Category: Finance

Standards deviations: U.S. financial accounting heads for change

The U.S. Securities and Exchange Commission is moving to replace existing rules-based accounting standards with principles-based, international ones in filing requirements. IFRS are the international equivalent to Generally Accepted Accounting Principles (GAAP), which are the standards and rules auditors follow when preparing financial statements in the United States. Since 2005, companies in the European Union have been adhering to IFRS, a circumstance that some feel puts U.S. markets at a disadvantage globally, says Philip Reckers, professor of accountancy at the W. P. Carey School of Business. Among changes to come: Auditors will require dramatic retraining; accounting firms face different legal liability issues; and investors will likely see more footnote disclosures in corporate financial statements.

Beleaguered Fannie Mae and Freddie Mac: Beacons of stability

President Bush has signed into law a housing package passed by Congress last week that authorizes the Treasury Department to spend federal funds to rescue Fannie Mae and Freddie Mac if necessary. In recent weeks, there’s been widespread concern that the mortgage giants, which own or guarantee about half of the nation’s mortgages, might be on the verge of collapse. Finance Professors Herbert Kaufman and Anthony Sanders at the W. P. Carey School of Business suggest a very different picture. Rather than faltering, Fannie Mae and Freddie Mac have actually been "beacons of stability" in the mortgage crisis that has roiled U.S. financial institutions of all stripes.

Different loans for different zones: Patterns in mortgage type distribution

A geographic mapping of subprime and Alt-A loans in the Phoenix metropolitan area has revealed some unexpected results: these risky mortgages are not scattered, but cluster in certain cities and neighborhoods. Subprime loans, for example, are heavily concentrated along the Interstate and on the periphery of the urban area, while the fashionable northeast sector of the city is home to a higher number of Alt-A loans. "Alt-A loans, which are low-documentation and no-documentation loans, are almost exclusively concentrated in Scottsdale," notes Anthony Sanders, a W. P. Carey professor of finance and real estate.

Who profits from IPO underpricing?

A firm going public relies on the capital raised in its initial public offering to grow and thrive, but studies have found that IPOs in the United States are underpriced an average of 15 percent. Conventional wisdom has held that the gap is inevitable given the risks in taking public a young company that often has little or no track record. But W. P. Carey management professor Robert E. Hoskisson and researchers from three other U.S. universities challenge this assumption in an exhaustive analysis of 300 IPOs from the 1990s. The researchers applied agency theory — a concept used to sort out the interests of owners and managers — and concluded that underpricing of IPOs occurs because it is in the interests of some of the key players.

Subprime discussion part five: Security transparency is a global concern

In Part 5 of our series on the subprime market, real estate finance Professor Anthony Sanders, Jeffrey Coles, chairman of the finance department at the W. P. Carey School of Business and Steven Davidson, vice president, capital market research, Securities Industry and Financial Markets Association (SIFMA), discuss the need for transparency to restore liquidity to securitized markets in the U.S. and across the globe. Davidson was a featured speaker at the recent Risk, Reward and Real Estate Conference, sponsored by the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.

Subprime discussion part four: Mortgage-backed securities and ambiguous financial instruments spread

In Part 4 of our series on the subprime market, real estate finance Professor Anthony Sanders, Jeffrey Coles, chairman of the finance department at the W. P. Carey School of Business and Steven Davidson, vice president, capital market research, for the Securities Industry and Financial Markets Association (SIFMA), describe mortgage-backed securities, which gave rise to ambiguous financial instruments like CDOs. "The securitization process has spread the opportunities, spread the risk and spread the pain," said Davidson, a featured speaker at the recent Risk, Reward and Real Estate Conference, sponsored by the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.