed, 29 Apr 2009 14:19:24 EST

The financial relationship between China and the U.S. is beginning to look like an unhealthy co-dependency. China holds so much of its foreign reserves in dollar-based assets that it is now vulnerable to shifts in the U.S. economy. And the U.S. has allowed China to purchase so much of its debt that it is now beholden to Chinese interests. Experts disagree, however, about the real motives for China's continuing investments, and whether it would ever sell them off.

The $2 Trillion Question: Will Investors Buy the Government's Toxic Asset Plan?

Wed, 01 Apr 2009 17:13:39 EST

The Obama administration aims to move $2 trillion in toxic assets off financial institutions' books by offering taxpayer-backed loans to hedge funds and other investors, trying to improve on earlier strategies that have failed to rekindle trading in securities backed by mortgages and other debt. The goal is to thaw the credit markets -- to get banks to lend money the economy needs to grow. Will it work? Experts have mixed views.

Are 'Mark-to-market' Accounting Rules on the Mark?

Wed, 01 Apr 2009 17:13:39 EST

On April 2, the Financial Accounting Standards Board is expected to vote on a proposal to relax a standard at the heart of the financial crisis -- mark-to-market accounting rules that require toxic assets to be carried on companies' books at fire-sale prices, based on recent trades of similar assets for far less than they would command in normal times. Many big banks say the crisis has been made worse by these rules. Not everyone agrees.

Kings of Cash: The Impact of the Global Financial Crisis on Sovereign Wealth Funds

Wed, 11 Mar 2009 16:25:35 EST

The worldwide financial crisis has raised many questions about the efficacy and role of sovereign wealth funds (SWFs), the large, state-controlled investment funds typically carrying a mix of assets. Some of the largest funds reside in the Middle East, and in the wake of the financial meltdown, many of them have become risk-averse and are turning inward to stimulate their own slumping economies. Knowledge@Wharton asked Wharton faculty and other experts discuss this change in SWF strategy and what it means for long-term economic stability.

Worry in the West as Eastern and Central European Economies Head South

Wed, 04 Mar 2009 14:25:43 EST

The world financial crisis is unraveling the gains made by many Central and Eastern European economies during their post-Cold War resurgence. With the region no longer isolated, an economic collapse could reverberate in the West, as Central and Eastern European borrowers default on an enormous volume of loans that Western banks were all too eager to grant just a few years ago.

The Other Banking Drama: Those Secret Swiss Accounts

Wed, 04 Mar 2009 14:25:43 EST

Tax authorities in the United States have challenged long-standing Swiss banking secrecy laws, demanding that UBS AG release the names of 52,000 Americans suspected of opening secret accounts to evade taxes. The bank agreed to release client information on 250 U.S. citizens and pay a $780 million fine as part of a settlement, but that decision has put the entire Swiss banking system in jeopardy, according to Wharton faculty.

Has the Time Come to Nationalize Struggling Banks? Yes, but Carefully

Wed, 18 Feb 2009 17:51:20 EST

After a generation of increasingly relaxed regulation of the financial services sector, the very concept seems stunning: Nationalization of banks in Europe and the United States. But with many global banks still teetering on the brink of insolvency -- even after rescue efforts that have included multi-billion dollar infusions of capital and other forms of assistance -- a different view is emerging. A growing number of economists -- including, most recently, Alan Greenspan -- now argues that temporary government takeovers of the most deeply troubled institutions may be the only remaining solution.

Trade Wars: Will Protectionism Win out over Recovery?

Wed, 18 Feb 2009 17:51:20 EST

When governments around the world spend vast sums to stimulate their economies, it seems only reasonable for each to invest at home. Why should the American taxpayer pay for steel from Canada when U.S. steelmakers are struggling? So it was hardly a surprise that the $787 billion stimulus plan just signed by President Barack Obama included protectionist language. But economists and political leaders in the U.S., Europe and elsewhere worry that such sentiments threaten free-trade principles that are crucial to any global economic recovery.

A World Transformed: What Are the Top 30 Innovations of the Last 30 Years?

Wed, 18 Feb 2009 17:51:20 EST

Is it possible to determine which 30 innovations have changed life most dramatically during the past 30 years? That is the question that Nightly Business Report, the Emmy Award-winning PBS business program, and Knowledge@Wharton set out to answer to celebrate NBR's 30^th anniversary this year. The list includes innovations from the world of technology, health care, energy and even finance. Can you guess which one is No. 1?

Outrage over Outsized Executive Compensation: Who Should Fix It and How?

Wed, 04 Feb 2009 17:07:39 EST

The contrast is jarring. As thousands of Americans lose their jobs, headlines are focused on excessive executive compensation and lavish perks, including multi-million-dollar bonuses, a $1.2 million executive suite renovation (since repaid) and plans to buy a new corporate jet (since scrapped). It's not surprising that the harsh economic climate and resurgent role of government in business has turned a spotlight on compensation. Indeed, rules announced this week by the Obama administration set new limits on executive pay. But overall, what should government do, or not do, to ensure fairness and accountability in the executive suite?

The Financial Crisis: Bad and Getting Worse, but Put Away that D-word

Wed, 21 Jan 2009 16:32:55 EST

It began as the "subprime crisis" in 2007, and then mushroomed into a full-blown global recession in 2008. And still, despite mammoth government intervention, the bad news keeps getting worse. Are we now teetering on a precipice, ready to plunge into another Great Depression? Can the latest proposals pull the economy out of its nosedive? There is plenty to worry about. But while many experts say this crisis is the worst since the Depression, that doesn't mean it will be as bad.

Getting It Right: Making the Most of an Opportunity to Update Market Regulation

Wed, 21 Jan 2009 16:32:55 EST

As the global economic crisis continues, politicians and investors are escalating calls for new regulatory scrutiny of financial markets. After decades of a cat-and-mouse game between the industry and regulators, Wharton faculty say a dramatic overhaul of the Depression-era regulatory system is needed. At the same time, they warn that meaningful reform will be enormously complex and require long and careful consideration, not a quick fix to appease voters looking to place blame for the meltdown.

Global Economic Forecast for 2009: Will Demand for Good News Outpace Supply?

Wed, 07 Jan 2009 17:01:05 EST

After a year of financial shock and sharp economic loss, 2009 is likely to be extremely difficult for the global economy, with investors, business leaders and policymakers struggling to find signs of recovery. Wharton faculty and other experts interviewed by the Knowledge@Wharton Network discuss the outlook for the U.S., Europe, Latin America, India, China and Japan.

The G-20 Economic Summit: More Symbolic than Substantive?

Wed, 12 Nov 2008 15:45:28 EST

It seems sensible: Bring leaders of the 20 largest economies together to discuss a coordinated plan for dealing with the world financial crisis. But the upcoming G-20 Economic Summit in Washington, D.C., has some commentators wondering what can be accomplished with so little preparation time, while others express concern about the formation of any new regulations when the causes of the crisis are still not thoroughly understood. Wharton faculty and other experts discuss some potential outcomes of the November 15 gathering.

How the Credit Crisis Could Forge a New Financial Order

Wed, 15 Oct 2008 16:48:07 EST

As officials worldwide scrambled to contain the spreading financial virus, hopes are rising that the latest government plans to purchase equity stakes in banks may finally offer the right medicine. And with the patient showing intermittent signs of improving, thoughts turn towards next steps, including new restrictions on the markets. In addition, expect individuals and business to have a tougher time getting loans for years -- not just months. And watch for authorities to prescribe greater transparency, stricter capital requirements to reduce leveraging, and more standardized financial contracts to push opaque securities into the sunlight.

The $700 Billion Question: How Much Is That Exotic Security?

Wed, 01 Oct 2008 17:12:09 EST

Economists and financial experts don't all agree that the Bush Administration's $700 billion Wall Street rescue plan -- a taxpayer-funded purchase of troubled mortgage securities -- is the best way to attack the credit crunch. However, even those who support the plan acknowledge that there is an unanswered question at its core: How would the government know if it is paying the right price for the exotic securities it plans to buy?

Huge Reserves, Emerging Market 'Challengers' and Other Forces Are Changing Global Finance

Mon, 22 Sep 2008 16:32:49 EST

Rapidly developing economies have become drivers of change -- and sometimes disruption -- in global financial markets. That has important implications for companies in the U.S. and Europe as new players emerge, including sovereign wealth funds, state-controlled entities and acquisition-minded corporations. According to experts at Wharton and The Boston Consulting Group, these entities will increasingly look to buy assets beyond their borders, including controlling stakes in foreign companies.

Wharton Faculty Debate the Impact of the Financial Crisis

Wed, 17 Sep 2008 22:19:21 EST

In a roundtable discussion on the fallout from a week of turmoil on Wall Street, Wharton professors Richard Herring, Susan Wachter and Franklin Allen discussed the ripple effect of the crisis across U.S. and global markets. They also speculated on the AIG bailout, which was announced shortly after this video was recorded on September 16.

Will the Levee Break? An Ocean of Bad Debt Rises despite Fed Rescues

Wed, 17 Sep 2008 20:25:57 EST

The rescues, bankruptcies and dizzying write-downs for Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG and other giants of international finance signal a reckoning for Wall Street wizards who engineered the ongoing credit crisis with opaque securities based on risky subprime home loans and the assumption that housing prices would never decline, according to a panel of Wharton professors. The flood of bad debt, they add, won't subside anytime soon.

Note to Investors: Don't Play Games with Asset Allocation

Wed, 17 Sep 2008 20:25:57 EST

Big market downturns and jarring volatility have left small investors feeling whipsawed -- and nervous. But it would be a mistake to abandon classic long-term personal finance principles in the face of recent challenges. The 60% stocks, 30% bonds and 10% cash approach remains the best strategy. Wharton finance professors Jeremy Siegel, Richard Marston and Franklin Allen explain why.

After the Bailout: How Can the Fed Clean Up the Fannie and Freddie Mess?

Wed, 17 Sep 2008 20:25:57 EST

The government's refusal to save Lehman Brothers begs a question: Why did it step in only a week earlier to risk up to $200 billion in taxpayer money to shore up mortgage giants Fannie Mae and Freddie Mac? Wharton faculty say the government made the right move -- and offer suggestions for the next step.

Does Short-selling Need the SEC's Oversight?

Wed, 23 Jul 2008 13:40:28 EST

"There's really nothing illegal about it" is a phrase often heard in descriptions of the practice of shorting, or short-selling, which are essentially bets that a stock price will decline. But after some market watchers accused short-sellers of unfairly depressing the stock prices of several key financial institutions, the Securities and Exchange Commission imposed new rules. Wharton finance professors Marshall Blume and Franklin Allen suggest the impact will be minimal.

Winners and Losers in the Rising Tide of Proxy Wars

Wed, 23 Jul 2008 13:40:28 EST

Companies ranging from Yahoo and CSX to Motorola, H.J. Heinz and Time Warner have been the target of proxy wars over the past few years as disgruntled shareholders try to force changes in corporate behavior and/or top management. But while proxy battles these days are more prevalent and easier to launch than ever, it's unclear exactly what they accomplish. As one Wharton professor notes: "It's a good thing for shareholders that these activists rattle the cage. Whether they ultimately create value for shareholders is another issue."

Credit Crisis Interview: Franklin Allen on Past Crises

Fri, 20 Jun 2008 12:29:15 EST

As in Japan, an underlying driver of the U.S. credit crisis was a housing price bubble, Wharton finance professor Franklin Allen tells Knowledge@Wharton in this interview. But Japan's bubble was "much bigger than what we have had in the U.S.," he says. "When it burst in 1991, property prices [in Japan] fell for about 15 years in a row. And they went down about 75% or thereabouts."

Subprime Crisis: Did Bernanke Go Too Far, or Did He Not Go Far Enough?

Fri, 20 Jun 2008 12:30:21 EST

To restart the economy, the Federal Reserve created new channels of lending, cut target rates. The prompt and aggressive action was spurred by Chairman Ben Bernanke's research on the Great Depression. How will history judge his strategy?

Yanked from Obscurity: Why Finance Experts Are Rethinking LIBOR

Wed, 11 Jun 2008 16:37:46 EST

First, U.S. Bankers raised questions about how the daily London Interbank Offered Rate was calculated, and then The Wall Street Journal demonstrated that the rate was inexplicably diverging from what the data suggested it ought to be. Getting it right is important, because LIBOR is the basis for many kinds of loans. The British Bankers Association says it will make changes.

Gold May Glitter, but It Doesn't Stack up as a Long-term Investment

Wed, 30 Apr 2008 17:36:16 EST

Call it a gold rush, of sorts. Gold topped out at more than $1,000 an ounce in mid-March, up from about $680 a year ago. Although it dipped to just under $900 late in April, it has had a tremendous run, up from $350 five years ago. What has driven these price gains? What does gold tell us about the economy's future? Should ordinary investors buy it? Knowledge@Wharton talks to the experts.

Coming Soon ... Securitization with a New, Improved (and Perhaps Safer) Face

Wed, 02 Apr 2008 17:52:07 EST

Securitization is often blamed for aggravating -- if not causing -- the subprime mortgage crisis that keeps roiling U.S. real estate and credit markets. By repackaging pools of mortgages into securities that could be resold to investors, the argument goes, securitization permitted unscrupulous underwriters to offer housing loans to poor borrowers and transfer the risk to Wall Street. How, then, will the present credit crisis affect the future of securitization? According to professors from Wharton's finance and real estate departments, securitization will not disappear -- but it is in for radical changes.

ETFs Evolve -- For Better or Worse?

Wed, 19 Mar 2008 15:05:04 EST

With their low fees, all-day trading and tax efficiency, exchange-traded funds have captivated investors. There were no ETFs before 1993; today, there are nearly 700. While most experts think ETFs were a good innovation -- built like index-style mutual funds but traded like stocks -- some worry that the increasingly specialized ETFs introduced in recent years stray from the faith, encouraging too much risk-taking. That concern is heightened by recent Securities and Exchange Commission proposals to let new funds come to market with less oversight, and to invite proposals for introducing actively managed ETFs. Knowledge@Wharton looks at the recent action, and angst, surrounding ETFs.

It's a Bird...It's a Plane...It's a Recession, or Is It?

Wed, 23 Jan 2008 16:51:55 EST

It's been quite a week. Stock markets around the world showed sharp declines on Monday; on Tuesday, the Federal Reserve cut its benchmark interest rate by three-quarters of a percentage point. The rate cut helped stem the losses on some indexes, but by January 23, the volatility had returned. The obvious fear is one of recession -- a possibility that the White House and Congress are trying to avert by coming up with a stimulus package that will keep the economy off life support. How effective will the Fed's interest rate cut be, and what is the outlook for the Asian and European economies? Knowledge@Wharton asked finance professors Jeremy Siegel and Franklin Allen to comment on these issues.

Advice to Investors: Sit Tight and Batten Down the Hatches

Wed, 23 Jan 2008 16:49:57 EST

The worldwide collapse of stock prices has many victims -- pension funds, insurance companies, hedge funds, financial services firms. But those are players who, if they are smart, have the wherewithal to withstand a steep sell-off. What about the small investor, the individual who is socking away modest sums for retirement or college costs? Should small investors rush for the sidelines? Or should they view this as a buying opportunity? Knowledge@Wharton asked six experts for advice on investment strategy.

What's Ahead for the Global Economy in 2008? Reports from the Knowledge@Wharton Network

Wed, 09 Jan 2008 16:49:19 EST

Though the subprime mess and rising oil prices slammed the U.S. economy during much of 2007, other emerging markets -- especially China and India -- seem to be on a roll. China's growth rate of more than 11% is likely to continue, and India, too, should be able to sustain a high rate of GDP growth, even if it slows from last year's 9%. Latin America, meanwhile, is cautiously optimistic but could see a moderate decline in 2008. The Knowledge@Wharton Network sites -- including Universia Knowledge@Wharton, China Knowledge@Wharton and India Knowledge@Wharton -- spoke with Wharton faculty and other experts about what to expect during the coming year.

A Closer Look at Sovereign Wealth Funds: Secretive, Powerful, Unregulated and Huge

Wed, 12 Dec 2007 14:42:26 EST

The Abu Dhabi government is buying a 4.9% stake in Citigroup for $7.5 billion. UBS is selling a 10.8% share to the government of Singapore and an unnamed Middle Eastern investor for $11.5 billion. Two Middle Eastern government funds now own a third of the London Stock Exchange. Governments, through investment pools known as sovereign wealth funds, have put tens of billions of dollars into Western financial firms this year. But is foreign ownership -- or, more precisely, foreign government ownership -- really a good thing? Many experts think this mushrooming trend bears watching, especially for any sign that these funds are evolving from pure investment vehicles into tools for exerting political pressure on the "target" countries.

The Anatomy of Financial Crises: Understanding Their Causes and Consequences

Thu, 06 Dec 2007 15:09:54 EST

Crises have been a feature of the financial landscape for hundreds of years. They often appear with little warning, as the sub-prime mortgage crisis of 2007 and the Asian crisis of 1997-1998 illustrate. It's not always clear what causes crises, whether they can be avoided and how their impact can be reduced. A recent book, titled Understanding Financial Crises (Oxford University Press), by Wharton finance professor Franklin Allen and Douglas Gale, a professor of economics at New York University, tackles this subject from a number of different angles. The authors review the history of financial crises in addition to offering their own approach to examining the underlying causes. Allen and Gale also discuss asset price volatility, the interaction between banks and markets, bubbles and financial contagion, among other topics. Knowledge@Wharton offers an excerpt from the book.

'Whose Company Is It?' New Insights into the Debate over Shareholders vs. Stakeholders

Wed, 17 Oct 2007 15:24:43 EST

It is perhaps the core question in the ongoing debate over corporate governance: Does the corporation exist for the benefit of shareholders, or does it have other, equally important stakeholders, such as employees, customers and suppliers? A new study by Wharton finance professor Franklin Allen and two colleagues does not claim to provide a definitive answer, but it does show the various benefits of the stakeholder approach. It also demonstrates that the issue is not as settled as some researchers and business people in the United States, United Kingdom and other shareholder-oriented nations might think.

What's Ahead for 2007? Knowledge@Wharton Network Surveys the Globe

Wed, 13 Dec 2006 16:02:13 EST

On the financial front, 2006 has been a pretty good year all around. Stock markets in many countries have rallied, energy prices have fallen, inflation is relatively low and growth in GDP ranges from respectable to robust. But the economies of most countries also face a number of threats -- some predictable, some not -- that could derail recent gains in our increasingly connected global markets. What's ahead for 2007 in the U.S., India, Europe, Latin America, China and other parts of the world? We offer a roundup of reports from the Knowledge@Wharton Network, including India Knowledge@Wharton, Universia Knowledge@Wharton and China Knowledge@Wharton.

Japan's Own Brand of Corporate Governance: Shareholders Don't Rule

Wed, 29 Nov 2006 13:58:59 EST

As Japan, Inc. continues to restructure, enthusiasm for corporate governance reform is gaining ground. Japan is encouraging companies to add more shareholder-friendly elements, such as accounting and auditing practices. Some firms are also restructuring boards, appointing outsiders and paring down the number of directors. Even a few hostile takeover attempts -- long considered a business taboo in consensus-seeking Japan -- have erupted. Yet Japan still lags behind Western economies when it comes to respect for shareholder rights.

Japan: Optimism about Its Recovery, Concerns about Its Sustainability

Wed, 29 Nov 2006 13:58:54 EST

It was a tiny increase, from zero to just 0.25%, but when the Bank of Japan raised interest rates this summer for the first time in six years, the little bump heralded the end of 15 years of a deflationary spiral and painful economic restructuring that has forever altered the Japanese way of life. Japan seems to be back on track economically, but Wharton faculty and analysts warn that the country may still hit some potholes down the road.

How Some Firms in India Succeed by Bypassing Entrenched Financial and Legal Systems

Wed, 01 Nov 2006 15:04:42 EST

In India, regulatory protections for investors are weak, banks don't lend much money to small- and medium-size businesses, and the country's legal system is highly corrupt. Yet when it comes to economic growth, India seems to be doing everything right. How can this be? According to a new study by professors at Wharton and three other business schools, owners of small- and medium-size firms have found ways to finance growth and settle legal disputes outside the system.

'A Crucible of Competition': The Emerging Chinese Company

Mon, 16 Oct 2006 22:17:23 EST

Despite the hurdles they face in entering the global market, companies emerging from the highly fragmented and competitive domestic market in China will have distinct advantages that many Western competitors are unprepared to deal with, according to experts from Wharton and Boston Consulting Group. Among them: steep cost savings in wages and safety requirements, and a widespread lack of concern or clear regulation regarding intellectual property protection.

LSE, NYSE, OMX, Nasdaq, Euronext ... Why Stock Exchanges Are Scrambling to Consolidate

Wed, 22 Mar 2006 15:54:43 EST

The Nasdaq Stock Market's offer earlier this month to buy the London Stock Exchange is just the latest step in a long industry-wide evolution that includes consolidation, automation and conversion of privately held exchanges into public ones. Nasdaq is hardly alone in its attempt to expand. Its offer follows an unsuccessful bid for the London exchange by OMX, the Swedish Stock Exchange, in 2000. In recent years, LSE has also rejected bids by Euronext, Deutsche Boerse and Macquarie Bank of Australia. Wharton faculty examine Nasdaq's bid, other possible stock exchange combinations, and the changing role of institutional investors.

Japan: From Long, Slow Decline to Long, Slow Recovery

Wed, 01 Mar 2006 17:06:37 EST

After 15 years of stagnation and decline following the spectacular collapse of its 1980s bubble economy, Japan is finally showing signs of a recovery. The Nikkei index is trading at five-year highs. Real estate prices are rebounding. Deflation appears to be under control and interest rates, effectively at zero for more than five years, may soon begin to rise. Although there have been false starts in the past, much of today's optimism stems from the September reelection of Prime Minister Junichiro Koizumi, who ran on a platform of economic reforms, including new discipline for the banking system and a proposal to privatize the country's postal savings system. These reforms are crucial to reviving the world's second-largest economy, according to Wharton faculty. And while the pace of change seems glacial by American business standards, the recovery may have come at the right speed for Japan.

How Two Young Japanese Internet Companies Are Shaking Up Corporate Governance in Japan

Wed, 08 Feb 2006 16:48:35 EST

Two upstart Internet companies that each waged hostile takeover bids for much larger established media companies may have permanently jolted Japan, Inc. into a new era of shareholder activism. The takeover wars -- launched by Livedoor Co. for Nippon Broadcasting System and its partner, Fuji TV, followed by Rakuten Inc.'s pursuit of Tokyo Broadcasting System -- were the hottest topics in Tokyo business news this year. In the end, both challengers enjoyed only limited success, but Livedoor and Rakuten will have a long-term impact on the corporate structure of Japan by emboldening other shareholders to take a more active role in corporate governance, according to Wharton faculty.

One Road to Japan's Recovery Lies through China

Wed, 01 Mar 2006 17:06:55 EST

In Southern China's Pearl River delta, Japanese manufacturers Kyocera Corp. and Konica Minolta Holdings are building high-tech optical products. In plants stretching across China, Japan's Matsushita Electric Industrial Co. has 60,000 employees making everything from batteries to microwave ovens to semiconductors. And Toyota Motor Corp., Japan's premiere industrial company, just selected China for the first overseas production of its hot-selling hybrid Prius. Increasing production and investment in China's booming economy are keys to Japan's recent financial turnaround after 15 years of recession and sputtering recoveries that eventually died out.

European Disunion: Citizens' Fears over Globalization and Jobs Divide the EU

Wed, 16 Nov 2005 16:31:00 EST

When citizens of France and the Netherlands voted last spring to reject a proposed treaty establishing a constitution for the European Union, many commentators fretted about whether the votes would derail the 50-year-old process of European political and economic integration. Nearly six months after the referendums, experts say the votes have indeed brought the formal integration process to something of a standstill. But they say that may not be a bad outcome. For once, voters, who rarely have a chance to participate in any kind of EU decision-making, were asked what they thought -- about the direction the EU is moving in and, closer to home, about EU policies that directly affect their jobs.

New Fed Head Bernanke: Inflation Is Key

Mon, 21 Nov 2005 14:54:32 EST

Ben S. Bernanke is a superb choice to replace Alan Greenspan as chairman of the Federal Reserve, but he will have to demonstrate to financial markets that he is as much an anti-inflation hawk as his predecessor, according to Wharton finance professors and private-sector economists. These observers also say that Bernanke will speak more plainly in explaining Fed actions than Greenspan, whose cryptic, oracular comments became his trademark. Finally, Bernanke is likely to establish and publicly disclose the Fed's specific target, or target range, for the inflation rate -- a policy that Greenspan eschewed but one that is becoming more common among central bankers worldwide.

What's Behind BoA's Bold Move into China?

Wed, 13 Jul 2005 15:36:49 EST

Bank of America's recent announcement that it will pay $3 billion to own 9% of state-owned China Construction Bank, China's second-largest commercial bank, has raised a number of questions about the riskiness of such a move. Wharton faculty members and others who follow China say BoA's purchase gives it a foothold in a country with a Wild West business culture -- where the potential for both profitability and missteps exists in equal measure.

In the Wake of the Latest 'No' Votes, Will Economic Growth in Europe Be a Go?

Wed, 29 Jun 2005 16:12:24 EST

The reasons why voters in France and the Netherlands rejected the European Constitution a few weeks ago were many. But two overarching themes of the referendums were discontent and fear: discontent with politicians' inability to revitalize the lagging economies of many EU countries, and fear of what the future may hold for people accustomed to secure jobs and generous benefits. Scholars at Wharton and at universities in Europe say that the 25-member EU must institute free-market, Anglo-Saxon-style reforms to reinvigorate the economies; in particular, they point to labor laws that make it difficult to hire and fire people. But some also say that Europe can achieve higher growth rates without completely abandoning the social welfare policies that have been in place since World War II.

What's Hot? Stocks Are Not

Wed, 25 Aug 2004 22:18:02 EST

Corporate profits have rebounded handsomely this year, with the typical Standard & Poor’s 500 company reporting earnings gains exceeding 20% for the first half. Why, then, is the stock market in the doldrums? From Dec. 31 through July 27, the S&P 500 was down about 2%, while the Dow Jones Industrial Average was off 4% and the Nasdaq Composite was down 7.6%.

The Buzz on Google's IPO

Wed, 19 May 2004 14:34:20 EST

By any measure, there is much to admire about Google - its business model, its laser-like customer-focus, its ability to generate revenues and profit. And yet, with the company’s recently announced plans to go public, Google-watchers also see some formidable obstacles ahead, such as increased competitive challenges from Microsoft, Yahoo! and others. Even the act of going public, observers say, is not without possible drawbacks: a relinquishment of some managerial control, for example, and the need to devise ways to generate more revenue without alienating legions of loyal users. In short, the hottest show in Silicon Valley is ready to roll, and its long-term future is anybody’s guess.

How Much Can Investors Rely on Sovereign Credit Ratings?

Thu, 22 Jan 2004 11:17:39 EST

Are sovereign credit ratings – those indicators that can encourage, or discourage, international investments in emerging markets – in danger of becoming cheapened? If so, what does this say about the state of credit rating agencies and what are the implications for investors at home who want to buy assets abroad? Knowledge@Wharton looks at how rating agencies have fared recently in such countries as

Russia

Mexico

Argentina

and

Uruguay

Does China Pose an Economic Threat to the United States?

Wed, 17 Dec 2003 14:49:23 EST

It would appear so, given the rhetoric in recent months by American politicians and some business people, who have complained about the loss of U.S. jobs to China, unfair Chinese trade practices and a Chinese foreign currency policy that favors Chinese exporters who flood world markets with cheap goods. But faculty members at Wharton and other business schools say the complaints are politically motivated and ignore the true victims of any trade war – the consumers.

Banking on Breadth: Why CEOs Value Cross-Functional Perspectives

Wed, 22 Oct 2003 13:48:09 EST

Managers traditionally have built their careers by concentrating on specific disciplines such as finance or marketing. Such specialization, however, pales in comparison to the value that executives can generate when they fuse together insights from various fields into a cohesive whole. That was the message that the heads of three companies -- ARAMARK, Commerce Bancorp and Contigroup Companies -- delivered when they spoke recently at Wharton.

The Euro's March to ... Where?

Wed, 24 Sep 2003 00:00:00 EST

Viewed in isolation, the recent decision by Swedish voters to reject adoption of the euro as their currency could be judged a small matter. It was one vote in one moment in time by one country with a relatively small economy, and its outcome was not unexpected. Still, the vote has reverberated throughout Europe because it says a lot about the ongoing tensions in the continent�s decades-long, often wrenching, march toward integration. According to experts at Wharton and at universities in Europe, the vote says as much about politics as economics.

Mutual Fund Scandals: Once Again, Individual Investors Are the Losers

Wed, 24 Sep 2003 00:00:00 EST

Recent revelations about late trading and market timing in mutual funds at Bank of America and other fund complexes come on the heels of earlier incidents involving sales incentives for brokers to push in-house funds and some companies� failure to credit investors with volume discounts on fees. Is the mutual fund industry going to become mired in the kind of scandal that has afflicted so many public companies over the past few years?

The Economic News is Good, Unless You're Looking for a Job

Wed, 10 Sep 2003 00:00:00 EST

The U.S. stock market has jumped and the economy shows signs of perking up, but Americans continue to lose jobs. Indeed, some economists warn that that many of the nearly three million jobs lost over the past three years are gone for good. What�s in store for the next three months and for 2004? While most economists and market watchers are somewhat optimistic, others suggest that the recovery won�t last.

What's Behind the Bond Market Turmoil?

Wed, 30 Jul 2003 00:00:00 EST

Summer is supposed to be an easygoing time, but since vacation season got underway in June the bond market has been anything but laid back. Investors have grappled with steep declines in bond prices, sharply higher interest rates and confusion over the U.S. Federal Reserve's policy. Wharton finance professors and other experts say, however, that it is important to put these developments in perspective. In the months to come, they explain, interest rates will rise, especially if the economy continues to improve.

The Dollar's Weakness Is a Strength

Wed, 04 Jun 2003 00:00:00 EST

The decline of the dollar is getting everybody�s attention these days. Members of Wharton�s finance department and an economist at a U.S. financial institution say the dollar�s decline against some of the world�s major currencies will have far-reaching economic and political effects for many months to come, particularly in America and Europe. Indeed, the chain of events that the dollar�s movement has set in motion may have a lot to do with the outcome of the U.S. presidential election in 2004.

Europe�s Budget Battles Argue for a Kinder, Gentler Fiscal Pact

Wed, 26 Mar 2003 00:00:00 EST

The euro�s recent rise against the dollar disguises deepening strains in the fiscal foundations of the single European currency. Its revival, after all, is due more to the weakness of the dollar and market jitters about the war in Iraq than to any improvement in the economic prospects of eurozone countries. Germany reported just 0.5% growth in gross domestic product for 2002 while France recorded an anemic 1.7%. Both countries have exceeded the eurozone�s budget deficit limit of 3% of GDP, raising serious questions about the viability of the fiscal rules during times of economic hardship.

U.S.: A Drawn-Out Conflict Will Pound the Economy, Prolong the Slump

Wed, 26 Mar 2003 00:00:00 EST

Initial expectations that the war in Iraq would end quickly drove U.S. stocks up by more than 8% and sparked hopes that the three-year bear market was over. But after a weekend of discouraging news, U.S. stocks have plunged and the dollar had its biggest drop against the euro in eight months. Wharton professor Jeremy Siegel predicts that if the war ends in three or four weeks, as the markets seem to expect it will, stocks could go up by 10%. If not, watch out for more economic troubles, predict Siegel and other Wharton professors.

How Bush Can Avoid an Economic Meltdown

Wed, 20 Nov 2002 00:00:00 EST

The economy may not be recovering as strongly as some would like. But it is healthy enough at the moment that there is no need for the Bush administration to accelerate existing tax cuts or push for new cuts to stimulate economic activity, according to professors of finance and public policy at Wharton. They also say that the reemergence of federal budget deficits is reason enough to forego thinking about tax cuts.

Accounting in the U.S. and Europe: Arrogance, Angst and Ideas for Reform

Wed, 23 Oct 2002 00:00:00 EST

Following the business scandals of the past year, the initial focus of reform has been on accounting and auditing practices. But going forward, reform will branch out beyond technical rule-making to confront deeper notions about corporate governance in the United States and abroad, according to participants in a panel entitled �What Rules, Who Enforces? Accounting Standards and Auditing Practice.�

EU Expansion Moves Closer to Reality

Wed, 09 Oct 2002 00:00:00 EST

Now that the Irish have voted their approval, the enlargement of the European Union looks more and more likely. This means that by 2004, another 10 countries, most of them former communist nations in Eastern Europe, will probably join the 15 countries already on board. But Wharton faculty and other experts note that the process won�t be completed until concerns about financing, subsidies and the balance of political power, among other issues, get ironed out.

Foreign Investors: Heading for the Exit?

Wed, 28 Aug 2002 00:00:00 EST

After a year in which the nation�s financial center was attacked by terrorists, equity markets continued a two-year slump and U.S. corporate integrity imploded, foreign investors have grown jittery about U.S. markets. So far, however, there is no cause for panic, suggest some experts, provided there are no sudden shocks, such as a war with Iraq or a financial crisis in Japan.

Looking for Evidence of Accounting Chicanery? Try Digging Deeper

Wed, 22 May 2002 00:00:00 EST

When Enron collapsed last year amidst allegations of misleading financial statements, it joined a long list of companies that had originally been given clean bills of health by auditors and analysts, only to have that information later discredited. Yet according to analyst and author Howard Schilit, businesses were, in fact, broadcasting their misdeeds long before corporate watchdogs caught on. The problem is that nobody was looking in the right places.

The Changing Role of the CFO

Wed, 08 May 2002 00:00:00 EST

Following high-profile meltdowns at places like Global Crossing, Tyco International and Enron Corp., companies these days are revisiting what they expect of their CFOs. Since nobody wants their top management team to be the subject of news stories or SEC investigations, a strong emphasis on ethics is key to the job. But that�s only the beginning.

�Informal� Entrepreneurship Is the Key to China�s Success

Wed, 08 May 2002 00:00:00 EST

Business scholars in recent years have argued that sound legal and financial systems are vital to economic growth. China lacks both, but the country's economy is growing like gangbusters � averaging 8.35% expansion for most of the 1990s. This seeming paradox was one of the subjects discussed at a recent conference on �The Future of Chinese Management� held at the Wharton West campus in San Francisco.

Enron�s Board Gives Black Eye to Efforts Aimed at Improving Corporate Governance

Wed, 13 Feb 2002 00:00:00 EST

The spectacular failure of the Enron board to question company management about activities that could, and did, harm the company, will have an impact on more than just the shareholders, employees and creditors, say several Wharton faculty members and a former CEO. Such behavior casts a pall on efforts by other American firms to establish boards that are independent, assertive and willing to ask the tough questions.

The New Business Reality

Wed, 30 Jan 2002 00:00:00 EST

ideas about what effect those events would have on business and the economy. It was clear, however, that even before the attacks, major changes were underway that would alter the business landscape. To help understand these changes, Wharton�s Aresty Institute of Executive Education held a three-day symposium in December called Wharton on the New Business Reality: Scenarios and Strategies for the Future. Knowledge@Wharton covered the symposium.

What�s in Store for the Capital Markets and the Economy?

Wed, 26 Sep 2001 00:00:00 EST

In the two weeks since the terrorist attacks on the World Trade Center and the Pentagon on Sept. 11, stocks have been see-sawing on Wall Street, alternately plunging and rebounding day after day. Does that mean that stocks have hit the bottom? Or could they fall further? Wharton professors and industry experts say that economic uncertainty will continue even as some investors are starting to beef up their stock portfolios.

Buy, Hold or Sell: Do Conflicts of Interest Mar Analysts� Stock Recommendations?

Wed, 05 Jul 2000 14:31:18 EST

Three months ago shares of online bookseller Amazon.com were trading above $70, and a survey of Wall Street stock analysts found that most recommended buying the stock. Since then, Amazon shares have fallen to around $35, but analysts are still bullish--hardly any analyst has a �sell� recommendation. What�s going on? A growing body of research at several business schools has been examining why many analysts prefer making buy or hold recommendations on stocks. In some cases, at least, analysts� recommendations may be biased by considerations that could well represent a conflict of interest.

The Value of Financial Intermediaries

Mon, 24 May 1999 16:57:58 EST

While online brokers and electronic banking lure customers with the promise of low fees and quick access, Franklin Allen of the Wharton School at the University of Pennsylvania and Douglas Gale of New York University believe there will always be a role for companies to play as financial intermediaries who provide value to consumers. Over the long term, both the institution and the customer gain from the relationship.