Finance

A recent study tracked investor reaction to more than 50,000 reports issued by 2,794 analysts between 1993 and 1999. While the data show that both large and small investors react to analyst counsel, the larger — and presumably more sophisticated — traders tend to make more money doing so. Compared to those making larger trades, smaller investors seem less aware of conflicts that securities analysts may face, and this lack of understanding translates into less profitable stock-market decisions.

Picture the U.S. housing market as a bright red, helium-filled balloon bumping around the ceiling for the last couple of years, but currently suffering a slow leak that interrupts its sprightly bounce, suggests Crocker Liu, professor of finance and real estate at the W. P. Carey School of Business. The latest figures from the National Association of Realtors say sales of previously-owned homes dropped 4 percent in June and July, falling to a 30-month low and adding to a record for-sale home inventory of 4 million. However, Liu contends the market is simply reacting to the Mardi Gras good times of the recent past with a much-needed correction.

The corporate failures of Enron, WorldCom, HealthSouth and Tyco were separate tragedies, but they share a common theme: ethical breakdown that started at the top and permeated the organizations. In her newly-released book, ethics expert and W. P. Carey management Professor Marianne Jennings dissects the failures and identifies the cultural flaws that led to disaster. "The Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns in Companies... Before It's Too Late" provides guidance to those in charge of cultural reform in companies as well as those looking for good investments.

Fannie Mae's recent $11 billion accounting scandal drew headlines, but even before that, critics, analysts and academics have urged that the time has come for this Government Sponsored Enterprise (GSE) to be completely privatized. Herbert Kaufman, a finance professor at the W. P. Carey School of Business who has been studying GSEs for many years, is among those who argue for privatization. By the 1980s the GSEs had served an important purpose in integrating the mortgage markets into the capital markets, Kaufman says, but at that point they should have been privatized. The issue, he continues, is the government's possible contingent liability in case of default.

The auditing and reporting requirements of the Sarbanes-Oxley Act — effective since 2004 for larger and midsize corporations and yet to take hold for the smallest companies — have triggered complaints about the costs and questions about the effectiveness of the law. Accommodating Sarbanes-Oxley (a.k.a. SOX) has cost corporations millions as executives and employees undergo special training in compliance. Its requirements for accounting oversight and independence, and its checks on conflicts of interest and fraud, have resulted in a mixed verdict on its effectiveness so far, say experts at the W. P. Carey School of Business.