Connections and Context in Finance Research

• Published date: 01 February 2018
• Author: Jarrad Harford
• DOI: http://doi.org/10.1111/ajfs.12206
• Date: 01 February 2018

Connections and Context in Finance

Research*

Jarrad Harford**

Michael G. Foster School of Business, University of Washington, United States

Received 28 December 2017; Accepted 12 January 2018

Abstract

In this paper, I discuss my view of how research in corporate finance has, over time, added

more context to our study of corporate activities. This has involved progressively moving

from seminal event studies that provided the unconditional price response to an event, to

using firm characteristics to condition the response, to industry and eventually network

effects. I emphasize the potential of network analysis to substantially increase our understand-

ing of the motivations, implications, and value effects of corporate activities. I further point

to examples in the literature where this has been successful and provide some thoughts on

future directions.

Keywords Corporate finance; Mergers and Acquisitions; Networks

JEL Classification: G30, G34

1. Introduction

For researchers starting their careers, the 1980s must have seemed like the “Golden

Age” of empirical research. Large, machine-readable datasets covering stock prices

and financial statement information were widely available, mounted on mainframes,

and ready to study. Programming had moved beyond punch cards, and researchers

now used terminals sending FORTRAN and SAS codes to be executed. Analysis

could be returned in minutes instead of hours or days. Many leaps forward in

empirical corporate finance were achieved by scholars who combined hand-collected

event datasets with the CRSP and Compustat databases [cites too numerous to list,

but many are covered in Smith (1986, 1990)]. Many of our seminal event study

results were produced during this time.

*This paper is based on what I have learned and thought about over years of doing research

and so has benefited from my interactions with all my co-authors. I have also specifically

benefited from the comments of the audience at the 2017 Conference on Asia-Pacific Finan-

cial Markets (CAFM), and of Kwangwoo Park, the Editor.

**Corresponding author: Michael G. Foster School of Business, University of Washington,

Seattle, WA 98195-3226, USA. Tel: +1-206-543-4796, Fax: +1-206-543-7472, email: jarrad@

uw.edu.

Asia-Pacific Journal of Financial Studies (2018) 47, 7–20 doi:10.1111/ajfs.12206

©2018 Korean Securities Association 7