Credible financial statements help firms raise financing and increase investment — Nemit Shroff

MIT Sloan Assistant Professor Nemit Shroff

MIT Sloan Assistant Professor Nemit Shroff

From Columbia Law School Blue Sky Blog

One of the primary purposes of financial statements is to facilitate the exchange of capital between investors and companies. The extent to which investors rely on the information reported in financial statements depends on the credibility of those financial statements – that is, the trust or faith investors have in the financial statements presented to them. Typically, companies establish the credibility of their financial statements by having an independent auditor verify the accuracy of those disclosures. However, the effect of auditing on financial statement credibility depends on the independence of the auditor and the rigor with which the audit is performed. An increase in reporting credibility can increase the degree to which investors rely on financial statement information for both writing debt (and other) contracts that govern the terms under which capital is exchanged and informing investors about companies’ operations and performance. As a result, an increase in reporting credibility can increase the company’s access to external finance, which can increase its ability to invest in new projects.

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Why the next big ideas might not get money they need — Jean-Noel Barrot

MIT Sloan Assistant Professor Jean-Noël Barrot

MIT Sloan Asst. Prof. Jean-Noël Barrot

From WSJ MarketWatch

Concern is mounting that the venture-capital model might be broken. Returns have been relatively poor in the past decade. More importantly, perhaps, the innovation outcome has been somewhat disappointing. As PayPal cofounder Peter Thiel complained, “We wanted flying cars; we got 140 characters.”

One key reason for this might be the way venture-capital funds are typically structured. Such funds have been organized for decades as limited partnerships, raising commitments among external investors to be invested and returned within 10 years.

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Wall Street’s next bet: Cures for rare diseases — Andrew Lo

MIT Sloan Professor Andrew Lo

MIT Sloan Prof. Andrew Lo

From Fortune

What if I told you about an investment fund that diversifies your portfolio, shields you from fluctuations in the stock market, and earns double-digit returns? Sounds interesting, right?

Did I mention that this investment also creates potentially life-saving treatments for deadly rare diseases?

This fund doesn’t exist — at least not yet. I’m cautiously optimistic, however, that in the near future we’ll see the launch of an orphan disease “mega-fund” that finances early-stage biomedical research and drug development and is also a tidy investment. Read More »

Climbing a Wall of Worry — John DeTore

MIT Sloan Sr. Lecturer John DeTore

The U.S. stock market is now at new highs. So why are average Americans continuing to struggle and not feeling this prosperity? What causes this apparent disconnect between market highs and citizen well-being?

As the expression goes, stocks are climbing a wall of worry. And by our estimates, despite economic malaise, the stock market hasn’t peaked, and we’re still on the way up. Here are some reasons why:

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