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Professors Wan Wongsunwai, Shyam Sunder and Jayanthi Sunder
From left: Professors Wan Wongsunwai, Shyam Sunder and Jayanthi Sunder  Photo © Nathan Mandell

Revsine Professorship boosts scholarship

Kellogg alum honors late professor with gift that supports accounting faculty research

By Matt Golosinski

During his long Kellogg tenure, accounting professor Lawrence Revsine had an impact on generations of the school's graduates.

His ability to make a challenging, analytical subject come alive in the classroom was admired by colleagues and students, and Revsine's enthusiasm for his discipline also found its way onto the printed page in his influential Financial Reporting and Analysis (Prentice Hall 1998), now in its fourth edition. (See sidebar.)


Revsine text transformed how accounting is taught

Professor Larry Revsine adopted what he called a "detective approach" to financial accounting, going behind the numbers to reveal how the figures can illuminate — or obscure — the truth about the health of a business. His insights and passion for his discipline remain available through Financial Reporting and Analysis (4th ed.), coauthored with Professors Daniel Collins and W. Bruce Johnson of the University of Iowa and Professor H. Fred Mittelstaedt of the University of Notre Dame.

In their preface to the new edition, Collins and Johnson reflect on their late colleague: "He was passionate about changing the way financial accounting is taught…. He understood the important role that accounting numbers play in bonus plans and debt contracts, and the incentives this creates for management to 'bend' the reported numbers in ways that often fail to reflect the underlying economics of the firm."

They also praised Revsine's performance in the classroom and his "uncommon knack for creating a sense of mystery and excitement about seemingly mundane accounting topics."

Revsine earned numerous distinctions for teaching excellence at Kellogg, including the L.G. Lavengood Outstanding Professor of the Year Award.


Revsine, who joined Kellogg in 1971, was the John and Norma Darling Distinguished Professor of Financial Accounting until his death in May 2007. His influence, though, endures in the form of an endowed professorship established in 2006 by Mary Sue and Michael Shannon '83. The Lawrence Revsine Research Professorship supports junior Kellogg faculty who are pursuing financial reporting research.

Earning the inaugural Revsine Professorship were Jayanthi and Shyam Sunder, assistant professors in the Accounting and Information Management Department. Their research, with Sreedhar Bharath at the University of Michigan, explores the effect of secondary market liquidity on lenders' monitoring incentives in the bank loan market. Among the questions they investigated is whether banks set debt contract terms differently for loans that are expected to trade in the secondary market, where risk is diversified.

The professors argue that the role of banks has shifted from being "pure originators" of corporate loans to "arrangers of syndicated loans." In addition, their activity in the secondary market has grown dramatically — from $8 billion in 1991 to $342 billion in 2007 — as more non-bank institutions participate in the loan process. The paper examines the impact of the secondary market on monitoring incentives of banks.

"The Revsine Professorship has enabled us to hire research assistants and develop customized software to monitor ex post borrower performance on loan covenants and renegotiations of loan contracts," says Jayanthi Sunder. "We also plan to obtain additional data on traded loans to study the market liquidity effects of covenant violations."

This year, the Revsine Professorship is supporting another research initiative by the Sunders, who are joined by Kellogg colleague Wan Wongsunwai, assistant accounting professor. The three are examining the hedge fund industry. Because hedge funds are lightly regulated, little is understood about the effects of incentives and operating characteristics of these funds on the public companies in which they invest, say the Kellogg faculty members. To learn more, they are looking at the redemption rights of hedge fund investors. "Such redemption rights increase the volatility of fund flows for the hedge fund, usually in response to fund performance," they state in their research proposal. "This in turn makes managers' compensation more risky and influences investing strategies."

The researchers intend to shed light on what they consider the "black box" of hedge fund incentives and their economic effects on target firms. The Revsine Professorship is helping them "address a major challenge," says Wongsunwai: constructing a reliable database of these funds, their characteristics and performance, and their target investments.

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