Category: Finance

European debt crisis puts pressure on the continent’s currency

For more than a year, the European Union has been in crisis over the huge debts faced by its weakest economies. Cutbacks in social programs and benefits have stirred unrest in those countries, as well as in better-off nations in the Eurozone. The specter of sovereign default looms across the continent. The way out of Europe’s volatile debt crisis is likely to involve painful belt-tightening, increased emergency aid, and eventually a restructuring of debt in the most troubled countries, according to finance experts at the W. P. Carey School of Business.

Bonus points: Setting targets for CFO compensation in times of crisis

The recession has caused all sorts of difficulties for CFOs: falling earnings, tumbling stock prices and, occasionally, knotty negotiations with lenders. For most of them, it has also brought tougher targets for earning their bonuses. Many companies, as part of their CFO bonus plans, adopted earnings targets of zero or just above zero during the recession, according to a study by Michal Matejka, an accounting professor at the W. P. Carey School of Business. Thus a CFO would have received no bonus if his firm reported a loss. An earnings target of zero sounds easy enough. But in a recession it can be difficult to achieve even that. So what is the best way for companies to provide incentives to their financial officers? 

Evidence from recession: The real reason companies hold cash

Finance scholars have long urged corporate managers to hold less cash and assume more debt. Too much cash, the argument went, could make executives lax, encouraging imprudent acquisitions and spendthrift expansions. Debt, in contrast, brought discipline: you don’t do dumb deals when you know you have to make regular interest payments. Rather than stockpiling cash, these thinkers argued, companies ought to be paying dividends. But research by W. P. Carey finance Professor Thomas Bates and co-authors suggests that managers — prudently — have not listened.

Analysis: Economic policy and the future of finance

While the world’s economy has been ailing for almost two years, signs are beginning to point to recovery. Here members of the W. P. Carey School’s finance faculty write about what’s ahead in their fields of expertise, how the rules might be changed and what needs to be done to restore the world’s economy to a healthy outlook.

Enough. Period.

John C. Bogle, founder of the Vanguard Mutual Fund Group and President of its Bogle Financial Markets Research Center, has been warning us for decades about the danger of short-term thinking and greed as motivator in the U.S. financial sector. In his new bestseller "Enough.," Bogle’s thesis is that our nation has been engaged in decades of unchecked financial excess, for which we are now suffering: excess in investment company fees; excess in financial speculation masquerading as diversification and innovation; excess in the salaries of top executives; excess in salesmanship; and most importantly, excess in the role played by the financial industry in our national economy and national life.

Swimming naked: Rethinking risk management after the crisis

Warren Buffet said: "When the economic tide goes out, you find out who is swimming naked." The financial upheaval of the last two years has revealed a number of inadequately clad investors. Just as every crisis prompts soul-searching about assumptions and standard procedures, banks and other financial institutions are taking a serious look now at how they measure, price and monitor risk in the capital markets.