Friday, December 16, 2022
Undergraduates in Kangzhen (Ken) Xie's Corporate Risk Management course only have to glance at the latest headlines to see the principles they learn about in class play out in real life.
"We analyze some of the largest bankruptcy events" from Enron to Lehman Brothers, Xie says. And the recent collapse of cryptocurrency exchange FTX provides students with a striking example of risk mismanagement – as does the coronavirus pandemic.
"I ask the students to read what happened at the onset of COVID-19. It's called corporate risk management. But the same approach or idea can apply to the government's disease risk management," says Xie, Ph.D., an associate professor in the Department of Finance at Seton Hall's Stillman School of Business, where he is revered by his peers as both an influential researcher and educator.
After joining the Seton Hall faculty in 2016, Xie developed the Corporate Risk Management course based on his research interests and past experiences. Before entering academia, Xie was a risk manager at a commercial bank in Shanghai. "I was a foreign exchange trader in China," he explains. "Part of my job actually was to manage foreign exchange risk for my clients."
A salient experience during his time as a trader prompted Xie to get a Ph.D. in finance. "One night I was in the trading room, watching the screen, and I saw the exchange rate between the Japanese yen and U.S. dollar suddenly fall from 140-something to 120-something. That was really a shock to me," he says. "I didn't understand what triggered that huge movement in the financial market. That caused me to … want to pursue graduate study in finance."
Xie's research interests are broad, encompassing risk management, mergers and acquisitions, corporate executive compensation and more. He has published several studies co-authored with Seton Hall colleagues, including:
- "Real estate as a new equity market sector: Market responses and return comovement" (2020) in Real Estate Economics, the official journal of the American Real Estate and Urban Economics Association, with Associate Professor of Finance Hongfei Tang, Ph.D., and Professor of Finance Xiaoqing Xu, Ph.D.
- and "In Search of Market Outperformance: Another Look at Berkshire Hathaway" (2022) in The Journal of Wealth Management with Professor and Chair of the Department of Finance Anthony Loviscek, Ph.D.
One paper in particular, "Pay me now (and later): Pension benefit manipulation before plan freezes and executive retirement" (2018), took several years to research and stemmed from news articles about corporate ethics that piqued Xie's curiosity during the 2008 financial crisis. Published in the top-tier, high-impact Journal of Financial Economics, and co-authored with colleagues from Indiana University, MIT and the Federal Reserve Board of Governors, the study examined how top companies in the United States manipulate the formula that calculates pension benefits for their high-level executives.
"They sacrifice the pension benefits of the rank-and-file employees and at the expense of the shareholders" by temporarily raising executives' bonuses in the year preceding a pension freeze or before they retire, Xie explains.
He routinely engages in scholarship with leading economists across the U.S., as well. With Gerald J. Lobo and Claire J. Yan, collaborators from University of Houston and Rutgers Business School, respectively, Xie published a 2020 article, "Signaling under Threats: Evidence of Voluntary Disclosure in Corporate Control Contests" in Journal of Accounting, Auditing, and Finance.
Today he is working on several projects, including research into whether huge variations in hedge positions by U.S. oil and gas producers actually benefit those companies, a study that builds off his 2020 paper in another Review of Quantitative Finance and Accounting, "On the Market Timing of Hedging: Evidence from U.S. Oil and Gas Producers."
In addition to exploring bankruptcies in Corporate Risk Management, Xie teaches students about the Federal Reserve System in Seton Hall's Money and Banking course. "The topic right now is very relevant," he says, as the Federal Reserve continues to hike interest rates in an attempt to fight a 40-year-high inflation. The Fed's contractionary monetary policies this year have caused turmoil in financial markets and could potentially cause recession and a higher unemployment rate next year, Xie says.
In class, he has discussed with students the success that former Fed chairman Paul Volcker had in curbing double-digit inflation in early 1980s, explaining the trade-off between short-term economic pain and long-term economic prosperity. Helping students connect the classroom to current events is one of Xie's favorite parts of teaching.
"I really want them to appreciate financial knowledge, and be able to develop their critical thinking and apply a theory, model, or knowledge to analyze the real financial world," he says.