risk behind bank loans
"As a finance scholar, you're not just standing on the
sidelines explaining what other people do," says Hagerty.
"You are creating knowledge that people are actually going
to use, and your research is the driver for tremendous financial
As an example,
Hagerty cites her research that studies the effectiveness
of self-regulatory organizations. Hagerty is a member of the
National Adjudicatory Council, part of the National Association
of Securities Dealers, which writes the rules governing more
than 5,000 brokerage firms doing business in the United States.
she is engaged in with Kellogg School colleague Janice
Eberly, the John L. and Helen Kellogg Distinguished Professor
of Finance, seeks to determine how well financial markets
function in terms of overall efficiency.
banks would make loans and hold them," Hagerty says. "Today,
they make loans and often sell them."
is whether this financial innovation serves to stabilize or
destabilize the overall market. Many experts have believed
that by more broadly distributing risk, fluctuations in the
aggregate market would be smoothed out, explains Hagerty.
However, she indicates that there is also risk associated
with how the banks are managing their roles.
"The banks are
selling these loans, but are they doing so in an efficient
way?" asks Hagerty. "Are they selling off the right loans?
You have sets of loans and the ones that are more marketable
are the lower-risk ones, so banks may sell those and end up
holding the riskier ones."
All this financial
innovation affords the players more powerful ways to manage
risk, but the innovations themselves can create trouble.
"It's like having
a bigger gun: If you don't know what you're doing, there are
more opportunities to shoot yourself in the foot," Hagerty
such as these engage Kellogg School scholars, and drive research,
seminars, conferences and student competitions such as the
Kellogg Investment Banking Club's first place overall win
in the JPMorgan
Mergers & Acquisitions Challenge. The club has won
top honors in this competition four of the past five years.
In April, a Kellogg team also won first place in the Cornell
MBA Stock Pitch Challenge, a heated competition for aspiring
students also compete for the annual Chookaszian
Prize, which offers the winning team $10,000. Funded by
former CNA Insurance CEO Dennis Chookaszian, the prize is
designed to stimulate student insights into risk management.
School finance mission is also bolstered by The
Zell Center for the Study of Decisions, Risk and Risk Perceptions,
and the Financial
Institutions and Markets Research Center. The Zell Center
sponsors an annual conference that draws an impressive array
of scholars and experts, as does the Private
Equity Conference with its focus on venture capital and
|© Nathan Mandell
Professor Kathleen Hagerty
the strengths of our finance curriculum, faculty and research
centers, the Kellogg School has proven itself an innovator
in this key arena," says Dean Jain. "Our approach to finance
balances rigor and relevance in ways that offer maximum benefits
for our students. Our Financial
Decisions course is one true reflection of our ability
to deliver pragmatic and theoretical insights."
Decisions uses case studies to enhance student understanding
of managerial financial decision making, covering a range
of topics such as short- and long-term financing, capital
structure and dividend decisions, capital budgeting, and mergers
the importance of finance today, executives are also increasingly
enrolling in the Kellogg School's Executive
Education program, which is expanding its finance offerings
to meet student demand. Finance
for Executives is one of several such courses held
at the James L. Allen Center. It is designed to provide executives
who have little or no previous finance experience with the
foundational finance insights they need to perform in today's
to the Allen Center for a full week of intensive finance,"
says Fishman, who also notes the option of Kellogg custom
executive programs in finance. "The class really gets them
up to speed, especially if these individuals have recently
been promoted into a role where they must learn more details
Dean Jain is turning
his attention toward expanding the role that Kellogg School
finance majors play in the contemporary marketplace. He is
particularly interested in encouraging finance majors to expand
their career choices beyond the traditional avenue of investment
banking and consider additional opportunities within corporate
Jain also encourages
students to leverage the strengths of the Kellogg School Finance
are at a real advantage at Kellogg," says Jain. "Students
who come here to learn finance are not lost in the crowd as
they might be at other schools. "
these students arrive — even those who may not have intended
to pursue a career in finance — they frequently realize
the exciting breadth and scope of the discipline.
are a lot of students who come in without a clear understanding
of what finance is," says Fishman. "Once they take Financial
Decisions they really develop an appreciation for the
subject and how the learning can be valuable to them, even
if they don't plan on becoming a CFO or investment banker."
But for those
who do desire to grab the top rung of the executive finance
ladder, Fishman says there will continue to be challenging
and rewarding opportunities for MBAs.
Though some have
speculated that the Sarbanes-Oxley legislation of 2002 might
diminish the stature of corporate CFOs, the department chair
is not going to limit the role of the CFO. It's just going
to entail a different set of constraints," explains Fishman.
"The regulations have impacted the way firms communicate to
the investment world, but the CFO's functional role is essentially
the same: They still want to convey information from the firm
to the capital markets."
Kellogg School is helping train the next generation of financial
leaders to excel in every aspect of their demanding role.