Understanding the Day-To-Day Business of Global Corporations

Michel Vetsuypens sometimes imagines himself in the chair of a chief financial officer to understand the financial information needs of a modern global corporation.

The exercise enables the Cox School of Business professor of finance to apply his research that focuses on financial management to a corporation's daily operations. His research includes understanding the effects of an underwriter's reputation on initial public stock offerings, the pros and cons of corporate vs. independent venture capital, or even how certain stock sales can reflect market sentiments.

In his current research, Vetsuypens is examining the role of investment banks that underwrite the sale of securities and the value of a firm's reputation. To determine how reputation is built or lost, Vetsuypens studies data indicating how well underwriters price initial stock offerings. Pricing errors -- in which the set price deviates from the ultimate market price -- largely affect a firm's reputation, he says. "Presumably, a reputation is gained because a firm is doing something right. What separates a high-reputation banker from one with a lower reputation? The former can estimate the demand for securities and can set a more realistic price."

Vetsuypens also is conducting research on corporate venture capital firms. Traditionally, start-up companies have used independent venture capital firms for seed money. Now corporations are creating venture capital divisions of their own. Vetsuypens wants to know if these new corporate arms compare with traditional sources of capital and what advantages they offer. For example, he says, a biotech corporation may be a good source of funding for a biotech venture.

In other research, Vetsuypens is determining how short-interest stock sales, a concept called "shorting," reflect market sentiments. Shorting is the practice of borrowing stock and selling it at a high price. For the borrower to make money, the stock price must fall by the time the stock must be repurchased and the stock loan repaid. Short sales are a barometer of negative sentiment about a company and its stock, Vetsuypens says. He is investigating whether good news about a company, such as profitable quarterly earnings, will diminish the number of short sales of a company's stock.

Vetsuypens, who joined SMU in 1985, earned his M.S. and Ph.D. degrees from the Simon Graduate School of Business Administration at the University of Rochester. He has published numerous articles in publications such as the Journal of Finance and the Journal of Financial Economics.