Tag: finance



Riots that resulted in anywhere from 10 to 1,000-plus deaths in their hometowns ultimately influenced lending decisions among hundreds of loan managers in India — and the effect endured for decades, a new study reveals. The research shows a country’s ethnic fissures can create crevasses in its road to economic progress.

Those are the findings by WashU Olin’s Janis Skrastins and three other researchers, who analyzed the lending decisions of about 1,800 Hindu loan managers at a large, public sector Indian bank.

Janis Skrastins

More than 250 of those loan managers had experienced fatal Hindu-Muslim riots in their hometowns when they were children. Later, as grown men, those loan managers favored lending to Hindu borrowers over Muslim borrowers.

“The most important takeaway is that your early childhood experiences of ethnic conflict can have long-lasting effects,” said Skrastins, assistant professor of finance. And the experiences “can actually lead to misallocation of resources even in the longer term.”

The researchers’ paper, “Experience of Communal Conflicts and Inter-group Lending,”  provides microeconomic evidence on the link between inter-group frictions and economic transactions. It is forthcoming in the Journal of Political Economy.

Muslim borrowers less likely to default

The loan managers’ favoritism persisted even as the loans they made to Muslims were less likely to default, the research revealed.

“What’s very, very important is the money or the profit that the officers expect to make on one Muslim borrower is going to be higher than on a Hindu,” Skrastins said.

“So that means they’re just giving money as a favor to some of their own group,” and creating disadvantages for another.

The researchers also discovered that loan managers’ bias persisted throughout their careers, suggesting “the economic costs of ethnic conflict are long-lasting, potentially spanning across generations,” Skrastins said.

The paper documents the lifelong consequences of racially divisive personal experiences in childhood, rather than shorter-term increases in in-group favoritism as a result of current events. The authors say that, to their knowledge, this is the first research on the topic.

Lending decisions over seven years

Skrastins, Raymond Fisman of Boston University, and Arkodipta Sarkar and Vikrant Vig, both of the London Business School, analyzed loan managers’ lending decisions from 1999 to 2006.

In tandem, they used a database of Hindu-Muslim riots from 1950 to 1995, along with each loan manager’s year and city of birth. With that information, they could infer whether ethnic riots erupted in a loan officer’s hometown during his childhood.

All men in the sample were born after 1950 and joined the bank no later than 1995.

The researchers measured riot exposure based on riot deaths in the loan managers’ hometowns from the year they were born to when they joined the bank. Generally, new loan managers at the bank are in their early 20s. Since the bank forbids any loan manager from working in his hometown, they necessarily leave their birthplace when they join the bank.

Because the bank requires loan managers and borrowers to list their religion, the researchers also had access to that information.

‘Riot-exposure’ defined

In their main results — which used local riot deaths of 10 or more people to define “riot exposure” — they found this: The presence of a riot-exposed loan manager was associated with 4 percentage points higher lending to Hindu borrowers relative to all other borrowers.

They also found that the presence of a riot-exposed loan manager was associated with a 2.5 percentage point increase in defaults by Hindu borrowers relative to Muslim borrowers.

The researchers also examined lending decisions as a function of when the loan manager was first exposed to Hindu-Muslim violence. Riot exposure before he was 10 years old was “the most important determinant of later lending decisions,” they found.

In their final analysis, the researchers examined loan managers’ decisions tied to the 2002 Gujarat riots, which left more than 1,000 people dead.

They found that lending to Muslims declined by 8 percentage points with the arrival of a branch manager who had been stationed in Gujarat at the time of the riots.

At cross-purposes with themselves

In some ways, the loan managers shoot themselves in the foot by shunning Muslim borrowers.

Loan managers in Indian state banks have incentives to perform well, the researchers note. Some rewards are promotions to higher grades with higher compensation — or better postings. Loan managers may be dispatched to places with better perks such as better schools, larger houses, the use of a car, or control over a larger portfolio.

If a loan manager is performing poorly, he risks being sent to places with weak infrastructures and lousy schools. Basically, when a loan officer plays favorites in lending that worsens his repayment rates, he hurts himself, the researchers point out.

Photo illustration by Olin Creative Director Katie Wools.


She grew up playing the accordion, but Xing Huang transferred her keyboard skills to the piano when she moved the US to study finance. Prof. Huang was pleased to find WashU’s Music Department practice rooms located directly across the street from Olin’s Simon Hall.

Listen to Olin’s newest member of the finance faculty practice her piano skills in the video above.

Prof. Huang was an assistant professor of finance at Michigan State University before joining Olin. Her research into behavioral finance, asset pricing, and investor behavior are all topics in her class this semester where student teams are given a million dollars to invest. Don’t worry – it’s virtual money that they use in a  simulation trading game that puts students in the driver’s seat of a brokerage account to experience the ups and downs of stock trades and the gyrations of the market.

Professor Huang’s bio:

PhD 2013, University of California, Berkeley
MA 2007, Peking University, Guanghua School of Management
BA 2005, Peking University, Guanghua School of Management

Selected Publications:

  • “Rushing into American Dream? House Prices, Timing of Homeownership, and Adjustment of Consumer Credit”, Review of Finance, Issue 20, 2183-2218, with S. Agarwal, L. Hu, 2016
  • “Which Factors Matter to Investors? Evidence from Mutual Fund Flows”, Review of Financial Studies, Issue 29, 2643-2676, with B. Barber, T. Odean, 2016
  • “Thinking Outside the Borders: Investors’ Underreaction to Foreign Operations”, Review of Financial Studies, Issue 28, 3109-3152, 2015

Awards/Honors:

  • Best Paper Award, CICF XY Investments, 2016
  • Broad College’s Summer Research Grant Award, 2016
  • Stuart I. Greenbaum Best Finance Ph.D. Dissertation Award, Finalist, 2012
  • Graduate Division Travel Grant, University of California, Berkeley, 2011
  • Student Travel Grant Award, American Finance Association, 2011
  • Dean’s Normative Time Fellowship, University of California, Berkeley, 2010
  • Shapiro Fellowship, University of California, Berkeley, 2007

 


Senior defensive backs Nate Lowis and Andrew Ralph reflected on the past four years at WashU with Assistant AD for Communications Chris Mitchell.

What made you come to WashU?
NL: I came to Wash U because I could participate in a high level of athletics while receiving a world class education and remaining close to home.

Andrew Ralph

AR: I came to WashU for the chance to play college football and to receive a great education. WashU gave me the opportunity to excel both on and off the field, and I knew from the people I met that WashU was a great fit for me.

What have you learned from playing under head coach Larry Kindbom for four years?
NL: I have learned to always trust yourself.

AR: Coach K was a big part of my decision to play at WashU in the first place. While I’ve learned a lot from him about football (probably more special teams’ info than I could have imagined), he’s taught me a lot more about how to be a great man. The thing that’s always stuck with me is how much Coach K cares for each of us, not only as players but as people.

What is your favorite part of playing defense?
NL: I get to be the one making the hits.

AR: I love the energy and emotion that go into every play of defense. Whereas offense is a bit more composed, a lot of defense is effort and will. I’m a pretty passionate player, and being on the defensive side of the ball allows me to play with my personality all the time.

How special is it to be named a team captain?
NL: It is an honor and a very humbling experience to be named team captain.

AR: It was really special to be named a captain for this football team. These guys are some of the brightest and best people I’ve been around, and for them to choose me as a captain is an honor.

What is your favorite football memory at WashU?
NL: My favorite memory of Wash U football is making the playoffs last year.

AR: My favorite WashU football memory came from last year. After beating Chicago on their field, we found out that we had won both the UAA and the SAA, the latter giving us an automatic birth to the playoffs. For all that to happen in front of family/friends was a really cool moment.

What are your future plans upon graduation from WashU?
NL: I plan on attending law school next year. I am currently in the process of applying and I hope to remain in St. Louis.

AR: After graduating from WashU, I hope to work for a consulting firm. I’m also interested in the business side of sports.

Guest Blogger: By Caroline Ballard, Sports Information Intern




Perhaps you’re a marketing manager eager to launch a new campaign to freshen up an existing product. Or maybe you run a manufacturing operation and believe a second production line would boost the bottom line by increasing output.

In both of these scenarios, you would need to get your ideas past someone in finance.

Todd Milbourn

“The finance function in most organizations is often viewed as the area that always says ‘no’ to resource requests,” said Todd Milbourn, Olin’s vice dean and Hubert C. and Dorothy R. Moog Professor of Finance.

Unfortunately, one way non-financial managers can assure they get a “no” would be to misunderstand what their counterparts in finance actually do.

“It is important to have a perspective on what finance managers are trying to achieve,” Milbourn said. Toward that end, he teaches a daylong seminar aimed directly at the non-financial manager titled, appropriately enough, “Finance for Non-Financial Managers.”

The idea: Bridge the gap in understanding between the finance function and other corporate leaders. “Having this bridge is critical as finance touches everyone in the organization,” he said.

Once managers take the course, Milbourn can’t guarantee participants will always get a “yes” on their requests, “but they’ll know how to better position their own requests to increase their odds of getting funded.”

How non-financial managers can “increase their odds”

  • Become conversant in the language.

    “Managers from outside of finance are often intimidated by the language and terminology of finance,” Milbourn said. “That limits their effectiveness in the organization.” If you can speak the language, you work from a common frame of reference. Milbourn’s course walks participants through a variety of scenarios demystifying concepts such as “shareholder value,” “cost of capital” and “return on investment.”

  • Understand your company’s big picture.

    Know how to read and interpret a balance sheet and other financial statements. Learn how to relate the company’s strategy to the numbers. Milbourn walks participants through the financing, performance, and continuation decision of a company that participants will help finance themselves, putting them in the shoes of actual investors.

  • Understand what finance managers are trying to achieve.

    “The finance function is responsible for allocating resources to a number of initiatives,” Milbourn said. “This balancing act is typically one that cannot say yes to every request.” An appreciation for how finance tracks a company’s historical performance and forecasts its future performance can help you frame your initiatives for the finance manager.

  • Appreciate why sometimes, the answer is “no.”

    You can’t win ’em all. Understanding the components of value creation for shareholders means you may learn how to pick your battles when you have an idea. “This seminar will give participants a sense of the ‘portfolio problem’ financial managers face,” Milbourn said.

The next session of “Finance for Non-Financial Managers” is set for Sept. 19, 8 a.m. to 4 p.m. at the Knight Center. Visit Olin’s website for registration information and for our other executive education offerings.

Guest blogger: Kurt Greenbaum


Operational risk can have a crippling effect on a company if not managed properly. This is especially true in the financial services industry. Banks and investment firms must pay close attention to variables that have the potential to impact their operations, not only from the breakdown of technology and processes, but also from a personnel perspective. The responsibility of managing one’s money is great, and the inability to properly anticipate and manage potential risk factors can have a devastating effect, all the way up to the industry level. A case in point was the subprime mortgage crisis of the late 2000s, which led to a nationwide economic recession.

Mike Pinedo, the Julius Schlesinger Professor of Operations Management at New York University’s Stern School of Business, is an expert in risk management research, particularly in the context of the financial services industry. In his presentation at The Boeing Center’s 13th annual Meir Rosenblatt Memorial Lecture, he described the main types of primary risks in a financial services company: market risk, credit risk, and operational risk. Ops risk, which is the risk of a loss resulting from inadequate or failed internal processes, people, or external events, may be the most important factor, he claimed.

Pinedo goes on to describe various types of operational costs such as human resources, I.T. investments, and insurance costs, and how they impact corporate risk management. For example, rogue traders can pose a risk if they make inadvisable decisions, so some investment firms choose to take out insurance against that possibility. Other types of ops risk include transaction errors, loss of or damage to assets, theft, and fraud, all of which can pose a catastrophic risk at the industry level. Pinedo adeptly inserted anecdotes into his lecture to provide examples of these risk factors playing out in the real world.

The annual Meir J. Rosenblatt Memorial Lecture brings the “rock stars” of supply chain and operations to the Danforth Campus every fall. Each lecture gives prominent thinkers and practitioners alike the opportunity to hear an expert in the field highlight emerging trends.

This lecture series was established in 2003 to honor the memory of Meir J. Rosenblatt, who taught from 1987 to 2001 at Olin Business School as the Myron Northrop Distinguished Professor of Operations and Manufacturing Management. A leader among faculty, Rosenblatt often won the Teacher of the Year award at Olin and authored the book “Five Times and Still Kicking: A Life with Cancer,” having battled cancer multiple times throughout his life.


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