A well-travelled guide to the treacherous byways of finance
Saturday, 18 August 2007
Linda Anderson
Explaining to a group of international students the effects of asset market bubbles and collateral, of debt capacity and corporate investment is not an enviable task.
But Jie Gan of Hong Kong University of Science and Technology has the perfect example to illustrate these thorny issues.
For her work on asset market bubbles, she researched the land market of Japan in the early 1990s. Between 1990 and 1993 land prices there dropped almost 50 per cent. Many Japanese banks had significant exposure to the land market, through lending to the real estate sector and direct holdings of land.
These banks were obliged to reduce their lending. Individual firms could not easily substitute other sources of lending for bank credit, so they invested less and lost market value, and their productivity declined.
For business students, such knowledge is vital, Prof Gan says. "This kind of information is very useful if students are traders or in financial analysis. When things go bad they can go really bad - it is useful to keep these things in mind."
As an associate professor in the university's finance department, Prof Gan, 37, wears two hats - as a respected member of the teaching faculty, and as a researcher whose papers attract increasing attention in financial journals.
She is also in a dual role in that she teaches in both China and the US.
Prof Gan is convinced of the value of business education and sees finance courses as among the most important in the curriculum, particularly in Hong Kong and China.
"In moving to Asia, I have observed a lack of knowledge among business professionals in China and Hong Kong," she says.
As China's economy grows, so does the need for business education. But imparting it requires a breadth of knowledge and experience. "The nature of finance knowledge is [that it is] not something you can pick up like a hat."
Issues of investment and which factors determine performance are not only technical but vary from country to country, depending on the stage of financial evolution. "I can see the value added."
One research topic close to her heart is privatisation in China. "The privatisation of Chinese firms is the greatest transformation of ownership in history."
Privatisation, she adds, is almost always associated with concentration of ownership and is often found in countries where protection of property rights is weak.
The interests of bigger shareholders "may not be effectively aligned with smaller minority shareholders", she says. Larger shareholders can then expropriate resources at the expense of the rest. Such conflicts of interest influence the success or failure of a privatisation.
The trick is to control the larger shareholder, Prof Gan says. "At a country level [this means] improving your legal environment, and at a company level improving your corporate environment."
Such knowledge is the fruit of her dual identity. She has a PhD from the Massachusetts Institute of Technology and degrees from Beijing and Nanjing universities. She has been an assistant professor at Columbia.
Her experience of Chinese and US cultures helps her with the students too. One of the most obvious differences between her classes is that students in North American business schools tend to voice their opinions more. They "talk a lot", while Asian students are reticent, she says.
Yet students from both countries benefit from the real-world relevance of Prof Gan's teachings. Her work on "monopoly and informational advantage" in the US residential mortgage market (with Timothy Riddiough), for example, could not be more topical given recent subprime-related upheavals.
She sees her role as making sophisticated concepts easier to understand. "I listen to the students' needs and show them how to apply what they have learnt in the real business setting."
Explaining to a group of international students the effects of asset market bubbles and collateral, of debt capacity and corporate investment is not an enviable task.
But Jie Gan of Hong Kong University of Science and Technology has the perfect example to illustrate these thorny issues.
For her work on asset market bubbles, she researched the land market of Japan in the early 1990s. Between 1990 and 1993 land prices there dropped almost 50 per cent. Many Japanese banks had significant exposure to the land market, through lending to the real estate sector and direct holdings of land.
These banks were obliged to reduce their lending. Individual firms could not easily substitute other sources of lending for bank credit, so they invested less and lost market value, and their productivity declined.
For business students, such knowledge is vital, Prof Gan says. "This kind of information is very useful if students are traders or in financial analysis. When things go bad they can go really bad - it is useful to keep these things in mind."
As an associate professor in the university's finance department, Prof Gan, 37, wears two hats - as a respected member of the teaching faculty, and as a researcher whose papers attract increasing attention in financial journals.
She is also in a dual role in that she teaches in both China and the US.
Prof Gan is convinced of the value of business education and sees finance courses as among the most important in the curriculum, particularly in Hong Kong and China.
"In moving to Asia, I have observed a lack of knowledge among business professionals in China and Hong Kong," she says.
As China's economy grows, so does the need for business education. But imparting it requires a breadth of knowledge and experience. "The nature of finance knowledge is [that it is] not something you can pick up like a hat."
Issues of investment and which factors determine performance are not only technical but vary from country to country, depending on the stage of financial evolution. "I can see the value added."
One research topic close to her heart is privatisation in China. "The privatisation of Chinese firms is the greatest transformation of ownership in history."
Privatisation, she adds, is almost always associated with concentration of ownership and is often found in countries where protection of property rights is weak.
The interests of bigger shareholders "may not be effectively aligned with smaller minority shareholders", she says. Larger shareholders can then expropriate resources at the expense of the rest. Such conflicts of interest influence the success or failure of a privatisation.
The trick is to control the larger shareholder, Prof Gan says. "At a country level [this means] improving your legal environment, and at a company level improving your corporate environment."
Such knowledge is the fruit of her dual identity. She has a PhD from the Massachusetts Institute of Technology and degrees from Beijing and Nanjing universities. She has been an assistant professor at Columbia.
Her experience of Chinese and US cultures helps her with the students too. One of the most obvious differences between her classes is that students in North American business schools tend to voice their opinions more. They "talk a lot", while Asian students are reticent, she says.
Yet students from both countries benefit from the real-world relevance of Prof Gan's teachings. Her work on "monopoly and informational advantage" in the US residential mortgage market (with Timothy Riddiough), for example, could not be more topical given recent subprime-related upheavals.
She sees her role as making sophisticated concepts easier to understand. "I listen to the students' needs and show them how to apply what they have learnt in the real business setting."