The Value of Finance

“Though finance has caused great things and great value to society, there’s a flip side to it as well. Finance is about using other people’s money and things can go horribly wrong if incentives are misaligned. We saw this in the recent financial crisis. ”

Utpal Bhattacharya

Associate Professor of Finance 

Utpal Bhattacharya has taught finance at a top university in a different country every summer since 1993—including New Zealand, France, Russia, Japan, Brazil, and the United States—but he says there’s something special about Kelley’s finance department. “About 25 percent of the faculty members are women,” he observes.

He believes that these female role models will attract more women to the field. “Finance is a great profession, and I want people, especially women, to consider it.” Bhattacharya observes, “Finance is very interesting, can be done from anywhere, pays very well, and, if done right, creates a lot of value for society.”

According to a March 2008 Financial Planning article, women make up only a quarter of the financial services industry, and a 2006 study by Catalyst, a nonprofit organization devoted to helping women advance in business, found that only 16 percent of corporate officers in the finance and insurance industries are women. It’s Bhattacharya’s mission to break this “finance jinx,” starting with his seven-year-old daughter. “We work on math problems together all the time.”

She couldn’t have a better teacher. Bhattacharya has taught in the finance department for 13 years and has been invited to present his research at more than 140 institutions in 24 countries in 5 continents. He has been nominated for the Trustee Teaching Award for five years in a row—2009, 2008, 2007, 2006, and 2005—and he won in 2005 and 2008.

The Dark Side of Finance

His research focus is primarily on the “dark side” of finance—an area that has grown increasingly important as people seek explanations for the financial crisis. “Though finance has caused great things and great value to society, there’s a flip side to it as well,” Bhattacharya explains. “Finance is about using other people’s money and things can go horribly wrong if incentives are misaligned. We saw this in the recent financial crisis.”

Regulation is one way to properly align incentives, and effective financial regulation is an area that Bhattacharya has long studied. A trio of his papers explore the importance and effectiveness of insider trading regulation. The first, “When an Event Is Not an Event: The Curious Case of an Emerging Market” (Journal of Financial Economics, 2000) showed that prices of stocks in the Mexican stock exchange did not respond to public announcements of company news because of rampant insider trading. The second, and most widely cited of the three, is “The World Price of Insider Trading” (Journal of Finance, 2002.) This paper showed that many countries with laws prohibiting insider trading do not enforce their laws, leading to a higher cost of equity. Thus it is not enough to have laws on the books; they must be enforced. Finally, “When No Law Is Better than a Good Law” (forthcoming in the Review of Finance) shows that when countries pass laws against insider trading but do not enforce them, the cost of equity also increases. So in some cases, it may be preferable to have no laws rather than having laws that are not enforced.

The Kelley Advantage

Though he says that every university has its own strengths and weaknesses, Kelley is unique by having a collegial, collaborative atmosphere that is still very rigorous. “Here, we keep the standards high,” he says. “The American education system is great for the people who want to take the initiative. I’ve taught at a lot of schools, including Duke and MIT, and my best students at Indiana compare with their best students.”

And breaking the “jinx” will ensure that these top finance students include women. “At the end of the day, it’s dollars and cents. And math is really not that difficult; you just have to get over the math phobia. So that’s my mission, starting with my daughter.”

Utpal Bhattacharya is featured in the Spring 2010 issue of IU's Research & Creative Activity, "Inside Insider Trading".