School of Management hosts accounting/finance forum
September 14, 2010Tweet
Contributing factors to the subprime mortgage crisis were among the topics of interest when business faculty from across New York state gathered on campus last week. The School of Management hosted the Third Annual New York Accounting and Finance Forum (NYAFF) Conference at the Anderson Center on Sept. 10. A faculty member and doctoral student from SOM were two of the presenters during the full-day session.
Mustafa Ciftci, assistant professor of accounting, discussed “Managerial Optimism and Cost Behavior”, a paper he wrote with Raj Mashruwala, assistant professor of accounting at the University of Illinois at Chicago; and Rajiv D. Banker, Merves Chair in Accounting and Information Technology at Temple University. In the paper, Ciftci and his colleagues say managers are more likely to increase costs when they see two consecutive periods of sales increase – and feel confident about future demand – than they do when future demand is uncertain.
During the PhD students’ session, Ming Liu, a doctoral student in finance, discussed “Are short sellers informed? Evidence from the 2007-08 subprime mortgage crisis”, a paper he co-authored with Tongshu Ma, associate professor of finance; and Yan Zhang, assistant professor of accounting. They examined the short-selling activities of financial firms around their first-time announcements of write-downs on the value of subprime mortgage loans or securities. They found that short sellers accumulate short positions prior to write-down announcements, and that stocks experience significantly negative returns surrounding write-downs. They suggest that regulators should mandate that stock exchanges disclose short interest data more frequently.
Keynote speaker Burton Hollifield, professor of financial economics at Carnegie Mellon University, discussed his research on the role mortgage brokers played in the subprime housing crisis. He said New Century Financial Corporation is one example of a financial institution giving incentives to mortgage brokers who sell risky loans. He found that brokers earned an average of more than $5,000 for each loan they originated.
“[New Century] did a lot of piggyback loans, and a lot of the famous loans where no documentation was needed,” Hollifield said. “All of this drove up the money the broker was making. New Century started out as a subprime lender, as a lot of the borrowers had low FICO scores. Over time, the average FICO scores went up, but the loans were riskier because there was less money down.”
Visit the SOM website to see the research papers discussed at the NYAFF conference.