It has been almost two years since I joined from HEC Paris after working at the London School of Economics (1995-2000) and the London Business School (2000-2004). What attracted me back then was the clear research push and strong academic orientation that EDHEC Business School was going for. Since then, the School’s determination and potential to further develop in these directions have reinforced each other. While we already have a solid research workshop series and excellent academic discussions, there’s the clear prospect of a strengthening finance group.
I previously was working on asset-pricing models such as valuation of defaultable bonds, where my contribution consisted of importing corporate finance arguments into continuous-time asset-pricing models. In particular, I described the pricing impact of opportunistic/blackmailing behaviour on the part of shareholders with respect to bondholders. I gradually shifted to a larger focus on corporate finance where my contribution consisted of bringing dynamic modelling into the picture. I have now moved to problems of double moral hazard present in partnerships, joint ventures, and decisions to merge; the main focus of my research is on the importance of opportunistic knowledge acquisition. I am also working on models of industry growth, firm creation, and their relation to the process of innovation. This more recent strand of research contributes to a literature bridging finance and strategy.
The paper I presented (Firm spawning dynamics, written with Michel Habib of the Swiss Banking Institute at the University of Zurich and Ulrich Hege of HEC Paris) develops a dynamic theory of entrepreneurial spawning. We assume that employees have innovative ideas and hold an expropriable option to develop them independently in new firms. Spawning permits a positioning of the new firm which is closer to the innovation, but precludes access to the private knowledge developed by the parent firm. The paper explores this fundamental trade-off and its dynamic evolution which determine the creation of new firms and the growth of existing firms. Our model implies that young firms spawn more than old firms and that focused firms spawn more. Firms that are spawned from more focused firms tend to be more focused, and will be more closely related to the parent firm. Parent firms whose profitability depends more on knowledge relative to proximity will realise more innovations in-house and spawn fewer new firms than comparable but less knowledge-dependent firms. We also extend our analysis to explore the role of the advisory function of venture capital investors.
I teach the first part of the course – the second part being taught by Florencio López de Silanes. The first part of the course is mostly theory and examines contracting issues in the most discussed area of application, capital structure. It also looks at dynamic arguments in contracting using real options models.
I was most positively impressed by their reaction to this material, which I initially thought was distant from their backgrounds and objectives. The material is thin on asset pricing and heavy on theory, and I give a fairly hardcore version of the course; I was impressed by the students’ intellectual curiosity and by their ability to recognise the importance of bargaining and contracting issues for their own purposes and research interests.
Since the EDHEC PhD in Finance mixes the traditional audience of a doctoral programme – young university graduates – with the type of experienced practitioners you may find on the best Executive MBAs, one might expect the PhD course to be similar to an MBA course. As it should be, the PhD course is very different from a high-level MBA course; it gives a hard academic presentation of the material, which is something the MBA avoids. PhD students accept that and do not ask for shortcuts.
The executive track of the PhD seems to attract students who do not undertake the programme for short-term professional gains but much more for very pure personal and intellectual objectives. This makes the experience unique. Our PhD students are guided by a genuine thirst for knowledge and have demonstrated strong willingness to work and absorb difficult material; it is a pleasure to help them in their pursuits.