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Common Accounting Standards Deliver Better Valuations

Fri, 28 Nov 2008 00:00:00 GMT

Pricing models, an important tool in asset allocation worldwide, perform poorly at an international level compared to domestic versions. However, if the accounting information used followed the same system across borders, could this underperformance be reversed? Professors Javier Gómez Biscarri of IESE and Germán López Espinosa of the University of Navarra test this question on a well-known pricing model. Their answers are reassuring.

Société Générale´s Costly Trade

Wed, 12 Nov 2008 00:00:00 GMT

Strong internal controls are expected in companies of high risk, such as investment banking. The staggering 4.9 billion euro loss of Société Générale, supposedly at the hands of a rogue trader, is one of the most incredulous recent cases. How could managers not know of their own trader's positions or methods? IESE Prof. Alberto Ribera examines questions of complicity, corporate culture and risk management in this extraordinary case that rocked the banking world.

Behind the Crisis: "The Days of Big Bonuses Are Over"

Wed, 12 Nov 2008 00:00:00 GMT

What is behind the current global financial crisis? IESE Prof. Pascual Berrone points the finger at bad corporate governance practices. Accepted incentive schemes for top managers - such as golden parachutes that effectively reward failure, and stock options that led to excessive risk-taking in subprime mortgage securities - may be the ultimate culprit of the crisis.

Manager´s Background Improves Control System Performance

Mon, 03 Nov 2008 00:00:00 GMT

Companies adopt management control systems, not just, as you may think, for the value they add, but for a range of rather different reasons. IESE Prof. Antonio Dávila and Stanford Prof. George Foster look at why companies adopt MCSs in product development. They find systems are adopted earlier if there is a fit with a manager's particular experience. Moreover, companies where MCSs are driven by the manager's background deliver better performance.

Can Social Criteria Trim Fat-Cat Pay?

Tue, 09 Sep 2008 00:00:00 GMT

Despite constant moans and threats to clamp down on "fat cat" pay packages, hefty compensation for CEOs appears to be business as usual. Amidst calls to overhaul executive pay schemes, IESE Prof. Pascual Berrone looks at the latest idea proposed: to rate social performance as part of a new model to incentivize executives "intelligently."

Corporate Governance Across Continents

Fri, 13 Jun 2008 00:00:00 GMT

An unprecedented spate of corporate scandals marked the start of this millennium, but the upside was that it spawned new corporate governance codes in many countries and organizations. In their paper "Review of Selected Generally Accepted Corporate Governance Codes," Przemyslaw Koblut, Josep Tàpies and Rafael Fraguas look at the essential ingredients of the approaches taken in Germany, Italy, Spain, the United Kingdom and the United States. They compare the four European countries on various important aspects of corporate governance, including the mission and functions of boards of directors and how board members should be evaluated and remunerated.

How To Determine Logical Executive Compensation?

Tue, 10 Jun 2008 00:00:00 GMT

Who, what, where and why? These are all questions that arise from the complex subject of executive compensation, and the individual questions do not exist in a vacuum. Rather, each element that determines executive compensation, such as the type of company and the country where it is located, affects every other element involved. The "gold standard" of executive compensation for many years has been the alignment of pay with shareholder value; however, researchers are beginning to conclude that shareholder value should perhaps not be the be-all and end-all of executive compensation schemes. But with so many competing factors, how should executive compensation be determined? Authors Pascual Berrone, Jordan Otten and Luis R. Gómez-Mejía provide a global perspective on executive compensation and propose possible changes to the dominant view.

Financial Reporting Should Include Customer Equity

Thu, 29 May 2008 00:00:00 GMT

The basic financial statements - P&Ls and balance sheets - are not enough to help investors clearly understand a company's capability to generate value. The paper "Customer Equity: An Integral Part of Financial Reporting" recommends that companies start reporting "forward-looking customer metrics" by providing the value of their customer base and how it changes over time. This is especially important for companies whose customers are their main assets. As an example of why this is important and how it works, authors Thorsten Wiesel, Bernd Skiera and Julián Villanueva apply their model to the online movie rental service Netflix.

Profiting from Prediction Bias

Fri, 01 Feb 2008 00:00:00 GMT

Financial forecasts play an important role in investment decisions, not only through shaping investors' views on a company's future prospects, but also by directly influencing share prices via earnings guidance. While nobody expects all forecasts to be perfectly accurate, could we learn more from paying closer attention to how and why they go wrong? Christopher S. Armstrong, George Foster, John R. M. Hand and IESE's Antonio Dávila review financial forecasts from a range of private firms, to identify predictable patterns and gain insight into motivations leading these discrepancies. Findings reveal that firms overstate expected profits in all time horizons, but accomplish this in different ways during one- and five-year projections, to strategically serve their best interests at each stage.

Most Likely To Succeed: Systems Help Start-ups Grow

Wed, 12 Dec 2007 00:00:00 GMT

As early-stage start-ups teeter onto the business stage, they often take an informal approach to management. Yet, as they blossom and grow (all the while reporting results to anxious venture capitalists), many reach for management control systems, which are structured procedures and operations in all areas of the business, including finance, human resources, marketing, sales and product development. The paper "Management Control Systems in Early-Stage Start-up Companies" by Antonio Dávila and George Foster looks at how and when management control systems are adopted and why they can help spark a growth spurt. The paper also spotlights the CEO: Can a start-up's creative founder acquire a manager's mindset?