Finance Seminar - Joint with SAFE

When:10 May 2017
, 14:00
 - 15:00
Where:Room E.01, House of Finance

Speaker: Prof. Itzhak Ben-David, Ph.D. (Fisher College of Business,  Ohio State University)

Title: The Origin of Business Practices

Abstract: Business practices are typically simple and intuitive (e.g., valuation, debt management, compensation). I propose that these practices developed in an evolutionary process akin to competitive innovation process. Methods that are simple and intuitive are more likely to survive. First, they are less prone to overfitting and therefore robust across economic environments and applicable in new settings. Second, they are easy to communicate and hence are stickier and can be easily spread. Stickiness, however, may lead to suboptimal practices because switching is costly. The theory suggests a tradeoff between stickiness and optimality, and can explain puzzles in corporate finance (e.g., corporate leverage). 

 

Registration is not required!