Research interests

The question I address in my papers on systematic risk (click on "Cap Markets" above) is this:

Does the lower bound of -100% on returns due to limited liability have an economically significant impact on equity beta as traditionally measured by OLS coefficients?

I have had much difficulty publishing my results in this area. A common argument against my line of reasoning is that bankruptcy is too rare to have much of an impact on beta. My counter-argument is that, yes, the aggregate default rate is too low for limited liability to have an appreciable impact on beta (around 2% over the next 12 months on average for 2,826 corporate bond issuers rated by Moody’s in 2003.) But the median default rate on one tenth of the companies rated by Moody’s (Caa and below) is around 15%, and that is sufficient to affect estimates of systematic risk in an important way. In addition CAPM anomalies are typically detected not for all companies in a sample, but in portfolios containing around one tenth of the sample.

I have also conducted research on optimal contracting (Rand Journal of Economics, 1993), and recently have worked on the development of cases and other materials to teach financial statement analysis and security valuation.

Abstracts and links to my research (both working papers and publications) can be found by clicking on the four buttons in the gray bar above.

List of publications

• “Accounting Quality vs Auditor Choice Under Strong Tax-GAAP Conformity: The Case of Brazil” (2007), Revista Contabilidade & Finanças da Universidade de São Paulo, 43 (Jan-Apr 2007), pp. 84-96.

• “Modern Financial Statement Analysis in a Post-Sarbannes-Oxley World” (2006), forthcoming in Strategic Finance; with Vidya Awasthi.

• “Wal-Mart Stores: A Case for Teaching Advanced Dupont Analysis” (2006), forthcoming in the Journal of the Academy of Business Education; with Vidya Awasthi.

• “Business Valuation Software: A Blueprint for Reliability” (2006), Business Valuation Review, 25 (1), pp. 4-17; with Sarah Bee.

• “Mortal Managers and Long Term Goals: An Impossibility Result” (1993), RAND Journal of Economics, 24 (3), pp. 313-327.