As most people know the role of a university academic is to teach, research and undertake such administration as is required. I am a prolific, if not necessarily very good, researcher, and details of my research can be found here (link to SSRN working papers) and here for published papers.
Getting a paper published is always a pleasant experience no matter how often one hits the mark. Different academics have different approaches: the very best in the field, people like Rene Stulz publish lots and in very high quality journals. I tend to publish lots but in lower quality but still decent journals. Still, its output…far too many academics never seem to bother an editor (of which I am one) with any papers. Being active in research is a prerequisite for being a good academic, even if your focus is on teaching. If one is not engaged in scoping out the boundaries of ones field then it is hard to see how one can deliver the latest and synthesise the findings of others in ones teaching. A good summary as of the middle of last year on business research in Ireland is to be found in this paper by the ESRI which frankly makes grim reading with 50% of Irish business academics never having published a paper.
Research is a habit and the more writing one does the more one makes connections between areas. Writing a paper is a prerequisite for having it published. So, I write a lot. And some of that gets published. Some of that is even decent research…
So, some recent output and why you might care.
With a MSc graduate of last years MSc in Finance, Yulia Plaksina, in collaboration with Micheal Dowling of DCU, a paper is coming out in a new journal. The journal is Qualitative Research in Financial Markets. I would hazard a guess that 99% of finance research/researchers is quantitative, but of course it is both a business function and a human activity. A great thing about working in a business school (there has to be at least one upside…) is that one is forced to interact with people who have radically different methodological approaches. And that is good, as to be honest there are many issues in finance that perhaps are not amenable to a strictly numeric approach. This paper (which will be greatly extended into an international setting as Yulia is planning a PhD in the area) is strictly speaking a mixed methods approach. The abstract states
“Using a sample of CEOs of FTSE companies during a ten-year period from 2001 to 2010, we develop CEO social status measures and test against levels of merger and acquisition activities. We distinguish between ascribed (inherited) and achieved social status, and find a significant influence between both measures of CEO social status and the likelihood of engaging in mergers and acquisitions. Proxies of ascribed social status are employed based on the level of prestige of secondary schools and universities attended by the CEO. The analysis of achieved social status involves measures based on UK Honours and Britain’s Most Admired Companies awards. The empirical results provide strong evidence of a negative relationship between CEO ascribed and achieved social status and his or her acquisitiveness. However, the influence of achieved status appears to be more consistent and significant than that of the ascribed status, indicating its dominant role in determining overall attained status.”
So we find that social status is measurable, at least to some extent, and that it matters, to some extent. The paper is not earthshattering, but it marks the first time as far as we can tell that the anthropological and managerial research on social status has been formally inserted into a standard finance question (why do some companies engage in more coroporate control activities than others). Bringing in some other areas is always difficult. In another paper (below) a presentation was derailed due to some economists simply refusing to accept that papers and research ideas in international business were in any way valid. A closed mind catches no ideas….
A different paper, entirely quantitative, has been published in the journal Research in International Business and Finance that I edit. Normally editors don’t so do, with good reason, as the integrity of the peer review process is important. In this case however the paper had gone through several rounds of revision for a different journal, and then…silence. After a year of waiting in silence and despite numerous requests for an update (during which time I had taken up this editorial post) I decided with the coauthor to pull it from the other journal and print. The paper takes a “stochastic discount factor” approach and finds that in the Asia Pacific region anyhow being members of a formal economic bloc does not seem to have much impact on the degree to which equity markets are (were then anyhow) integrated with each other. This is similar to findings for the EU in another paper of mine where we found that it was only when political capital was thrown behind economic integration that markets really began to integrate.
Another recent paper that tries to take a slightly different take on things is this, on the role of national culture in portfolio investment. The essence of the issue is that while we might expect countries that are far from each other to trade less than ones that are close, trade in physical goods, why would mere distance be a deterrent to financial transactions? That it is is a finding common to many papers. We show that distance tends to be a (fairly inaccurate) proxy for cultural distance. There is a massive and extremely well regarded literature on comparative culture in the international management and international business literature. Several proxies for national culture have been proposed and refined in that field. Of course, its impossible to reduce the national culture of any state to a single set of numbers, but surprisingly decent proxies do exist. And of course, we are more comfortable dealing with people ‘like us’. The abstract states
“Using panel regression estimates from the IMF’s CPIS survey of foreign debt and equity portfolios across 174 originating and 50 destination countries from 2001 to 2007, we clarify the role of culture and extend the set of cultural variables that have been investigated in gravity (distance) models of foreign portfolio investment (FPI). Incorporating Hofstede’s cultural dimensions of individualism, masculinity, power distance and uncertainty avoidance, we show how cultural traits in both originating and destination countries, as well as the cultural distances that separate them, interact with geographic distance and other gravity (distance) variables to determine global FPI patterns. We find hitherto unreported effects and show that while gravity (distance) always deters FPI, aspects of culture and cultural distance can offset this by supporting FPI”
In other words, just looking at economic factors alone is not sufficient. There is a large and growing literature in finance on ‘soft’ factors, such as institutions, culture, law etc. What was surprising to me was the frank hostility that this area meets from some economists. The view seems to be that not only is it not possible to quantify / proxy /take a stab at the influence these cultural and societal factors may have on finance, it is folly. Worse, the hostility spreads to methodological and philosophical and disciplinary approaches that are not economics. It is all too common in the USA to attend papers that discuss an issue and make no reference to research outside the USA; it is sad to hear economists dismissing as inherently worthless research on a phenomenon carried out by non economists or published in non economic journals. Economics is first and foremost the study of the economy, which is populated by people. More study by and respect from economists of research in anthropology, sociology, psychology etc would only benefit social science as a whole
Finally, a paper that emerges from a long review process. This paper looks at irish SME’s from a survey approach, and finds (at the time) that younger firms (who will of course become the job creators) use a surprisingly high amount of debt. The abstract
This paper examines the financing of small and medium sized enterprises (SMEs hereafter) through a financial growth life cycle paradigm. Reporting the financing patterns of 299 Irish SMEs across six age categories, the relative importance of sources of debt and equity finance for each age category is revealed. Observed financing patterns incorporate elements of agency and pecking order theories, and emphasise the primary importance of internal equity in financing of the firm. Results suggest support for the financial growth life cycle, although contrary to conventional wisdom firms in the youngest age category report a relatively high use of debt finance. This may be explained by the provision of the personal assets of the firm owner to secure that debt.
So what we see here is that the traditional capital structure theory which we teach (or in my case, increasingly DONT) simply does not map to SME’s. The crucial role of family and friends and founders money is abundantly clear from the responses. and so too is the role of personal guarantees. Again, using a mixed approach (the survey also asked for qualitative responses) we find enormous richness in the data. Recall that this paper was based on 2006-7 data and rereading it one cannot but be filled with a sense of dread, knowing that many of the respondents with their personal guarantees for their business are now trapped in the victorian legislative structure of irish bankruptcy and thus unable to move forward.