Research Impact

The College’s faculty members conduct highly relevant research addressing important questions in management, finance and policy. The goal of this webpage is to present selected the College’s projects and share their significant results and findings with a broad audience.

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How Badly Run is Your Firm? The Impact of Key Governance Issues.

— Corporate governance rules are designed to ensure that firms are well run - that management decisions do not unjustly deprive certain stakeholder groups of value, for example. A major challenge for policymakers, however, as regular reports of poorly run companies in the media show, is devising effective governance provisions. Now though, using a novel approach, academics Erwan Morellec, Boris Nikolov, and Norman Schürhoff have devised a framework which can be used to gauge the actual impact on a firm's value of some common governance problems and the relative impact on different stakeholder groups.

Prof. Fahlenbrach - SFI Practitioner Roundups

— The core role of a bank is to accept deposits from agents with excess liquidity and loan the resulting capital to agents with a lack of it. For these services, banks pay their creditors and charge their debtors. The remuneration for these services depends on macroeconomic factors, such as the real risk-free rate and expected inflation, as well as investment specific factors, such as liquidity, default risk, and maturity. If a bank overprices its lending activities, it will likely relinquish opportunities to a competitor. Reversely, if a bank underprices its loans, it will likely not be remunerated for the risk it is bearing.

What Happens When Platforms and Network Industries Collide?

— In recent years online platforms such as Amazon, Google, and Facebook, have become significant players in a number of markets, from retail to entertainment. Now, often aided by a favorable regulatory environment, platforms are encroaching on network industries, such as communications, transportation and energy. However, in addition to offering consumers considerable benefits, the platforms may be undermining the financial model which ensures that the network infrastructure they use, and that benefits society generally, receives adequate investment in the future. In their research paper Platformed! Network Industries and the New Digital Paradigm academics Juan J. Montero and Matthias Finger, consider some of the issues raised by the involvement of online platforms in networked industries.

Interview du prof. Filipovic sur le thème du swap de longévité

— Précurseur dans l’utilisation d’instruments financiers couvrant le risque de longévité, le Royaume-Uni n’a pas vraiment fait école. Le professeur Damir Filipović, titulaire de la chaire Swissquote de finance quantitative et responsable du Swiss Finance Institute @EPFL, a accordé une interview à la revue de la Prévoyance Professionnelle Suisse dans laquelle il fait le point sur les possibilités existantes. L'intégralité de l'article est publié ci-dessous.

Why Does Fast Loan Growth Predict Poor Performance for Banks?

— Rüdiger Fahlenbrach, professor at the Swiss Finance Institute at EPFL, wrote a popularized version of his academic article, co-authored with Robert Prilmeier (Tulane University - A.B. Freeman School of Business), and René Stulz (Ohio State University), entitled "Why Does Fast Loan Growth Predict Poor Performance for Banks?" and published in the International Banker online magazine.

Interview with Professor Collin-Dufresne

— Although many countries accumulate a large amount of debt, others have the opportunity to invest billions of dollars in various industries around the world by creating sovereign wealth funds. Today the world counts 73 of these discreet and powerful funds which manage all together $6000 billion. The Scandinavian country of Norway has the world's largest sovereign wealth fund—the Government Pension Fund Global—worth $882 billion. Funded by Norway's oil revenues, the fund generated an annual return of 5.6 percent between 1998 and 2015. The development of sovereign wealth funds generates much media and public interest. Pierre Collin-Dufresne, Swiss Finance Institute Professor and Professor of Finance at EPFL, was recently asked to deliver an expert opinion in front of a Committee appointed by the Norwegian government to assess the equity portion of the Government Pension Fund Global. Following up on this invitation, the [email protected] interviewed Prof. Collin-Dufresne.

Mobility : A New Perspective on Transport Policy and Regulation

— Professor Matthias Finger is Swiss Post Chair in Management of Network Industries at Ecole Polytechnique Fédérale de Lausanne (EPFL) and director of the Transport Area of the Florence School of Regulation at the European University Institute. An expert and thought leader on transport policy and regulation and the transformation of network industries such as telecommunications, energy and transport, Finger spoke to Steve Coomber about the future of transport in the EU, the move to mobility as a defining concept, and the regulatory challenges involved. These are all issues covered by Finger in his contribution to the European Parliament's publication The World is Changing: Transport, Too.

Averting a Liquidity Crisis: The Road to More Resilient REPO Markets

— Loriano Mancini, Professor at the [email protected] and his co-authors published a new paper in one of the most prestigious academic finance journals, which provides novel insights on the last financial crisis. Their findings were presented at the New York FED and at the European Central Bank, and have implications for revising financial regulation. Problems in the US repo market were a catalyst for the Great Recession. Interbank lending faltered and many banks failed or were bailed out as the economic impact reverberated around the world. In the Euro countries, though, repo markets fared much better. Now a new study improves our understanding of these markets, reveals important differences between European and US repo practices, and highlights measures that can promote more efficient repo operations and help avoid a similar crisis in the future. Repurchase agreements and repo markets are central to providing day-to-day funding for banks and other financial firms. If these trillion dollar markets fail to work efficiently, as the world discovered in 2008, credit dries up and this can quickly lead to systemic banking problems and a financial crisis. Yet despite their importance, many people in business, even in financial services, know very little about these trillion dollar markets. Using data that has only been available relatively recently Loriano Mancini of the Swiss Finance Institute and EPFL, and his fellow academics Angelo Ranaldo and Jan Wrampelmeyer at the University of St.Gallen, have investigated the way that repo markets work. Their findings provide important insights into the elements necessary to create stable and efficient repo markets and avoid a similar credit crisis in the future.

A More Effective Approach to Credit Card Debt Collection

— Delinquent credit card accounts are a billion dollar problem for banks. One challenge is deciding what resources should be committed to chasing a debt that may never be recovered. Traditional debt scoring methods, used to help assess the probability of payment, have proved useful but not that effective. However, a new dynamic scoring approach combining existing account details, ongoing payment history, and economic data, offers a substantial improvement on returns. High levels of consumer spending and debt often go hand-in-hand. Take the US, for example. During 2015 consumer spending in the US was roughly $11.3 trillion, while household debt at the end of that year was some $12 trillion. A significant proportion of consumer purchases are made on credit, US credit card balances in the last quarter of 2015 amounted to $714 billion. Unfortunately, though, not all credit cards balances are paid up on time. Credit card delinquency, where payments have been overdue for a specific period, has become a very expensive problem both for firms issuing credit cards, individuals unable to make card repayments, and the broader economy. While credit providers have their methods of rating delinquent accounts and collecting outstanding payments these are often unsophisticated and ineffective. Now though, with their Dynamic Collectability Scoring methodology, Professor Thomas Weber at EPFL and Professor Naveed Chehrazi at McCombs School of Business, University of Texas, may have discovered a more effective approach to dealing with credit card delinquency.

Offshoring looms after the removal of the CHF/€ exchange-rate floor

— Swiss companies may be preparing to shift production out of the country after the franc was unpegged from the euro. This is one of the main conclusions of the first academic study of the topic, which was conducted by economists from EPFL and the University of Geneva.

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