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Why are U.S. corporate boards under-diversified?

Research tells us that firms with diverse workforces generally outperform those that do not. And in recent years, corporate America has taken significant strides towards greater heterogeneity in the employee base. But a problem remains at the top. U.S. boardrooms remain overwhelmingly Anglo Saxon and male. No less than 81 percent of the Standard & Poor (S&P) 1500 Index directors in America today are white men. White women account for 11 percent, while ethnic minority men make up 6 percent. Meanwhile, female minority board members account for just 2 percent of the total. For businesses, this is becoming problematic, not least because institutional investors and regulators like the Securities and Exchange Commission have started asking firms to open up about their processes in selecting board members. Where diversity is a criterion, firms are required to be transparent about specifications and frameworks. Shedding light on this issue is new research from Grace Pownall, professor of accounting, and Justin Short, assistant professor of accounting, at Emory University’s Goizueta Business School. Together with Zawadi Lemayian of Washington University, they parsed 12 years of data on gender, ethnicity, and salaries from the S&P 1500 to build a composite picture of who’s who and who’s paid what in U.S. boardrooms. What they found points to a systemic shortage of female and minority executives making it onto shortlists for board appointments. But that’s not all. Once women and minority men do make it onto the board, there’s another roadblock waiting for them: they are not getting promoted at the same rate as their white, male counterparts. There seem to be two complex dynamics at play, said Short: a glass ceiling effect hampering the upward trajectory of Black, female, and other minority executives, and what he and his co-authors call “myopic” bias on the part of corporate America. “We developed two hypotheses that might explain what’s behind the lack of diversity on boards,” explained Short. “The glass ceiling hypothesis comes from what we see as a shortfall of women and ethnic minorities in the workforce relative to white men—so the theory here is that these groups just aren’t getting promoted to the point where they would be considered for board positions.” “The alternative hypothesis we worked on was that there might actually be a plentiful supply, but that companies just don’t see directors from different backgrounds as being as valuable in the same way,” he said. “And we would put this down to some kind of institutional myopia or bias at the very highest echelons of business.” To put these hypotheses to the test, Short and his colleagues first collected demographical data on American board members from a database compiled by Institutional Shareholders Services. Here they were able to determine the gender and ethnicity of individuals. They also ran a simple statistical regression on salaries using data from S&P. Then they compared the two. “Economic theory tells us that if there’s a high demand for diverse directors—women and ethnic minorities—and there’s a low supply of them, then these directors will be able to command higher salaries than others,” said Short. “It’s a simple case of supply and demand, and minorities will come at a greater premium.” Looking at the S&P 1500 data, they found that female and minority directors were indeed getting paid more on average than white male counterparts in other companies. And when they analyzed this more closely, Short and his co-authors found that these salaries were in general being paid by larger, more successful firms. “We can see that women and minorities are commanding higher compensation than the average white male director across the S&P universe of 1500 companies, and it’s the bigger, better paying firms that are hiring them,” Short said. “So that tells us that the top companies are proactively trying to build diversity in their boardrooms. At the same time, it shows there is a deficit of supply in this talent pool—the so-called glass ceiling dynamic.” To understand whether bias or institutional myopia might also be limiting the prospects of Black, female, and ethnic directors, Short et al. also looked at differences in compensation within the same company, and here they found something striking. While they made more on average than the typical white male director in U.S. firms, minority directors were being paid around 3 percent less than their direct counterparts – the white male directors on the same board. All this scrutiny begs the questions: What is going on in the American boardroom? And why is there still such a stark lack of diversity in the upper echelons of business in the U.S. today? “This tells us something important,” said Short. “Once these directors make it to the board, for most of them that’s it. They don’t advance or achieve promotion at the same rate.” This could be due to bias or what Short calls a Rolodex effect: “Maybe it’s because they didn’t go to the same school as the chairman of the board, or weren’t connected socially in the same way, so they don’t appear in the Rolodex of candidates with right or familiar credentials to get promoted within the board,” he said. “We know it’s not about hard skills or aptitudes because the data shows us that women and minority directors typically hold more qualifications than their counterparts. But for whatever reason, once they are on the board, they fail to advance in the same way as white men.” Interestingly, Short and his colleagues found that there was a very small number of women and minority directors sitting on the boards of multiple companies in the U.S. “Pulling it all together, we see that there’s a generalized shortage of women and ethnic group candidates in the U.S.,” Short said. “Successful companies are proactively on the lookout for them and offer higher compensation to attract them. “But there seems to be a glass ceiling effect acting as a bottle neck for talent. We also see that minority directors become a bit stuck once they’re on a board. The upward momentum tails off relative to their white, male colleagues. This could be due to bias or myopic thinking.” All of this should provide rich food for thought for the most senior decision-makers in U.S. enterprises, according to Short and his co-authors. With the pressure on to drive board-level diversity in corporate American, leaders need to be cognizant of the roadblocks or cut-off points to tie to ethnicity and gender. “Diversity is something we urgently need to enable and nurture in the United States. Without diversity, creativity and innovation can stall, and in business you run the risk of deferring to group think—sourcing ideas and perspectives from the same small pool of shared experience or expertise,” said Short. “It’s encouraging to see that diversity has increased over time and the largest companies are proactive. But there are still vast gaps of representation on the board compared to the workforce. There’s still work to be done because diversity in American business should be commonplace.” If you are a journalist looking to cover this research or to learn more about the diversification of corporate boards in America, then let our experts help. Grace Pownall, professor of accounting, and Justin Short, assistant professor of accounting, at Emory University’s Goizueta Business School are both available for interviews; simply click on either expert's icon to arrange a time today.

Big Data Offers New Insights Into Biological Components of Autism Spectrum Disorder

In recently published research, blood sample analysis showed that mothers of children with autism spectrum disorder (ASD) had several significantly different metabolite levels two to five years after they gave birth when compared to mothers of typically developing children. The research team behind this finding was Juergen Hahn, the head of the Department of Biomedical Engineering at Rensselaer Polytechnic Institute, a pioneer in the use of big data to investigate biological components of ASD. Hahn is available to discuss the findings of his recent research, as well as his overall approach to studying autism. Previously, Hahn discovered patterns with certain metabolites in the blood of children with autism that can be used to successfully predict diagnosis. He has since successfully applied his big data approach to evaluating potential ASD treatments. For the recent paper, which Hahn co-authored, his team analyzed blood samples from 30 mothers whose young children had been diagnosed with ASD and 29 mothers of typically developing children. They found differences in several metabolite levels between the two groups of mothers. While the samples analyzed were taken two to five years after pregnancy, these research findings raise the question of whether or not the differences in metabolites may have been present during pregnancy as well. In addition to his specific findings, Hahn is available to discuss the use of big data in improving society's understanding of the biological mechanisms at work in ASD.

Examining the Popularity of the Bernie Sanders Meme

The image is a familiar one to millions across the country: Senator Bernie Sanders sitting with his legs crossed and arms across his chest—wearing a face mask, warm coat and knitted mittens—and watching as Joe Biden was sworn in as the 46th president of the United States on January 20, 2021. Two weeks later, however, the photo looks different. That's because very quickly that inauguration snapshot became an internet sensation, with people photoshopping it to create social media memes—placing Senator Sanders in famous paintings or scenes in movies ranging from the Breakfast Club to Star Trek. But what it is that draws people to these scenes and motivates them to create memes? Charles L. Folk, PhD, a professor of psychological and brain sciences at Villanova University, discusses the psychology behind it all. “Scenes and people activate ‘schemas’ in our memory,” says Dr. Folk. “Schemas are organized structures of knowledge, stored in memory, that are built up through experience. For example, we all have a ‘restaurant’ schema that stores information about the things that are typically in restaurants and the kinds of interactions we can expect in a restaurant.” Research suggests that our attention is drawn to objects that are incongruous with the “context” of a scene, Dr. Folk notes. “Thus, if we see a bedroom scene, our bedroom schema is activated, and our attention would be drawn to an object that is incongruent with that schema—like a toaster in a bedroom scene.” Dr. Folk shares that we have schemas for people as well. “Seeing Bernie Sanders activates our Bernie schema,” he says. “Bernie, in particular, has a very unique schema—so just seeing the picture of Bernie with his Vermont mittens is interesting/humorous because it is quite consistent with our schema of him.” “However, activating our Bernie schema in the context of an incongruent scene schema—like Bernie sitting on the bridge of the Starship Enterprise or a well-known movie set/scene—is particularly alluring precisely because of that incongruity,” continues Dr. Folk. Dr. Folk notes that the development of the app that can place the Bernie meme anywhere in Google Maps motivates people further to create their own versions of outrageous incongruity. “This contributes to the viral nature of the meme,” Dr. Folk says.

Consumer Behavior Has Shifted Significantly During Pandemic, Survey Reveals

The COVID-19 pandemic has brought about significant shifts in people’s behaviors, from a sharp increase in telework and online commerce, to a significant decrease in the number of personal trips people make. Understanding the effects of these rapid changes on the economy, supply chains, and the environment is essential, as some of these behaviors will continue even after the pandemic has ended. José Holguín-Veras, the director of the Center for Infrastructure, Transportation, and the Environment at Rensselaer Polytechnic Institute, is part of a research team conducting a series of surveys in an effort to quantify and understand these unprecedented shifts. For instance, according to the team’s surveys, the number of monthly work trips people made during the start of the pandemic decreased by 60%. Post-pandemic, respondents believe they will still be making fewer work trips than before, down by 8.2%. Monthly grocery store trips decreased by 41.6% when the pandemic happened, with some people shopping less frequently and others shifting to grocery purchases online. Post-pandemic, survey respondents expect to return to the grocery store more often, but still less than before the pandemic began, by about 8.2%. In contrast, monthly delivery of groceries increased by 132.2% during the pandemic, a trend that may not disappear once the pandemic is over. Respondents expect that post-pandemic, their monthly grocery deliveries will still be 63.8% higher than before COVID-19. While all package deliveries increased during this pandemic period, the grocery delivery increase was the largest. The researchers hope their findings help policymakers develop future policies to offset not just the effects of COVID-19, but also the lasting changes that may result even after the pandemic has ended. Holguín-Veras is available to talk about the research team’s findings, and the importance of understanding these significant shifts.

Renowned educator and author Gloria Ladson-Billings to present Georgia Southern 2021 Fries Lecture

Gloria Ladson-Billings, Ph.D., renowned pedagogical theorist, teacher educator and author, will present the 2021 Norman Fries Distinguished Lecture, hosted by Georgia Southern University’s College of Education. In her lecture, “Culturally Responsive Pedagogy: Educating Past Pandemics,” Ladson-Billings will discuss how pandemics provide opportunities for revisioning and reimagining culturally relevant teaching practices. She suggests that instead of “getting back to normal,” it is time to get on to new and more equitable ways of educating all students and creating a more democratic society. Ladson-Billings is the former Kellner Family Distinguished Professor of Urban Education in the Department of Curriculum and Instruction and faculty affiliate in the Department of Educational Policy Studies at the University of Wisconsin-Madison. She also served as the 2005-06 president of the American Educational Research Association (AERA). Ladson-Billings’ research examines the pedagogical practices of teachers who are successful with Black students. She also investigates critical race theory applications to education. She is the author of critically acclaimed books The Dreamkeepers: Successful Teachers of African American Children and Crossing Over to Canaan: The Journey of New Teachers in Diverse Classrooms, as well as numerous journal articles and book chapters. About Ladson-Billings Former editor of the American Educational Research Journal and a member of several editorial boards, Ladson-Billings’ work has won multiple scholarly awards including the H.I. Romnes Faculty Fellowship, the National Academy of Education/Spencer Postdoctoral Fellowship and the Palmer O. Johnson Outstanding Research Award. She is a 2018 recipient of the AERA Distinguished Research Award and was elected to the American Academy of Arts and Sciences in 2018. About the Norman Fries Distinguished Lectureship series The annual Norman Fries Distinguished Lectureship series began in 2001. It is funded by an endowment in honor of Norman Fries, founder of Claxton Poultry. In his more than 50 years of business, Fries built the company from a one-man operation into one of the largest poultry production plants in the U.S. Past Fries lecturers include David Oreck of Oreck Vacuums, South African apartheid author and lecturer Mark Mathabane, NASA director James W. Kennedy, Pulitzer Prize-winning author and historian Gordon S. Wood, Nobel Prize laureate William D. Phillips, Ph.D., bestselling author Susan Orlean, concussion expert Dr. Russell Gore, and PricewaterhouseCoopers Network chief operating officer Carol Sawdye. The lecture will take place virtually via Zoom on Feb. 8 at 7 p.m. The event is free and open to the public. If you are a journalist looking to know more about the Norman Fries Distinguished Lectureship or would like to interview Gloria Ladson-Billings  -- simply reach out to Georgia Southern Director of Communications Jennifer Wise at jwise@georgiasouthern.edu to set and time and date.

Georgia Southern cuts the ribbon on a new $60 million facility that will be the epicenter for engineering excellence and innovation

Last Friday, Georgia Southern officially opened its new Engineering and Research Building for students and researchers, a facility that will serve as the epicenter for engineering excellence and innovation in southeast Georgia. The building is designed to facilitate academic and institutional partnerships, inspire creative engineering and accelerate academic success for students in the College of Engineering and Computing. Through the instructional research labs and academic spaces that bridge theory and practice, students will be prepared to solve today’s challenges and to make tomorrow’s discoveries. “Today marks the culmination of years of forethought and investment from a number of state leaders, industry leaders and local advocates, who paved the way for us to be here,” said Georgia Southern President Kyle Marrero. “Leaders who, dating back to the 90s, could see the future of a growing industry, a state on the precipice of being a national leader in technology and innovation, and a critical need to develop talent in applied engineering across south Georgia.” The Engineering and Research Building’s sleek, contemporary environment defined by glass and natural light, soaring high-bay ceilings and modern, industrial feel is strengthened by new, industry-relevant equipment, instrumentation and technology that encourage active learning and sustainability. The highly efficient facility includes sustainable features that complements existing spaces on campus. The three-story building houses applied research spaces with a strong focus on manufacturing engineering, civil engineering, electrical and computer engineering, and mechanical engineering. The workspaces can be easily reconfigured for various uses, projects and applications and provide students with access to industry-grade equipment as well as expanded opportunities for undergraduate research. “The investment of the Engineering and Research Building solidifies Georgia Southern University’s commitment to students in providing a world-class education in the engineering field, while providing the space and resources necessary to facilitate such,” said student Kristifer Bell. “I am enthusiastic to continue my research work and look forward to the interdepartmental collaboration that will be encouraged through the housing of new student and faculty labs under one roof.” The full media release about this historic occasion is attached – and if you are a journalist looking to know more about this facility or Southern Georgia University -- simply reach out to Georgia Southern Director of Communications Jennifer Wise at jwise@georgiasouthern.edu to set and time and date.

Lockdown teleworking impacts productivity of women more than men

When the COVID-19 pandemic led countries all over the world to lock down their economies in early 2020, there was an unprecedented global shift to teleworking in white collar sectors. A trend that had been gathering traction was suddenly and exponentially accelerated and many of the world’s largest corporations, Google and Facebook among them, have announced plans allowing employees to work from home well into 2021 or indefinitely. Remote working not only appears to work, but it appears to have a number of advantages—savings in office maintenance costs and time spent commuting, not to mention enabling organizations to safeguard productivity when there’s a major shock or crisis. But is it all good news? Or good news for all? A new paper by Ruomeng Cui, assistant professor of information systems and operations management at Emory’s Goizueta Business School, reveals an important drop in the productivity of female academics around the world in the wake of the COVID-19 lockdowns. In fact, in the ten weeks following the initial lockdown in the United States, their productivity fell by a stunning 13.9 percent relative to that of male colleagues. And it’s likely to do with the disproportionate burden of responsibility for household needs and childcare that persistently falls on women, Cui said. “We know that gender inequality persists both in the workplace and at home, and we were curious to see how the lockdown scenario would attenuate or exacerbate the situation for women,” Cui said. Anecdotal evidence from her own field—academia—showed that in the weeks following the stay at home mandate in March, there was an upswing of around 20 to 30 percent of papers submitted to journals. However, the overwhelming majority of these were being authored by men. Intrigued, Cui teamed up with Goizueta doctoral student Hao Ding and Feng Zhu from Harvard Business School to conduct a systematic study of female academics’ productivity and output during this period. “We knew that the lockdown had disrupted life for everyone, including academics. With schools and kindergartens closed and people taking care of work and household obligations at home, we intuited that women would be affected more than men as they are disproportionately burdened with domestic and childcare duties,” Cui said. For female academics this would theoretically be particularly acute, as the critical thinking that goes into research calls for quiet, interruption-free environments. To put this to the test, Cui and her co-authors created a large data set covering all the new social science research papers produced by men and women, across 18 disciplines and submitted to SSRN, a research repository, between December 2018 to May 2019 and then from December 2019 to May 2020. From this set, they were able to extract information on titles, authors’ names, affiliations, and addresses to identify their countries and institutions, as well as faculty pages to distinguish between men and women. In total they collected just under 43,000 papers written by more than 76,000 authors in 25 countries. Looking at the data, Cui and her colleagues were able to compute the total number of papers produced by male and female academics each week and then compare the productivity of both before and after the start of the lockdown. Prior to the pandemic, the 2019 period showed no significant changes in productivity in either gender. But in the 10 weeks following the shock of lockdown, a clear gap emerges between men and women, with female academics’ productivity falling by just under 14 percent in comparison to their male colleagues. Interestingly the effect was more pronounced in top-ranked research universities. This is likely because top schools require faculty to publish research as the primary requisite for promotion, so men would be motivated to continue authoring papers before and after the lockdown. These findings lend solid, empirical clout to the notion that women do take a hit to productivity when care and work time are reorganized, Cui noted. “We see clearly that women are producing less work as a consequence of working from home. In the field of academia, that has huge implications as achieving a permanent position, or tenure, is generally linked to your research output,” she said. “So, there is a serious fairness issue there. If women are producing less because the burden of household responsibility is greater for them than for men, then you’re likely to see fewer female academics get tenure through no fault of their own.” Indeed, one of the other findings of the study shows that while productivity fell, the quality of female-authored research measured by downloads and citations did not. Then there’s the issue of teleworking and gender. With a significant proportion of the world’s white-collar organizations still working from home and unlikely to head back to the office any time soon—and as many schools and childcare facilities remain closed due to the pandemic—Cui is concerned that productivity as a measure of value and a marker of success might mean the odds are further stacked against women. And not just in academia. “We looked at universities in particular, but our findings can really be externalized to any other industry because the underlying issues here are universal. So, with remote working becoming normalized, I think there’s a real onus on organizations of every type to think about how to mitigate these unintended consequences,” she said. “There needs to be more thought about how we measure value or potential of employees.” Cui calls for organizations and institutions to consider these factors when they evaluate male and female workers in the present context and looking to the future. Among the kinds of proactive moves they might consider are to make training programs for male and female employees that explore fairness and encourage a more even distribution of responsibility in the home and for children. “There’s nothing to be gained in prioritizing productivity as a tool for evaluation and just giving women more time, say, to produce as much,” Cui warned. “You’re just left with the same scenario of women doing more than their fair share. Solving this issue is really much more about being aware of it, getting educated about it, and changing your mindset.” If you are a journalist looking to cover this research or speak with Professor Ciu about the subjects of telework and productivity, simply click on her icon now to arrange an interview today.

Network Science Offers Key Insights into Polarization, Disinformation, and Minority Power

People tend to think of the arena of politics as being driven by human decision and emotions, and therefore unpredictable. But network scientists like Boleslaw Szymanski, a computer science professor at Rensselaer Polytechnic Institute, have found that the country’s political activity – from American society’s ever-growing partisan divide to its grappling with the spread of misinformation online – can be explained by abstract and elegant models. These models provide insights — and even answers — to a number of pressing questions: Is increasing access to information driving us apart? Can an entrenched minority ultimately prevail? Could structural changes be made that insulate us from misinformation and reduce the polarization that divides us? Szymanski studies the technical underpinnings of our choices, how we influence one another, and the impact of the algorithms we rely upon to navigate a growing ocean of information. His work has yielded fascinating insights, including research on how a committed minority will overcome less determined opposition and the development of a parameter to determine what drives polarization in Congress. Through his research on the influence of minority opinions, Szymanski found that when just 10 percent of the population holds an unshakable belief, it will ultimately be adopted by the majority of the society. “When the number of committed opinion holders is below 10 percent, there is no visible progress in the spread of ideas. It would literally take the amount of time comparable to the age of the universe for this size group to reach the majority,” said Szymanski, a computer science professor at Rensselaer Polytechnic Institute. “Once that number grows above 10 percent, the idea spreads like flame.” In his present work, Szymanski is researching tools for measuring the level of polarization in specific news sites, search engines, and social media services, and developing remedies, like algorithms that offer better data provenance, detect misinformation, and create internal consistency reasoning, background consistency reasoning, and intra-element consistency reasoning tools. “Informed citizens are the foundation of democracy, but the driving interest of big companies that supply information is to sell us a product,” Szymanski said. “The way they do that on the internet is to repeat what we showed interest in. They’re not interested in a reader’s growth — they’re interested in the reader’s continued attention.” With the political environment becoming increasingly bitter and dubious information becoming ever more prevalent, Szymanski is available to discuss his research on polarization, disinformation, and the power of a committed minority.

The Alexa Effect: How the internet of things (IoT) is increasing retail sales

Imagine this scenario. You’re out of coffee but with the click of a button or a simple voice command, you reorder a two months’ supply that will arrive the same day. And that almond milk you like? Well, imagine your fridge already knew you were running low on supplies and independently sent the order to restock before you ran out. The stuff of science-fiction until only recently, internet of things (IoT) technology is beginning to change the way we live and work. Simply put, IoT is a system of interrelated devices—things that can include gadgets, digital objects, or machines, wearables and so on—which have the capacity to send and receive data over a network without human agency or human interaction. As a technology, IoT is novel, and it’s poised to reconfigure a range of sectors and industries—among them, the world of retail. Amazon is a leader in the consumer-facing space with an ecosystem of apps like Alexa, Fire TV, and the now-defunct Dash Button. Meanwhile, tech-savvy retailers are using IoT to facilitate operations. Smart shelves in stores can detect the status of perishable goods or inventory requirements; radio frequency identification (RFID) sensors can actively track the progress of produce through the supply chain. Retailers can even use IoT to send customers personalized digital coupons when they walk into the store. As IoT continues to gain traction around the globe, the potential for efficiency-boosting innovation in retail is clear. Less clear, however, is its actual impact on consumer choices and behaviors. Sure, IoT can save time and mental effort, but how does that translate into real-world business outcomes? This is the question that underscores new research by Vilma Todri and Panagiotis Adamopoulos, both assistant professors of information systems and operations management at Emory’s Goizueta Business School. They were keen to understand whether consumer behavior is significantly changed under the regime of this new technology as it continues its roll out across the world. Specifically, they wanted to know if IoT technology actually increases demand for products. And it turns out that it does. “IoT technology in retail is really in its infancy, so understanding its impact on users and business is key,” Adamopoulos said. “We wanted to shed light on these dynamics at this early point to spark interest and generate more debate around how retailers can leverage this technology.” Together with Stern’s Anindya Ghose, he and Todri put together a large data-set with information about sales of certain products in countries with existing IoT retail markets and in others where the technology has not yet been introduced. “We needed to take into account these sorts of variables to really understand the effect,” Todri said. “So, we had our control group of non-IoT retail markets, and we were able to compare sales data for the same products in countries where the technology has been adopted.” The researchers also controlled for time trends, looking at the impact on sale prior to and post IoT adoption. “Looking at the data over time and pinpointing the exact moment when a product has been made available for sale via IoT sales channels across different countries and at different moments, we were able to infer the effect of the technology on product sales,” Todri said. In total, they looked at sales for the same or similar products in six countries between 2015 and 2017. They also compared sales across different retailers. “By analyzing the same sales information for different products in different markets using different channels across the world, we can see differences in the data that can only be attributable to this new technological feature,” Adamopoulos said. And the differences are significant. The concept is fascinating, and if you are interested in learning more, a complete article about this topic is attached: If you are a journalist or looking to learn more about IoT, our experts can help. Vilma Todri and Panagiotis Adamopoulos, both assistant professors of information systems and operations management at Emory’s Goizueta Business School. Both experts are available to speak with media; simply click on either expert's icon to arrange an interview today.

Heads up CFOs: The capital asset pricing model still rules

Firms invest in various things: bonds, stocks or other assets—new stores, new premises or even other firms. And they do so to earn maximum value from available cash that would otherwise be idle. For example, for the last five years Walmart generated an annual cash flow of more than $25 billion from its operations. The retailer has the option to channel this cash into opening new stores, ultimately growing its business and profits. Alternatively, Walmart can pay the cash out to its shareholders in the form of dividends, or through share repurchases. So far, it’s been productive. However, this win-win scenario is contingent on successfully navigating a number of complexities. Primary among these is that to invest optimally, you first need to determine the correct hurdle rate for that investment. Hurdle rates are the minimum rates of return that firms seek on their investments. The hurdle rate is the appropriate compensation commensurate with the investments’ risk. Therefore, the higher the risk, the higher the hurdle rate needs to be. For instance, a hurdle rate of 10% means that for every $100 invested, you would expect to earn an average of $10 average per year. But it’s tricky. You have to calculate the right hurdle rate that would add the most value for your shareholders—the optimal rate of return for you and your business. Too high and there’s risk of missing out on a good investment. If your right hurdle rate is 10%, but you mistakenly opt for 15%, you’re likely to ignore any investment that is projected to earn you less than 15%, but more than 10% is likely to be missed. As a result, you’ll end up leaving money on the table. Too low a hurdle rate and you’re in danger of burning money. Again, supposing your hurdle rate should be 10%, but you set it at 5%, you’re likely to end up investing in things with a suboptimal return. In the end, you’re wasting your cash on low value investments when you could be paying it directly to your shareholders in dividends and giving them the chance to earn 10% return on their own. For the last 50 years, the financial world has built models to calculate hurdle rates and rates of return. But which one works best? Shedding critical new light on this is a recently published paper by Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance at Goizueta, entitled “Empirical tests of asset pricing models with individual assets.” Jegadeesh and his co-authors developed new statistical methods to differentiate among a raft of new models that have been developed in recent years and to compare their efficacy to that of the Capital Asset Pricing Model (CAPM), a model introduced in the 1960s. What they found is that none of the newer models work any better than the CAPM in determining the appropriate hurdle rate or rate of return of an asset. That paper is attached and is required reading for CFOs and anyone interested in the Capital Asset Pricing Model. If you are looking to know more, or if you are a journalist interested in covering this important aspect of business and investing – then let our experts help. Narasimhan Jegadeesh is Dean’s Distinguished Chair of Finance at Goizueta. He is a renowned expert in this field and has been published extensively in the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies and other leading academic finance journals. His research has been discussed in several publications including Businessweek, The Economist, Forbes, Kiplinger's Personal Investments, Money, New York Times, and Smart Money.