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March 5, 2008
Best Research Paper Findings du Jour
From a new paper in an upcoming issue of the Journal of Finance Economics. It's doubly funny because of the dry way in which these loopy findings are reported about public company board composition:
First, when commercial bankers enter boards, external funding increases and investment-cash flow sensitivity diminishes. However, the increased financing benefits mostly firms with good credit but poor investment opportunities. Commercial bankers appear to offer loans to increase bank profits rather than shareholder value. Second, investment bankers are associated with larger bond issues and worse acquisitions. They appear to maximize the fees accruing to their investment banks. Third, we find little evidence that financial expertise matters for corporate decisions when conflicts of interest are absent.
Get that? Put commercial bankers on your board and they drive project loans without regard for project quality; put i-bankers on your board and they do deals for the sake of doing deals. Such fun!
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Wow, sort of like saying if you put a fox in the hen house it will eat chickens.
And what happens, I wonder, when you put VCs on your board?
to paraphrase Elwood Blues:
(if it don't bounce back -
you get fired.
bow bow bow)
Yikes! Don't let any state AGs see that. They'll sue for sure. Imagine, self-interest actually impacting someone's decision-making. Who woulda thunk it?
Well, besides academics...