Prof. Juan José Toribio and Vicente Cuñat, lecturer at the London School of Economics, provided opening remarks at the 17th Annual Finance Forum, organized by IESE and AEFIN (Spanish Finance Association), held Nov. 4-5 at IESE's Madrid campus.
 
The 2-day event featured 92 presentations of papers by researchers from across the globe. The topics covered included banking, macroeconomics, asset prices, investment and market microstructure. IESE professors taking part in the forum were Javier Estrada, Heinrich von Liechtenstein, Xavier Vives and Carles Vergara. The event was supported by IESE's Department of Finance.
 
On the first day of the event, participants debated a wide range of topics including the banking crisis, the concentration and regulation of the finance sector, stagnation in monetary markets and profitability forecasts for government bonds.
 
Among the speakers was Alexander Ljungqvist, Ira Rennert Professor of Finance and Entrepreneurship at New York University's Stern School of Business and editor of the Review of Financial Studies, who discussed the issue of supervising managers at firms. Prof. Ljungqvist warned that "after every major crisis there are calls to tighten corporate governance."

In the U.S. the Obama administration is currently coming under increasing pressure to bring executive pay under control. At the same time, activist investors are pushing for the splitting of the CEO and chairman roles within companies while the SEC is proposing making it easier for shareholders to nominate board members.  

Empowering the board or redefining its responsibilities does not necessarily lead to better results, however. "There is very little relationship between the characteristics of a board and how the company actually ends up performing." Ljungqvist said. 

Moreover, it is extremely difficult to test how well boards perform their duties as knowledge about managers' ability and actions is invariably limited to the board. "Maybe it is not empowering the board that improves company performance but changing the legal environment," he said.

Speaking on the second day was Denis Gromb, professor of finance at INSEAD, who addressed the issue of liquidity in the financial markets. According to Prof. Gromb, the current crisis confirms that - contrary to the assumptions of textbook models - liquidity is far from perfect.

"Not everything is as smooth or spontaneous as the textbook approach suggests. Prices do deviate from fundamental values, sometimes by large margins and sometimes for a long time," he said.

Gromb concluded that arbitrageurs - investors that take advantage of a price differential between two or more markets by simultaneously buying in one and selling in the other - have better investment opportunities than other investors. Among the measures he prescribed for rebalancing liquidity were "tightening the constraints on the intermediaries (i.e. arbitrageurs) and... softening competition between them."