COLUMBIA BUSINESS SCHOOL A CENTURY OF IDEAS EDITED BY BRIAN THOMAS COLUMBIA BUSINESS SCHOOL Columbia University Press Publishers Since 1893 New York Chichester, West Sussex cup.columbia.edu Copyright © 2016 Columbia Business School All rights reserved Library of Congress Cataloging-in-Publication Data Names: Thomas, Brian, editor. | Columbia University. Graduate School of Business. Title: Columbia Business School : a century of ideas / edited by Brian Thomas. Description: New York City : Columbia University Press, 2016. | Includes bibliographical references and index. Identifiers: LCCN 2016014665| ISBN 9780231174022 (cloth : alk. paper) | ISBN 9780231540841 (ebook) Subjects: LCSH: Columbia University. Graduate School of Business—History. Classification: LCC HF1134.C759 C65 2016 | DDC 658.0071/17471—dc23 LC record available at https://lccn.loc.gov/2016014665 Columbia University Press books are printed on permanent and durable acid-free paper. Printed in the United States of America c 10 9 8 7 6 5 4 3 2 1 contents Foreword vii 1 Finance and Economics 1 2 Value Investing 29 3 Management 55 4 Marketing 81 5 Decision, Risk, and Operations 107 6 Accounting 143 7 Entrepreneurship 175 vi CONTENTS 8 International Business 197 9 Social Enterprise 224 Current Full-Time Faculty at Columbia Business School 243 Index 247 foreword Ideas with Impact Glenn Hubbard, Dean and Russell L. Carson Professor of Finance and Economics Columbia Business School’s first Centennial offers a chance for reflection about past success, current challenges, and future opportunities. Our hundred years in business education have been in a time of enormous growth in interest in university-based business education. Sixty-one students enrolled in 1916. Today that number stands at over two thousand. It is also a time of flux in the direction of the education. As was typical at that time, Columbia Business School began as a school emphasizing strictly voca- tional business. It was only after two books—Higher Education for Business, written by economists Robert Aaron Gordon and James Edwin Howell (commissioned by the Ford Foundation), and The Education of American Businessmen: A Study of University-College Programmes in Business Admin- istration by the Carnegie Foundation—were published in 1959 that schools shifted focus toward greater theory and research. Both reports were criti- cal of current programming at business schools, and they encouraged higher education institutions to advance a discipline’s knowledge. Today, Columbia Business School continues to build on those early programming shifts, but it goes beyond, making decisions aimed at connecting faculty with industry practitioners across disciplines in an effort to link Columbia research with practice. viii FOREWORD This book devotes a chapter to each of Columbia Business School’s divisions, arranged roughly in order of size, starting with the Finance and Economics division. It also includes chapters that align with four of the School’s many centers (value investing, entrepreneurship, international business, and social enterprise). Selecting these four was no easy task, as all our centers do significant work and make a valuable contribution to the intellectual life at Columbia Business School. What set them apart— in three out of four cases—was their holistic influence on what and how we teach and the very way we understand business today. They are cross- disciplinary and span the boundaries of academic division, business func- tion, or industry. The outlier, of course, is our chapter on value investing; with the investing approach’s intellectual origins here at Columbia Business School, no commemorative volume would be complete without it. Finance and Economics Chapter 1 is the book’s longest—an omnibus of the intellectual achieve- ments in finance and economics, from real estate to corporate finance to asset pricing, and everything in between. The bulk of Columbia Business School’s graduates over the years have gone into either finance or consult- ing at some point in their careers, and finance and economics have been at the center of their education. Value Investing Chapter 2 is dedicated to a single scholarly pursuit that had its origin at Columbia Business School: value investing. This chapter traces the origins of value investing from before the publication of Benjamin Graham and David Dodd’s seminal text Security Analysis, through its practical appli- cation by masters such as Warren Buffett, to the present day. Even now, the theories first posited by Graham and Dodd continue to influence how investing is thought about and taught at Columbia Business School and all over the world. Management Management is the subject of chapter 3. Of all the divisions at Colum- bia Business School, management has perhaps undergone the greatest FOREWORD ix evolution. It is one of the oldest areas of teaching at the School, and it has also been the most influenced by new teaching methods and new academic priorities, including path-breaking work on social intelligence and insights into management fads. Marketing Chapter 4 focuses on scholarly achievements in marketing, a field which necessarily brings together concepts from disparate academic traditions including psychology, sociology, and communications, to name a few. A deep understanding of consumer decision making and the leading buyer-behavior model was developed by the Marketing division. In recent years, the Marketing division in particular has experienced rapid change as new technologies revolutionize the real-world practice of marketing and advertising. Decision, Risk, and Operations Chapter 5 looks at the School’s achievements in operations management and the development of mathematical models for decision making. The research triumphs of this division have been particularly important to the development of modern emergency services in metropolises such as New York City. Accounting As noted in chapter 6, accounting has been at the core of Columbia Busi- ness School since its foundation. Despite their occasionally esoteric nature, the innovations in accounting developed at Columbia have radically altered the way value is measured and businesses are understood. In addition to its core divisions, Columbia Business School has a wealth of special centers and programs that produce exceptional research and provide students with cross-disciplinary opportunities. These centers have grown in response to new challenges in business and are a funda- mental part of Columbia Business School, assisting scholars, students, and practitioners alike in engaging with difficult research questions and chal- lenging real-world scenarios. x FOREWORD Entrepreneurship Chapter 7 traces the evolution and tradition of entrepreneurship at Columbia. From the School’s earliest days, alumni used the skills learned in the class- room to found organizations and companies that have changed the face of business. The focused study of entrepreneurship as an academic subject at Columbia has grown exponentially in recent decades. Steady growth in stu- dent interest has coincided with a concerted effort by Columbia’s scholars, alumni, and administrators to change the way entrepreneurship is thought about in academia and in the business world. International Business Chapter 8 notes that international business has grown in prominence as an area of study. Globalization has radically shifted the attention of business leaders overseas. Techniques that may have been effective even thirty years ago in an insular domestic economy no longer suffice. Columbia Business School’s scholars have risen to the challenge of shifting paradigms to fit global demands. Social Enterprise Chapter 9 explores social enterprise as both an academic and cultural phenomenon. Today’s students want to dedicate their careers to achiev- ing specific societal goals in addition to generating new wealth. This dual aspiration goes back to the first years of Columbia Business School, though it has taken on even greater prominence over the last few decades with courses dedicated to the teaching of civic-mindedness and public influ- ence. The Tamer Center for Social Enterprise was born from the realization that management and strategy are just as important in government and the nonprofit sector as in private industry. With a strategy grounded in what it takes to succeed in the future, building on the distinctive assets of Columbia’s past and present, I know one thing: Anything written for the sesquicentennial and the bicentennial will talk about Columbia’s leading role in developing ideas that drive and shape business, nurturing future business leaders and entrepreneurs in its students, and engaging its amazing network of alumni in ideas and talent. COLUMBIA BUSINESS SCHOOL 1 Finance and Economics Andrew Ang, Ann P. Bartel, Patrick Bolton, Wouter Dessein, Frank Edwards, Larry Glosten, Geoffrey Heal, Gur Huberman, Charles Jones, Chris Mayer, Frederic Mishkin, Eli Noam, Andrea Prat, Jonah Rockoff, Lynne Sagalyn, Stephen P. Zeldes, and Brian Thomas Introduction Columbia Business School’s position in the heart of New York City places it at the most important nexus of the global financial industry. It’s no coinci- dence that finance and economics are at the very core of Columbia Business School’s research and scholarship. Finance and Economics is the School’s largest division, in terms of both faculty and courses taught. Its scholarship runs wide and deep, taking in everything from stock market fundamentals to corporate finance, real estate, and