Radhakrishnan Gopalan, a beloved professor of finance at Olin, lost his battle with cancer on December 6, 2022. He was 50.
He and Dean Anjan Thakor were close friends. The loss of Gopalan was a blow not only to him, but also to the entire Olin community.
Fast forward to February. Thakor announced the Radhakrishnan Gopalan Memorial Scholarship in an email he sent to faculty, staff and others in the Olin family. Now the Olin Blog is spreading the news.
‘I’m sure you share my sorrow’
“For those of you who knew Radha, I am sure you share in my sorrow,” Thakor wrote. “He was a prolific scholar, a brilliant mind and a passionate educator.” Also, he was a devoted father and husband we will remember for his kindness, the interim dean said.
Radha joined the Olin community 2006 as a member of the finance faculty. He steadily rose in esteem and responsibility, finally serving as the academic director of Olin’s Mumbai-based Executive MBA program in partnership with IIT-Bombay.
Exceptional scholar
“As a scholar, Radha was exceptional, and I was privileged to coauthor several research papers with him,” Thakor wrote in a tribute on the Olin Blog the day Gopalan died.
“His research into corporate finance, corporate governance, emerging market financial systems, mergers and acquisitions, corporate restructuring, entrepreneurial finance and household finance has been widely cited. Indeed, Google Scholar notes nearly 4,000 citations in his career, more than half just since 2017.”
You can read Thakor’s full tribute to Gopalan here.
Updated at 8:53 p.m. today with service information.
Dear Olin friends,
I am absolutely heartbroken to share the news that our colleague Radhakrishnan Gopalan succumbed to cancer early this morning at the age of 50. It is difficult to put into words the depth of my sorrow. My dear friend, coauthor, and our esteemed faculty partner had been battling the disease for a long time. Please join me in keeping Radha and his family in your thoughts and prayers at this difficult time.
Radha had been a member of the Olin community since 2006, when he joined the finance faculty. He had steadily risen in esteem and responsibility throughout his time at the business school, finally serving as the academic director of Olin’s Mumbai-based Executive MBA program in partnership with IIT-Bombay.
As a scholar, Radha was exceptional, and I was privileged to coauthor several research papers with him. His research into corporate finance, corporate governance, emerging market financial systems, mergers and acquisitions, corporate restructuring, entrepreneurial finance and household finance has been widely cited. Indeed, Google Scholar notes nearly 4,000 citations in his career, more than half just since 2017.
Among his honors, Radha is a Reid teaching award recipient and won the Olin Award in 2016 for research most likely to have an immediate impact on business. That work centered on compensation goals and firm performance. A few years earlier, Poets & Quants selected him as one of the 40 best business school professors under 40. His accomplishments were many, and he lived a life of distinction.
He came to Olin soon after earning his PhD in finance from the University of Michigan. Before that, he worked for five years in the project finance department of a leading Indian bank.
I know I speak for many among us at Olin Business School in expressing grief over this tragic loss, and gratitude for the life of our friend, teacher, colleague, mentor and scholar.
Services for Radha will be Thursday, December 8, at Schrader Funeral Home & Crematory, 14960 Manchester Road, Ballwin, MO 63011. Visitation is from 2:00-3:00 p.m. Prayers, rites and cremation are scheduled for 3:00-5:00 p.m. Dress code: Wear clothes of your favorite color. The family shared that is the way Radha would have wanted it.
Readers who are so inclined are encouraged to leave tributes and memories in the comments below.
President Joe Biden has expressed support for raising the federal minimum wage for federal contractors and employees to $15 per hour. On Jan. 26, House and Senate Democrats took it a step further— introducing legislation to increase the federal minimum wage to $15 per hour by 2025, more than doubling the current minimum wage of $7.25 per hour set in 2009.
Gopalan
But Biden’s plan is too aggressive, according to Radhakrishnan Gopalan, professor of finance at Olin.
Gopalan, who has used big data on multiple impact studies on minimum wage increases, recommends delaying any increase until 2022 to allow the economy and unemployment rates to rebound.
He also recommends increasing it in increments of $1 to $1.50 and, going forward, having a clause to automatically index the minimum wage rate.
In a forthcoming paper in the Journal of Labor Economics, Gopalan and Barton Hamilton, the Robert Brookings Smith Distinguished Professor of Economics, Management and Entrepreneurship, found positive and negative effects for U.S. workers over a two-year period in six states that enacted minimum wage increases between 75 cents and $1.25 per hour in the 2010-15 period.
On the positive side, their study shows that minimum wage hikes not only increase the wages of those workers, but also create a positive “spillover” effect on the wages of other workers earning up to $2.50 above the minimum wage. Additionally, these workers continue to retain their jobs as they are no more likely to be fired.
‘Make the increase more gradual’
However, raising the minimum wage hurt new entrants into the labor market. Researchers found that businesses, especially those making tradeable goods — such as the manufacturing sector — reduce the rate of hiring new workers at low wages following an increase to minimum wage rates. Read more about this research here.
Given the fact that unemployment remains at 6.7%, according to the U.S. Bureau of Labor Statistics, Gopalan warned that increasing the minimum wage would likely make a bad situation worse.
“There are two broad effects of a minimum wage increase. One, it reduces firm’s incentives to hire more minimum wage workers. This effect would be all the more enhanced when firms are hurting from the pandemic,” Gopalan said.
“On the flipside, minimum wage increases put money in the hands of people who are most likely to spend it. Thus, a wage increase is likely to give a boost to consumer demand.
“Having said that, the multiple stimulus packages have put a lot of money in people’s hands, so one is talking about demand in the economy possibly outstripping supply once the pandemic is brought under control. Some are already cautioning about the economy overheating.”
Going slow on the minimum wage increase is the best option, Gopalan said. “Not only is it better to wait for the pandemic to be brought under control, but it is also good to make the increase more gradual and not drastic from $7.25 to $15 in one fell swoop.
“Currently, small businesses are especially hurting from the pandemic. The restaurant sector, which employs a significant number of minimum wage workers, and the retail sector are struggling. Raising the minimum wage now would spell a death knell for many small restaurants.”
After years of both big-data and granular research about minimum-wage increases and homeownership/mortgages, Radhakrishnan Gopalan knows the pandemic-addled plight of the middle and under classes in America. Gopalan, professor of finance at Olin, also knows any economic plan must be multifaceted and multiyear. In short, this is going to take time. And effort.
“In my view, the Biden administration faces two short-run and three long-run challenges that it has to tackle to get the economy back on track,” he said.
“The two short-run challenges are the rampaging pandemic and the fact that many at the bottom of the pyramid are out of a job with little short-run prospect of getting one and are struggling to make day-to-day expenses,” Gopalan said. The pandemic is a public health issue, involving medical expertise, vaccines, masking, distancing and more. The economic challenge requires a directed stimulus program until COVID-19 is brought under control.
That leaves three long-run challenges, Gopalan said.
Don’t count on household consumption. “While there may be some short-run pent up demand, I fear the household sector will have too much debt and will find it difficult to contribute to demand in the long-run.”
Hospitality and transportation may never regain their lost employees. “This means retraining and repositioning the workers in these sectors.”
WFH changes everything. “The virus has resulted in many structural changes in the way we work and enjoy leisure, and this would involve refocusing our investment in infrastructure.”
How to tackle the challenges
“I believe the Biden administration will have a plan to tackle the fastest growing source of household debt: student debt. This may involve some debt forgiveness and more liberal eligibility for income-based repayment plans.”
“To both tackle the limited demand from the household and corporate sector, the administration will have an infrastructure bill that would involve green investment and investment in digital as opposed to physical infrastructure — taking into account the transformation in the economy brought about by the virus.”
“The administration may also have some targeted relief to the worst affected sectors of the corporate sector to help them recover and rebuild from the crisis. “
“There are some who argue that one way to increase household demand is to increase the minimum wage. I agree that there is some merit to this argument, so in the medium- to long-term I see the administration increasing the federal minimum wage.”
“To retrain and refocus workers from the sectors permanently damaged by the virus to the sectors helped by it, there will be investment in worker retraining.”
“Finally, health care is a constant source of concern for all Democratic administrations, and we may see further strengthening of Obamacare marketplaces and Medicaid.”
A member of a corporation’s board of directors may exert a similar amount of influence on a business’ outcome as its CEO.
Particularly if that board member has endured a bankruptcy at another company where they serve as a director.
So finds a new study from Olin researchers, plus a former Olin PhD at Indiana University, forthcoming in the Journal of Financial Economics.
In fact, Olin’s Radhakrishnan Gopalan and Todd Gormley, along with Indiana’s Ankit Kalda, learned that firms take more risks after a member of their board of directors undergoes a bankruptcy at another firm where they serve as a director. The co-authors discovered such risk-taking usually occurs when this particular director (a) experienced a quick, less-costly bankruptcy elsewhere and (b) serves in a position of greater influence.
Their findings suggest that these firsthand bankruptcies provide board directors with a learning experience that causes them to lower their estimate of distress cost—expenses faced by firms in financial distress beyond the cost of doing business.
Gopalan
“This is one of the first studies to highlight how a director’s later-life experience influences their attitudes about risk and risk-taking,” said Gopalan, professor of finance. “Our study highlights the importance of learning and understanding the director’s life experience when making hiring decisions.“
There are two extreme parts of the bankruptcy spectrum, the co-authors noted. A director could’ve seen a contentious process that ends in liquidation, emboldening a perspective that bankruptcy is costly. Or a director could’ve experienced a tidy, pre-packaged bankruptcy that ends in a successful return to operation, causing the director to infer that bankruptcy, and hence risk-taking in general, need not be as costly as they originally assumed.
To research a set of such corporate directors from the period 1994-2013, the co-authors used the Lopucki Bankruptcy Research Database, a US Securities and Exchange Commission database (Electronic Data Gathering, Analysis and Retrieval, or EDGAR), BoardEx, data from proxy statements and more. That enabled them to identify 718 firms sharing a director with 261 firms that filed for bankruptcy at some point in the study’s roughly 20-year window.
Next, they stacked these firms and a control group (lacking any bankruptcy-veteran directors) against three sets of risk measures: corporate financial policies such as net leverage, cash holdings and equity issuance; corporate risk such as cashflow volatility, stock volatility and distress; and measures of acquisition activity. Why acquisition activity? Because prior evidence showed firms engage in diversifying their acquisitions to reduce their risk.
On average, the data showed, firms increased their risk taking and moved closer to bankruptcy, following a director’s previous experience with it.
On average, the data showed, firms increased their risk taking and moved closer to bankruptcy, following a director’s previous experience with it.
The firms with bankruptcy veterans on their boards saw their net leverage increase after their own bankruptcies, as well as seeing increases in cash flow volatility (by 0.9 percentage points), stock volatility (by 0.2 percentage points) and distress events. Similarly, those businesses’ diversifying acquisitions (by 2.9 percentage points) decrease and their likelihood of default increases.
These weren’t new or even newly bankruptcy-scarred directors, either. On average, they were sitting on these boards for more than six years prior to a bankruptcy filing.
To try to ensure that there weren’t any crossover issues in their findings, the co-authors analyzed for any possibility of common shocks and industry-wide issues in a shared business silo. They conducted what they called placebo tests, identifying multiple firms that previously shared a director with a corporation that filed for bankruptcy but didn’t share one at the time of that corporation’s bankruptcy. They found no evidence of a shift in behavior in this placebo test. Nor did they observe a change in risk-taking when a director experiencing bankruptcy elsewhere exits that board soon after.
The co-authors also analyzed how risk-taking differed based on how costly the previous bankruptcy was.
It didn’t surprise them to find more risk-tasking by businesses with directors who experienced lower-cost, pain-free bankruptcies, and less risk-taking by firms with directors who endured protracted, costly ones.
What did surprise them: The aftershocks to that particular director’s career. The data showed that a person’s number of board memberships declined in the years following a bankruptcy, but this only occurred among directors who led their firms through protracted, costly bankruptcies.
Gormley
“Directors serve two main roles,” said Gormley, assistant professor of finance. “One, monitor the manager to make sure they act in shareholders’ best interests. Two, advise the manager on important decisions.
“Typically, independent directors — those with no prior connection to the firm or CEO — are thought to serve more of a monitoring role. Non-independent directors are thought to provide more of an advisory role. We find our results are concentrated among non-independent directors, suggesting the change toward risk-taking is driven by a change in the advice directors provide rather than a change in their monitoring.”
Moreover, in parsing the influence of board members who aren’t on the management team but have some connection or advisory role, the co-authors found that many of them had backgrounds in private equity (13.1%), manufacturing (10.3%), venture capital (8.6%) and consulting (7.5%). Such portfolios might explain why CEOs and other directors might more highly regard, and abide by, their views when making decisions over finance and risk.
“It’s well known that CEOs and their experience matter,” Gormley said. “But here, we are seeing that individual directors also matter. This is different than what most investors typically focus on, which are the board-level characteristics like what fraction of directors are independent.
“These findings suggest that it’s important for firms to hire individual directors with the experience set they consider most important for improving the quality of the advice they will provide the manager.”
