COURSE TITLE: SEMINOR IN FINANCE COURSE CODE: MPH 622

Presentation on

Comments On “Chief Financial Officers’ Versus Practitioners in

the Field of Finance”

Article written by: By Hal Heaton, Professor of Finance, Marriott School of Management, Brigham Young University, Provo, UT.

Article published in: Financial Practice and Education, (Spring/Summer 1992), pp. 77-78.

14 February, 2011

Purpose of the studyTo provide comments on Mary F. Mobley and Harry Kuniansky’s(M&K) article “Chief Financial Officer (CFO) s’ Views of Academicians Versus Practitioners in the Field of Finance”. Specially, just on one question raised in the article is: Is the research done by academics of any relevance to actual decision makers?

Methodology used for the studyArticle (literature) review

Approach: Qualitative approach

Research Design: Descriptive research design (issue analysis)

Overview of M&K’s article Research problems

o The educational institution are confronting serious challenges posed by the unprecedented environmental and global changes.

o Many of the business area personality perceived that academia is unresponsive to the number of complex problems faced in the business areas.

Objectiveso To investigate finance executives’ views of academicians and their

self-perceptions on various professional dimensions.

o To access which academic journals are being read by the practitioners.

Methodologyo Mail survey (distributed to 500 CFOs), Response rate (22%)

Tools o For objective one (5 point likert scale, t-test for comparison,

average and mean)

o For objective two (7 point likert scale, percentage and mean)

Overview…..… Findings of the study

o Practitioners believed that they have better knowledge on general business, business problem solving, ability to generate creative ideas and ability to solve practical financial problems and academicians have better knowledge on research methodologies, research findings and ability to develop applicable finance theories.

o Finance practitioners in US corporations do not appear to avail themselves of available academic publications but they prefer to read the most popular business periodicals namely Wall Street Journal, Forbes and Fortune.

Conclusion o The findings of the study confirm the obvious expectations and

previous research findings that practitioners view research methodology and journal publication as basically academic domains. In other words, the findings provide an indication of their own strength relative to those of their academic counter parts.

Comments on Chief ……Heaton tried to clarify one of the question raised in M&K’s

work. The results of the study cover a number of topics as well as various questions ranging from practitioners to academicians viewpoint. Some of them are presented as below;

o Why academicians are more knowledgeable in the frontier of understanding, theory, research methodology and findings compare to practitioners?

o Why practitioners have strength on the issues of business environment, problems, creative ideas and ability to solve the practical problems?

o Why there is no significant difference between practitioners and academicians regarding the ethical standards?

o Why academicians conduct theoretical and empirical research and prefer them?

Continue….o Why practitioners have readership of the most popular press

publications rather than academic journals?

o What is the importance of understanding in view point of practitioners?

o Is there any way out to shorten the life cycle of new ideas?

o Will improved communication stimulate quicker application of new financial research in to business practice?

o Is the research done by the academics of any relevance to actual decision makers?

o Why market reward system is discriminatory?

Continue…. Based on the scope of Heaton’s work, only one question: Is

the research done by academics of any relevance to actual decision makers?, was picked and made the comments.

He tried to explain the need of academic research for actual decision makers. His responses are classified into four points which are explained as below;

o Point One: I’m not surprised.

o Point Two: The same survey if a different set of practitioners would have yielded very different results

o Point three: One of the unspoken concerns of this study is that the emphasis on research by universities in tenure, promotion and merit-pay decisions is misplaced. However, that emphasis may be legitimate even if research is irrelevant to practitioners.

o Point Four: This research opens a number of unanswered, but important questions.

Continue…. Point One: I’m not surprised.

Why author is not surprised?

o The first reasoning is: Most of the corporate decisions made by the CFOs are the application of the known financial principles. Decision makers learnt them in corporate finance curriculum.

Author takes an example of a carpenter and its manufacturer.

(Manufacturer: Research for additional use & design of hammer

Carpenter: Does not mean that carpenter has no need of research)

We can just replace the noun carpenter by practitioner and manufacturer by academicians then we can get the ideas.

o The second reasoning is: the fact that practitioners are trying to decide what to do? But academicians trying to find the answer of why?

(What for short term goal and benefit but why for long term implications and reasoning)

Continue…. Point Two: The same survey if a

different set of practitioners would have yielded very different results

o The most so called ‘rocket scientists’ in finance have had a major impact on recent financial practices. Lately, many of the most published and technical academics are became practitioners like Fisher Black, Stephen Ross, Richard Roll, etc.

o If M&K’s sample were consist of mix of professionals then its conclusions would not have been severely limited. The author suspect that results would have yielded opposite.

(Sample : Only CFOs vs Range of professionals – derivatives & securities)

Continue…. Point three: One of the unspoken concerns

of this study is that the emphasis on research by universities in tenure, promotion and merit-pay decisions is misplaced. However, that emphasis may be legitimate even if research is irrelevant to practitioners.

o Clearly author has support the logic that academic research are legitimate and relevant for practitioners. His reasoning interestingly classifies into five reasoning.

Reason 1: Since, CFOs do not find finance research useful, evaluation of university faculty should not emphasis research so strongly. But, there is no such evidence to support this statement.

Reason 2: Once research is viewed as a useful device, supported by the literature and the market condition then its lack of usefulness to practitioners is irrelevant.

Reason 3: If a university has chosen to be an “Ivory Tower”, then the usefulness of its research to practitioners is irrelevant. But, it is also evidence free.

Reason 4: If a university’s ability is depends up on its faculty’s research productivity and people perceive as the reputation. Then, the universities much go through the academic research.

Reason 5: Finally, based on the author’s knowledge and regardless of outliers there is positive correlation between research productivity and students’ evaluation of a professor’s teaching.

Thus, in short if corporate CFOs find finance research irrelevant may itself be irrelevant to a university’s evaluation criteria of faculty.

Continue….

Continue….

Point Four: This research opens a number of unanswered, but important questions.

o Does research enhance teaching?

o Is there relationship between research and teaching?

o Does the ability to publish measure competence?

And similar questions being raised on M&K’s article. Some of them have finite answer but most of them do not have.

Continue…. Critical appraisal

Strengths:o The article present various reasoning of academic research

need for the actual decision makers.

o Its strength is to help create strong perception toward academic research need in mind of readers. And,

o Again it confirm the validity of obvious expectation and also suggest future researchers about the implications of selecting concentrated sample. (Importance of academic research & Only CFOs as respondents)

Weakness:o Besides its strengths, it has only covered a tiny part of

M&K’s articles that raised number of questions and left the reasoning of many unanswered questions.

Thank you.