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«1 (9) Evaluation report 2014 Final version 2014-04-18 Knut Wicksell Centre for Finance Dnr: 2010-02448 Evaluation of Knut Wicksell Centre for Finance ...»

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1 (9)

Evaluation report 2014 Final version 2014-04-18

Knut Wicksell Centre for Finance Dnr: 2010-02448

Evaluation of

Knut Wicksell Centre for Finance

A VINNOVA Financial Market Center


Lund University


Professor Mary O'Kane, NSW Chief Scientist and Engineer & Chair, O’Kane Associates, mary@okaneassociates.com.au Professor Bauke Visser, Erasmus University Rotterdam, bvisser@ese.eur.nl Professor David Feldman, University of New South Wales, d.feldman@unsw.edu.au Professor Jesper Rangvid, Copenhagen Business School, jr.fi@cbs.dk


POST: VINNOVA, SE-101 58 Stockholm BESÖK/OFFICE: Mäster Samuelsgatan 56 FAKTUROR/INVOICES: VINNOVA, FE 34, SE-833 26 Strömsund LEVERANSER/DELIVERIES: Klara Norra Kyrkogata 14, SE-111 22 Stockholm TEL: +46 (0)8 473 3000 FAX: +46 (0)8 473 3005 VINNOVA@VINNOVA.SE VINNOVA.SE ORG/VAT: 202100-5216/SE202100-521601 2 (9) Introduction On 17 March 2014, members of the Board, the Acting Centre Director, Frederik Lundtofte, and his management team, colleagues from Knut Wicksell Centre for Finance, PhD students, and university representatives, had a formal interview with the evaluators of the international evaluation team at VINNOVA to evaluate the Centre’s performance in Stage 1. At the formal interview the evaluators, Bauke Visser and Mary O’Kane (generalists), and David Feldman and Jesper Rangvid (experts) addressed matters such as research, results and impact, organisation and management, finance, interaction between industry partners and the university, and educational activities. The evaluation team thanks all members of the Centre and the VINNOVA team for their efforts in providing information for the evaluation and especially commends the Acting Director and the management team for preparing so well for the evaluation in the time immediately following the death of the previous Director of the Centre.

1. Long-term Vision, Mission and Strategy The evaluation team found that the Centre generally was using its resources productively but, given its ambition to be one the leading finance research centres in Europe, it could be more determinedly strategic with these resources through developing a smart strategy to increase its visibility, brand recognition, external funding and research impact and thus creating a virtuous cycle and deliver even greater value than at present for its stakeholders, and, ultimately for the taxpayer.

Participants in the Centre from junior through to senior levels and especially through the IFN partner had a good grasp of many possible components of a smart strategy but had yet to weld them into a coherent guide to future achievements.

A first step to a more productive strategy requires a revision of the Vision and Mission. In it, the Centre should highlight its distinct ‘edge’. Next, it should capitalise on it. The Centre is relatively small. To gain visibility it should underline its distinctiveness. A distinct ‘edge’ of the Centre is its finance research close to the firm: research at the intersection of finance, industrial organisation, incentive pay, and tax. This can be very productively complemented by its strength in energy finance, an area where the Centre has developed excellent relations with private parties.

Recommendation 1: That the Centre revises its Vision and Mission so that they are quite precise about the Centre’s distinctive and highly valuable field of expertise and thus make quite clear the area in which it aspires to be ‘leading’.

Developing the strategy to achieve the Vision and Mission is the subject of a recommendation on governance – see below.

–  –  –

“Firm development and financial markets”. Research in the last area exploits synergies with the Stockholm-based IFN.

The first Platform (“Macrofinance, crises and financial regulation”) has the interesting dimension that it connects macroeconomics and corporate decisions, not least within risk management and compensation within the firm. No A-level publications have been produced in this area, however. The evaluators are of the opinion that this area of research is also useful for outreach activities, as there is broad interest in the questions being analysed in this Platform. The evaluators recognise the contribution of the two Senior Professors in the Platform, and applaud their contribution. At the same time, the evaluators also notice that it is within this platform important that steps are taken to secure a smooth transition to junior researchers also.

Within the second Platform (Financial market behavior), the Centre seems to be particularly strong in both theoretical and empirical asset pricing. No A-level publications apart from one in Management Science, have been produced in this area, however. This Platform seems to have reached a critical mass in terms of the number of people working in the area.

The evaluators notice that the Centre seems to show a particular interesting development within the third platform (“Firm development and financial markets”).

In addition, the third platform focuses on Swedish data. The combination of industrial organisation and corporate finance, and the use of Swedish data, seems to have been a fruitful new direction of research. The evaluators notice that high-level publications have already been realised within this research area, and there seems to be good prospects for future high-level publications (not least the R&R by the Journal of Finance). It is the impression of the evaluators that the Centre has helped promote this research area by facilitating industrial economics researchers from IFN working together with finance researchers from Lund.

Hence, the VINNOVA grant seems to have helped promote this existing area of research.

Overall, the Evaluators note that Ola Bengtsson was key in driving forward the research of the Centre, and responsible for several of the A-publications being produced by the Centre. It is also the impression of the evaluators that Ola was a key person in developing the fruitful cooperation between the IFN and LUSEM. It is highly important that the Centre focuses on hiring a new full-time Professor that can help keep the momentum.

Research Program, results and impact It seems that the Centre has progressed significantly since the granting of the VINNOVA funds. For instance, the number of seminars has clearly increased.

Likewise, the number of publications has increased (it was mentioned that the number of publications during the 2011-2013 three-year period has been doubled compared to the preceding three-year period). Finally, a few high-level publications have been produced as well, and there is overall an awareness of the importance of focus on quality over quantity. The evaluators support this focus.

4 (9) The funding to the Centre, while significant, is not of a size that can imply a complete redirection of the research of the members involved. In other words, appropriate use of scarce resources is crucial. In this regard, the evaluators encourage the continuous support of funding for top researchers coming to Lund for extended stays. The evaluators note that the Centre has a contract with A.

Ravid who spends 2 weeks at the Centre each year for the next three years. The evaluators also note that this stay has been fruitful in that Ravid has started a project with a Ph.D. student and another with a post-doc. Such use of scarce resources seems fruitful. The evaluators also support the use of funds for travelling to conferences. The evaluators do not view the FMA as a top conference, but recognise that going to the FMA can be fruitful for other reasons.

The evaluators encourage active (presenting/discussing) participation in quality boutique conferences.

These very positive developments being noted, the evaluators also note that publications in the absolute-highest A-journals within the research area of the Centre are still lacking. The evaluators encourage the members of the Centre to strive for such publications. At the same time, the evaluators note that it might need the hiring of a Professor with experience in publishing in the very best Ajournals to deliver such publications.

The Evaluators were impressed by current research projects, presented, and wish the authors and the Centre good luck.

Centre Comparators It is difficult to find good comparisons to the Centre. One that the Centre mentions, is CREATES at the Aarhus University. Compared to CREATES one would say, though, that CREATES has already gained more visibility and benefits from a stronger identity. Thus, the evaluators suggest the management and Board view CREATES in more than one way as a good example of how they could develop their own Centre. It should be mentioned here that the funding of CREATES, as far as the evaluators know, is larger than for KWC.

Conclusion regarding scientific quality and productivity The evaluators applaud the progress that has already been made, both in terms of research quantity and quality. The evaluators commend the fruitful cooperation between LUSEM and IFN that to a large extent seems to be a product of the VINNOVA funding, as is colocation of finance persons of two departments.

3. Impact on Stakeholders (and others) The evaluators are convinced that a true Centre has emerged where finance faculty and PhD students from both the Economics Department and the Department of Business Administration meet to discuss research and do research together. The co-location has strengthened the research environment in a number of important ways, e.g. seminar attendance. Also, the evaluators were very impressed by the way in which the Centre has become a very productive platform for research at the intersection of corporate finance and industrial organisation, bringing together senior and junior researchers from Stockholmbased IFN and LUSEM. Finally, as a regional competence centre in the area of financial markets, the Centre benefits from the partnership with the Stockholm 5 (9) House of Finance in terms of publication bonuses and retention bonuses. The evaluators in particular note that the retention support can be of relevance when searching for a new Full Professor. Apart from the SHoF, the evaluators do not know of other Centre Partners.

Besides academic partners, the Centre has a fairly long list of private and public sector partners. Often, it was not very clear what these stakeholders contributed in-kind. The evaluators feel that the considerable energy that has undoubtedly gone into establishing links with the many stakeholders should not be wasted, and that attempts should be made to strengthen the ties. The impressive connections that have been established in the area of, e.g., energy finance are testimony to the fact that the academic partners in the Centre have very valuable knowledge. Having more stakeholders from the private sector contribute, in-kind and financially, is not easy but is likely to be necessary for mutually beneficial long-term relationship. This issue should be high on the agenda of the Board.

The idea of industrial PhDs was mentioned as a possibility worth exploring.

Given the above, the evaluation team thinks that the academic strengths should be put to further use, e.g., in developing a PhD program in finance that features as electives among others a course on energy finance, a course at the intersection of industrial organisation and corporate finance, and possibly one at the intersection of incentives and corporate governance. This could be an important way of increasing visibility of Lund in the area of finance research and education, and a way of rallying support from more stakeholders around what makes Lund distinctive.

4. Organisation and Management of the Centre The Board's Role The Centre Board should have primary responsibility for strategy and for oversight of management. At present the Board is chaired by the Director. In terms of good governance this is not ideal as it conflates governance and management. Also the Board has a majority of university members, possibly a lost opportunity to get senior external championship of the Centre and its aspirations.

The restructured Board should support and guide the Director and his team in the production of a highly focused strategy which leverages off the distinct and very useful emerging identity of the Centre in such a way that, if implemented, over time the Centre will be indeed acknowledged as ‘leading’ in research and education and so that stakeholders value its role to the extent of seeing it as a good investment – for example by funding industrial PhDs or visiting experts.

Attracting extra funds from dedicated stakeholders will make the Centre more robust and, in turn, yet more useful to its stakeholders and, ideally, more effective as a Centre producing high-impact research.

The Advisory Board of Practitioners is making a good contribution both to needs identification and as a dissemination mechanism for getting research ideas tested in a practitioner setting. The needs identification role of this Advisory Board could be strengthened further by introducing a more structured process for identifying and refining industry and public sector research and education needs.

6 (9) Management Team Structure, Processes and Performance The management team is working well especially in the challenging circumstances following the untimely death of the previous Director. Many management tasks have sensibly been distributed throughout the Centre, providing postdoctoral staff for example with valuable exposure to important stakeholders when they have to organise seminars and visitors. However there are many administrative tasks that could be more productively done by an administrative assistant and the evaluation team agrees with the Director’s decision to appoint such a person.

The International Scientific Advisory Board (ISAB) The Centre has nominated an excellent International Scientific Advisory Board (ISAB) but as yet the ISAB has not met. This is missed opportunity in terms of advice research, education and strategy.

Financial Management Unfortunately, the questions the evaluation team had about the financial reporting could not be answered in a satisfactory way during the meeting. It also seemed that some of the information on research visits was incomplete. A bi-annual meeting of the director of the Centre with a (Supervisory) Board should help in improving the quality of management information.

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