Archive for the 'Research' Category

Whose Perspective Does Management School Research Take?

Management schools and departments spend a significant part of their resources on research conducted by their faculty and doctoral students. Published research is an important, sometimes dominant, criterion for evaluation of faculty for promotion and tenure. Organizations whose management is the subject of study in business schools are social entities in which many people participate for their own respective motives. In management research, the attention paid to the interests and perspectives of various classes of participants varies considerably. Shareholders and managers appear to get the lions share of this attention, with the interests of other employees, customers, vendors, government and the community receiving less attention in research literature. Continue reading ‘Whose Perspective Does Management School Research Take?’

Why I Refuse to Rank Scholarly Journals

I was recently asked to submit my ranking of a journal in my field of research to a panel of deans who had been tasked by their association to decide which journals belong to various categories on the basis of research published in them. I wrote to them to explain why I am reluctant to do so.
I hope you will forgive me for this unsolicited submission and my attempt to suggest that, on balance, ranking of academic journals, when used for the purpose of evaluating scholarly contributions of individual members of faculty, does more harm than good. Research is about ideas, innovation, and discourse. Not surprisingly, it calls for constant questioning of what we are doing, and why. By the time some line of work acquires the status of orthodoxy on the basis of method, theory or perspective, it is hardly worth doing any more. Most of what is done for the purpose of promotion and tenure is not worth doing, and the world might as well be better off if the resources were devoted to teaching and other endeavors. For this reason, I think that continual injection of new experimental journals into any discipline is an essential feature of keeping it alive as a scholarly field. Continue reading ‘Why I Refuse to Rank Scholarly Journals’

Improving Financial Reporting

Balancing statutory and common law approaches

At least since the introduction of federal securities laws in the U.S. some eighty years ago, attempts to regulation financial reporting have become increasingly focused on writing down the rules of accounting in ever-increasing detail. This codification or statutory approach to accounting regulation has marginalized the earlier dominance of a “common law” approach to accounting in which managers, accountants, and auditors used their best judgments to decide what to report, and how to report it. “True-and-fair” was the accounting equivalent of the “guilty-beyond-reasonable-doubt” standard still used by lay juries in courts of law to make life-and-death decisions. In pursuit of faux objectivity, accounting regulators around the world, including the U.S. and the European Union, have strayed after being persuaded that writing thousands of pages of rules by bureaucracies with monopoly power will serve us better. Nothing could be farther from the truth. Continue reading ‘Improving Financial Reporting’

Academic Research as Unfiltered Water

Contents of our research journals are like unfiltered water. Decision and policy makers should stand forewarned before they use the contents of academic journals to guide them in their work. Fortunately, most of them maintain a healthy skeptical attitude to our findings and prescriptions until they have more evidence on their efficacy.

This is not to minimize the labor of editors and referees who spend months scrutinizing scholarly work for shortcomings before allowing it to be published in journals. This work may be necessary but rarely sufficient to prepare new ideas and research findings to be put to actual use. The editorial process is already quite arduous, and making it  longer will add more delay before new ideas can be disseminated for broader discussion and evaluation.

Scholarly scrutiny is based on scholarly knowledge with its own limitations. There is much about the world that even the most knowledgeable person does not know. Full consequences of most, if not all, research reports cannot be known until they go through a much longer process of filtration at multiple levels. This can take years, even decades. Only a small fraction of new ideas survive this lengthy scrutiny and experience through trials in the field. When they do, we have greater confidence that the results of putting them into practice have a lower chance of yielding a surprise.

Research findings published in academic journals rarely have had the opportunity to be filtered by experience, robustness, and common sense. Researchers, public relations offices of universities and corporations, as well as the mass media have all the incentives to pronounce on the practical implications of new findings from academic research way before these findings are ready for the prime time. It is only an aggressive decision maker who jumps at such announcements without allowing for the fact that research journals are forums for proposing new ideas that show some initial promise; some good ideas are mixed in with a lot of bad ones in this offering. Temptation to get a jump on the competition, being photographed for the newspapers and testifying in Congress is high for those willing to take the risk of being proved wrong.

The recent brouhaha about the Reinhard and Rogoff research paper is hardly a unique example. Computational errors are not that uncommon. But given time, they have a better chance of being caught and rectified before they do much damage. The story may be remembered more for the consequences of the alacrity in incorporating unfiltered academic research into public policy.

John Wilson Dickhaut (1942-2010)

I first met John Dickhaut in January 1973, when I interviewed at the University of Chicago’s Graduate School of Business as a rookie faculty candidate. I noticed his unusual combination of simultaneous playfulness and intensity. Later that fall when I joined him as a colleague, he was going through a difficult personal phase. That unusual combination kept showing up often in conversations—his light-hearted comments had a serious undercurrent, and his serious remarks covered the ideas he was have fun playing with and turning over and over in his head. I once asked him about his intensity, and he told me about his training in method acting when he hurt someone with a knife on the stage, and fortunately for us all, turned from stage to scholarship.

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Paradox of Writing Clear Rules: Interplay of Financial Reporting Standards and Engineering

Attempts to improve financial reporting by adding clarity to its rules and standards through issuance of interpretations and guidance also serve to furnish a better roadmap for evasion through financial engineering. Thus, paradoxically, regulation of financial reporting becomes a victim of its own pursuit of clarity. The interplay between rules written to govern preparation and auditing of financial reports on one hand, and financial engineering of securities to manage the appearance of financial reports on the other, played a significant role in the financial crisis of the recent years. Fundamental rethinking about excessive dependence of financial reporting on written rules (to the exclusion of general acceptance and social norms) may be necessary to preserve the integrity of financial reporting in its losing struggle with financial engineering.

Continue reading ‘Paradox of Writing Clear Rules: Interplay of Financial Reporting Standards and Engineering’

Financial Reporting and Financial Engineering

Let me comment first on the relationship between financial reporting and financial engineering, and then on government accounting.

For over seven decades we have worked on the assumption that writing accounting standards improves financial reporting, ignoring financial engineers who make a living out of finding ways around the written accounting standards. It may take them less than three hours to find a way around a standard that may have taken three years for standard setters to prepare. Standards affect only those who are willing to comply with them. This interplay between financial reporting and financial engineering was a fundamental issue in the creation of the financial crisis. For example, much of the securitization of sub-prime mortgages was motivated by desire to get debt off the balance sheet. Continue reading ‘Financial Reporting and Financial Engineering’

Truth by Fiat: Its Accountants’ Turn

In 1897, Indiana General Assembly was persuaded to consider Bill #246 which provided a method for squaring the circle by ruler and compass (millenniums after unsuccessful search, and 15 years after Lindemann proved it to be mathematically impossible), and effectively declaring the value of pi to be rather convenient 3.2. A physician almost succeeded in getting this bill passed by arguing that the state could collect royalties from those who may use this discovery, and was stopped only by arguments of a real mathematician who just happened to be present.

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Who Do the Accounting Standards Boards Serve?

I was asked to venture out of my ivory tower to attend a user-preparer roundtable as an invited guest in NY yesterday on the subject of insurance contract accounting proposals issued by FASB and IASB–two boards that write accounting rules in US and internationally. Some 90 people, including CFOs of major insurance firms, analysts, and institutional investors attended. A report on the proceedings by one of the attendees this morning is appended below after my own observations and reactions.

Continue reading ‘Who Do the Accounting Standards Boards Serve?’

Higher Education Reforms in India

The number of institutions and enrollment in higher education continue their rapid growth, but the quality of this education remains uncertain. A small number of state-subsidized institutions attract a thin top layer of talent from each year’s cohort. High selectivity of admission to these elite institutions provides a screen valued by potential employers. Domestic and foreign demand for the services of these few thousand students has created an inflated reputation of the overall quality of India’s higher education. The number of such graduates remains small relative to the population and the demands of India’s economy for educated manpower. Reliable estimates of value-added by higher education, beyond the screening value of admission to elite institutions, are needed to assess colleges and universities, and to guide educational policy.

Graduate education – the seed farm of higher education and scholarship – continues in an alarming state of disarray with respect to both quality and quantity. Pressed by budgetary constraints, the government appears to have decided on profit-oriented privatization of higher education as the solution. Political and business classes, with significant overlap between the two, see higher education as a source of lucrative private returns on investment. There is little theoretical or empirical evidence that supports the prospects of success of a for-profit model in building quality higher education. Some recent proposals hold promise of radical reform and renovation, including regulatory restructuring. It remains unclear whether the government has the wisdom, determination, financing, and power to push reforms past the resistance from entrenched faculty and from the political and business classes.

This is an abstract of a longer paper available for download:

Sunder, Shyam , Higher Education Reforms in India (June 28, 2010). Yale SOM Working Paper. Available at SSRN: http://ssrn.com/abstract=1652277