Welcome to my website! I’m Alex Edmans, a Professor of Finance, who focuses on corporate governance, responsible business, and behavioral finance.
This website contains both academic research and resources for practitioners. The latter include newspaper articles, submissions to policy consultations, blog posts and talks, applying research by myself and others to real-world issues.
New book: Grow the Pie: How Great Companies Deliver Both Purpose and Profit (order link). FT Business Books of the Year, 2020; FT/ISFFC Award for Excellence in Sustainable Finance Education, 2021
– Korean translation (published as “ESG 파이코노믹스”)
Jul 21: Music Sentiment and Stock Returns Around the World forthcoming in Journal of Financial Economics. We introduces a real-time, continuous measure of national sentiment – the positivity of songs that citizens listen to – and link it to abnormal stock returns (which subsequently reverse), volatility, and mutual fund flows.
Jul 21: New paper, When Is (Performance-Sensitive) Debt Optimal? Existing theories of debt assume output is the only contractible performance measure available. We show that debt continues to be optimal when the firm has access to other performance signals – and how these signals should affect the debt repayment, leading to performance-sensitive debt.
Jun 21: New paper, CEO Compensation: Evidence From the Field. We survey directors and investors on how they set CEO pay in practice, revealing a number of departures from mainstream academic models.
Jan 21: How Should Performance Signals Affect Contracts? forthcoming in Review of Financial Studies. The informativeness principle demonstrates that a contract should depend on informative signals. This paper studies how they should do so.
March 20: The Long-Term Consequences of Short-Term Incentives (updated). The imminent vesting of equity causes CEOs to undertake repurchases and M&A that destroy long-term value.
July 19: Governance Under Common Ownership published in Review of Financial Studies. Common ownership can improve corporate governance, rather than leading to anti-competitive behavior.
July 19: Financing Through Asset Sales published in Management Science.
Jan 19: The Informativeness Principle Without The First-Order Approach published in Games and Economic Behavior.
Nov 18: Strategic News Releases in Equity Vesting Months. Lead article in Review of Financial Studies. CEOs strategically reallocate news releases to coincide with months in which their equity is vesting.
Oct 17: The Source of Information in Prices and Investment-Price Sensitivity published in the Journal of Financial Economics. Managers learn from prices to guide their investment decisions – financial markets matter for the real economy. But value of financial markets depends not on the total amount of information in prices, but where this information comes from.
July 17: Executive Compensation: A Survey of Theory and Evidence. New survey paper on executive compensation, containing (1) Data on CEO and other top executive pay over time and across firms, including private firms and non-US firms. (2) Critical analysis of three explanations for the drivers of pay: shareholder value maximization (including a simple unifying model), rent extraction, institutional influences. (3) The “effects” of executive pay and challenges in causal identification. (4) Directions for future research.
July 17: Blockholders: A Survey of Theory and Evidence. Survey paper for the Handbook of the Economics of Corporate Governance on: underlying property rights of public firms and role of blockholders; definition of a blockholder; new evidence on frequency and characteristics of blockholders; simple model unifying theories of voice and exit; review of empirical studies; future research directions.
What Stakeholder Capitalism Can Learn From Jensen and Meckling (ProMarket)
What Stakeholder Capitalism Can Learn From Milton Friedman (ProMarket)
Why Shareholder Capitalism Benefits Wider Society. How “shareholder capitalism” is widely misunderstood – for example, “short-term shareholder value” is an oxymoron since shareholder value is inherently a long-term concept. (VoxEU). French version (Finance & Gestion).
The Dangers of Sustainability Metrics. There’s an ever-increasing trend towards sustainability reporting – but it’s important to be mindful of the unintended consequences (VoxEU). Featured in New York Times Dealbook.
Does Sustainability Reduce the Cost of Capital? People often claim that sustainable companies have a lower cost of capital – but it’s much more nuanced than that (VoxEU)
Evaluating Research. A user’s guide to knowing what research we can trust. German translation.
How to Give Shareholders a Say in Corporate Social Responsibility (Wall Street Journal)
Why Many People Misunderstand Dividends, and the Damage This Does (Wall Street Journal). Follow-up article responding to reader questions. Dividend Policy in Purposeful Companies: paper I authored for The Purposeful Company
How Great Companies Deliver Both Purpose and Profit (LBS Review)
Future Leaders, Take Note: Finance and Sustainability Go Together (Financial Times)
Fund Industry Can Flush Out the Closet Trackers (Financial Times)
Stewardship Must Be Embedded Across the Investment Chain (Financial Times)
The Case for Stock Buybacks (Harvard Business Review)
The Answer to Short-Termism Isn’t Asking Investors to Be Patient (Harvard Business Review)
Jan 21: Is Short Termism Really a Problem? Talk at the American Finance Association 2021 annual meeting (special session on “Short-Termism and Investment”)
Dec 20: The Case For Stakeholder Capitalism. Debate with Lucian Bebchuk, hosted by LBS Centre for Corporate Governance and European Corporate Governance Institute. Video
Nov 20: Critique of European Commission’s Study on Sustainable Corporate Governance. Talk at European Corporate Governance Institute
Study on the effect of share buybacks on executive pay and investment, for the UK government (summary)
Study on the effect of executive pay on investment, for the UK government (summary)
Dividend Policy in Purposeful Companies. Paper I authored for The Purposeful Company
Response to FRC’s Consultation on corporate reporting
Response to European Commission’s study on sustainable corporate governance
Response to FRC’s Pre-Consultation on the Stewardship Code, on the importance of exit/trading as a governance mechanism
Response to the FRC/FCA Joint Consultation on a Regulatory Framework for Stewardship, clarifying the academic evidence on shareholder engagement
Response to FRC’s Pre-Consultation on the Corporate Governance Code, addressing diversity
Response to government’s Green Paper on Corporate Governance
Response to government’s Green Paper on Industrial Strategy
Response to Financial Conduct Authority’s discussion paper on the primary markets landscape
Written evidence to House of Commons Corporate Governance Inquiry on CEO pay, workers on boards, shareholder vs. stakeholder maximisation
Oral testimony in House of Commons (transcript)
Supplementary written evidence: short-term trading, dividends and repurchases are not bad for society; further evidence on workers on boards
Written evidence to House of Commons Executive Pay Inquiry advocating simple, transparent, and long-term schemes
Simplicity, Transparency, and Sustainability: A New Model for CEO Pay. (Many elements are recommended by House of Commons Select Committee on Corporate Governance and UK Government’s Green Paper on Corporate Governance Reform)
Compilation of non-technical, practitioner article on executive pay
Letter to SEC on why they should not force pay ratio disclosure
When CEO’s Equity Is About to Vest, They Cut Investment to Boost the Stock Price (Harvard Business Review)
Why Elon Musk’s Compensation Plan Wouldn’t Work For Most Executives (Harvard Business Review)
Why We Need to Stop Obsessing Over CEO Pay Ratios (Harvard Business Review)
Link Executive Pay to Wider Societal Benefits (FT Op-Ed)
Stop Making CEO Pay A Political Issue (Harvard Business Review)
Performance-Based Pay For Executives Still Works (Harvard Business Review)