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While HBS scholars have long appreciated the value of field-based research, the broader academic community in the field of finance has been slower to accept this method of inquiry. Field-based research, which closely studies the actions and decisions of one or a handful of firms, accounts for less than 2 percent of all research published in the leading finance journals. Accordingly, in early July, HBS finance professor Peter Tufano organized a conference for eighty researchers from the United States and Europe to discuss finance research methodologies with special emphasis on the role of field-based research. Its purpose was not to resolve issues on appropriate methodologies for research but rather to begin a discussion to stimulate thinking and debate.
The conference, titled "Complementary Research Methodologies: The Interplay of Theoretical, Empirical, and Field-Based Research in Finance," focused on five subjects: corporate capital raising, corporate restructuring, extracting information from security prices, risk management, and security design. The fifteen papers presented at the conference, chosen by a committee of eminent scholars, showcased a mix of research designs: some used traditional methods of inquiry - mathematical theory or statistical analysis, for instance - while others employed interviews, primary company materials, surveys, and close examination of the trading of individual securities. A selection of these papers will be published in a special issue of the Journal of Financial Economics, a leading finance journal and joint sponsor of the two-day conference.
"We're going to discuss the papers themselves to advance our understanding of the topic at hand," said Tufano in his opening remarks, adding, "We also want to step back and consider the broader agenda of how we carry out our research. The papers presented will be our vehicle for discussing academic decisions, just as case studies are a vehicle for advancing our understanding of business decisions."
The conference allowed scholars from eighteen universities to present their research. A strong contingent from HBS provided examples of the intensive use of field-based methods of inquiry. In a session on corporate restructuring, HBS professor Stuart C. Gilson discussed how financial analysts and the financial media responded to an innovation in accounting pioneered by a prominent airline. At a session on information and prices, HBS associate professor Benjamin C. Esty presented a paper detailing how the price of an unusual security could be used to extract the market's best guess of the size and basis for the resolution of a large lawsuit. Another session included a paper by Tufano, HBS assistant professor George Chacko, and HBS doctoral candidate Geoffrey Verter that looked at how risk management theory could be applied to understand a biotech firm's decision to buy call options on its own stock. In the final session on security and market design, HBS professor Kenneth A. Froot used a careful examination of a single transaction in the emerging market for catastrophic risk bonds to motivate a search for explanations for anomalies in the pricing and structure of this market. Another highlight of the conference was a keynote speech by Nobel Laureate and HBS professor Robert C. Merton that emphasized how finance research leads finance practice.
"It was refreshing to take a step back and think deeply about what we are doing," said one participant. "I had expectations that we were going to have a conference to explore the potential usefulness of clinical methodologies. It was far more than I expected. The experience will have an impact on the way I think."
The conference also featured a parallel cyber component for those unable to attend. The still-active conference Web site (www.hbs.edu/hbsjfe), which will remain posted through the end of the year, gives visitors an opportunity to download papers and presentation slides, hear the sessions, and post comments using online message boards.
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