[SOUND] And now, Faculty Focus with Scott Weisbenner. [MUSIC] >> The focus is on Yuhai Xuan. I'm excited to broadcast this Faculty Focus episode from our College of Business studio. This is where I broadcast my live sessions for my investments course in the iMBA program. So who better to interview in the studio than Yuhai Xuan, the Academic Director of Illinois' iMBA program? Besides this role at the iMBA program, Yuhai is also an associate professor of finance and The Robert and Karen May Faculty Fellow at the University of Illinois. We had the good fortune to hire Yuhai from the Harvard Business School in 2015, and right off the bat, Yuhai is making a name for himself in the college. Yuhai's resource is in empirical corporate finance, corporate governance, and behavioral finance. Yuhai has several publications in top tier finance journals and his work has been cited by other scholars over 800 times. Yuhai is also a star teacher. His course on cases and financial strategy received a perfect 5.0 out of five rating from the student the first year it was offered. Simply remarkable. Yuhai, thanks for being here. >> Thanks for having me, glad to be here. >> First, I have to say, how well did I do pronouncing your name? I practiced it more than I care to admit, but I think I may have choked under the pressure. >> You pronounced it perfectly, I would say. >> Wow. >> It's Xuan, so X is usually just the S-H, if it's easier to remember that way. >> Like Xian Terracotta Warriors. But I have to say, coming from rural Wisconsin, we don't have too many X words. So just to keep it simple, I think I may have pronounced your names three different ways throughout the course, do you mind if I just occasionally refer to you as X-man? >> No, of course, I like those series. [LAUGH] >> It's a cool nickname. >> X-man is good, yes. >> Excellent. Before we talk about your research and iMBA program, I wanted to clear up one thing that I was thinking about. A literal 5.0 out of five rated for your course, that's remarkable. Cases in financial strategy? >> Right. I had a question. Was there only one student in the class? >> [LAUGH] That's a funny one. It's actually interesting, because someone actually asked me, as well, they said, did you just round up from 4.9 or something? But it is actually a 5.0 and out of five, and I had about 70 students. >> 70? >> 70 students. >> Wow. >> I was pleasantly surprised, split between two sections. Both sections actually had a 5.0 and zero standard deviation, with 70 students. >> Wow. >> So that has some luck involved, I would say. >> I think you'd say the opposite when you're getting, if there is two and you get 2.5, but 70, wow, amazing. I was just joking with you, X-man, but thanks a lot, 70 students, that's more than I thought. Wow, amazing. Why don't we talk a little bit about your research, corporate finance and behavioral finance, kind of the intersection of those. What made you think that CEOs might be subject to some of these behavioral biases and psychological factors just like regular individual investors? >> Yeah, that's a really interesting question. When the behavior finance first started out, as you know, people typically focus on regular investors. Because people think regular investors, some of those investors are less educated, so therefore they might be subject to more biases. Then people look at professional mutual fund managers, for example, and find that these people have their biases and prejudices as well. What happens then, people look at CEOs, they find that interestingly, CEOs also, they're human beings, so they're subject to their own psychological biases as well. >> I know there's some debate about this, but yes, they are human beings. >> But at the [LAUGH] >> [LAUGH] >> Most of them, at least. At the same time, though, what's interesting is that there are studies that show that CEOs are maybe even more susceptible to such biases simply because sometimes they're overconfident. They don't realize that they're doing something wrong but they are actually doing something wrong. >> Almost that's kind of endogenous like to rise to the ranks to get to that elevated position, you have to be probably a big risk-taker, you probably have to be overconfident. And it's worked out for you to get to that point. >> Exactly. >> It's natural. >> Once you get to that point, then it becomes detrimental in a sense. What's also interesting is that because CEOs have such high powers in the firms that they preside over. What's happening is these CEOs, any biases that they have might have a large impact on the firm's outcome. Real outcomes that we're talking about here. >> Excellent. You talked a bit in Module Three about about your paper with Malcolm Baker, looking at the CEO personal benchmarks influencing firm decisions. It's very striking that there's this nice discontinuity where a firm's decision to sell stock really was sensitive to has a stock price gone up or down since a CEO joined the firm. When you found that discontinuity, it must have been like, eureka! I've found gold! What was that like? >> Yeah, most definitely, we thought it was a very. But what made us interested in going into this question in the first place was media accounts. If you read newspapers, people always talk about, whenever they evaluate a CEO's performance, they pick that point, when he first joined the firm. I actually have some media accounts I can read out to you. For example, the stock price for Bombardier is barely half of what it was when started on January 13th, 2003. So you see, it was picking the stock price when the CEO actually joined. Morgan Stanley shares closed Thursday at $28 down about 37% since Mack took over in June 2005. Again, our reference points to where the CEO actually joined or became the CEO in that sense. Positive news, for example, increasing your company stock price by about 37% in one year tends to get popularity. Because this is exactly what the CEO did, happy anniversary. Again, this is another news, the final one. During O'Reilly's ten year reign as CEO, Chevron's stock price has gained about 60% with the company outperforming the S&P 500. So you can always see the media accounts and also the investors at large typically use a reference point which is usually the CEO's entrance price point. We thought, well, that might actually have a huge psychological impact on us. >> Right. >> We always know, when we first join, we sort of join a company, join a school, join a department, you set a mental marker there and say, here's where I joined, let's look at the performance over this run. So that price becomes a salient point in everyone's mind in that one sense. The other thing is which is a little bit more subtle but is also very important is when the CEO actually joins the firm, they get a big stock option grant. >> Stock options would be tied to that price when they joined. It's more than a subtle point, this is like where my dollars are. >> Exactly. People typically outside, they don't realize this point right away. >> Yeah. >> But because we look at CEO data, compensation data, so much, we immediately realized that's actually a big wealthy factor right there. >> So that's actually an interesting source of variation. We all might have this, hey, I have this reference point when I joined. Some COs might also have a bunch of stock options that have an exercise price at that price when they joined. Did you ever look to see how variation, having a lot of stock options with that exercise price mattered for this reference point? >> Right, definitely, we looked at that. Unfortunately, in the data, maybe the variation's not that much. >> Everyone is getting a bunch of options. >> Exactly, everyone. It turns out that What we find is that at the beginning, when you actually get those options, typically it's for all of the CEOs. That counts for the majority of your stock option grants at the beginning. And then over the course of your CEO tenure, of course, you get more. However, with that said, the effect is probably concentrated in that first year, that's what we find. >> I see, I see. So we can think of this behavioral bias on the part of the CEO, it's kind of like an agency problem for the firm. When I'm looking at firm decisions going forward as a shareholder, I could care less what the stock price was when the CEO joined. I just want you to make the best decisions given the economic environment today. If I'm sitting on a board or if I'm a shareholder, how can we try and reduce these agency problems due to the behavioral bias of the CEO? >> Right, that's a very interesting question. So we actually wanted to invest this question. We thought about this as well. On one hand I want to point out, a lot of these, because it's behavioral psychological biases, sometimes it's very hard for the firm to address, simply because people are not even aware of it. Maybe the CEO doesn't even know there's a bias there. Maybe the board doesn't even know there's a bias there. >> But now they'll know it because of your research >> That's what we aim to do, to uncover these biases so people can look at this. One example would be the overconfident CEO, because they don't know that they are making bad decisions due to overconfidence. Here it's the same. So first of all it's to recognize this problem, secondly corporate governance. When we look at the cross section, for example, there's not a lot of variation between firms. So a CEO at a firm with a very good set of corporate governance practices would still be subject to this kind of biases, just like a CEO at a poorly governed firm. So what's happening is that, after people start to realize this, maybe the board can do something. One thing goes back to what we talked about, the compensation. Maybe think about the compensation structure, right? How do you spread out the incentives throughout their careers so that they don't have to be concentrated on that beginning? Also another thing is when they evaluate the CEO, when the board evaluates the CEO, or when the outside investment community looks at the CEO. Maybe it's not just going back to that price point when he first joined, because there's a lot of things with influence on that price point. For example, a forced turnover CEO might join a firm at the low point, which makes the stock rise a little bit easier than someone joining at the peak of the firm and then you will see this gradual decline in stock price. So this is all something to keep in mind. How do you evaluate the CEO? How do you design the compensation package to actually guide the CEO's behavior in the right direction? >> And just kind of prep the board members to say, hey, I know you may feel like you don't want to sell stock because the prices fell a lot right after you joined. But let's not let that kind of personal bias affect our decision making. I thought of tech firms right before the NASDAQ bubble collapsed. >> Right. >> You joined in 1999, NASDAQ falls a gigantic amount in 2000, it's kind of not your fault as CEO, right? >> Right, [LAUGH] exactly. It's like you came into this situation, it's not the performer but the situation itself. >> Exactly, exactly. So I was thinking of a follow-on project here. Would you have the same results for looking at firm debt issues? Where we're not looking at kind of stock price changes, but we're looking at maybe a change in credit quality. So you can examine whether firms issue less debt if the credit rating is now less than when the CEO joined. >> Yeah, definitely. That's a very interesting idea. We actually looked at this in the data. >> You did? >> We tried to look at this in the data, it did not pan out. Partly it's because there's not a lot of credit events, downgrade or upgrade events, for us to look at. And secondly is that debt prices are not as available as the stock prices, which is daily. >> Right. >> We get that data really easily across a great cross section of firms. So that did not work out, but I think- >> Just have like A to B, not that many changes, >> Exactly, but the idea, though, that there is a reference point can be used in other research settings. I think you had some very interesting papers on this as well. >> Well, right on cue here. So it's a mutual admiration society here. >> Right, [LAUGH] it is. >> So your work here was actually very influential on some of my work with Dean Brown, who was on our first Faculty Focus episode. And so we're bringing all the heavyweights here, right? We start out with Dean Brown, now we have Yuhai Xuan. >> Everyone wants to be on this segment. >> Yes, but it's just a coincidence that I'm bringing these leaders, my bosses, here like the Dean, the Academic Director of the iMBA. It's just a coincidence that they're featured here as interviews. But your research was actually very instrumental on a paper that I wrote with Jeff and Steve Dimmock and Jun-Koo Kang, where we were looking at payout decisions of university endowments paying money to the university. And one of the factors that was very important is what's the level of the university endowment relative to the level of the endowment when the current president joined? And that was totally motivated by your work. So I have to thank you and Malcolm quite a bit, because I think that was key to our paper getting published and led to some interesting findings. >> No, that's definitely a very interesting finding. When we looked at this and were thinking, that's a very nice setting to apply this. And of course, you know as researchers, we always aim to inspire ideas and this is a very nice paper, once again. >> Right, and you get the little reward of the citation in our paper. Academics kind of don't have the stock price publication, number of publications and citations. >> Exactly, that's our stock price. >> Exactly, got you an additional one there. >> Right, that's good. >> Well, you wear many hats in the college. One of them is Academic Director of the iMBA program. So we're making use of this great studio we're in here. You have the fantastic iMBA with the orange and blue displayed prominently, it looks like a Chinese throwing star or something like that. Could you tell us a little bit for our viewers, our learners, a little bit about the iMBA program, what it offers in addition to the Coursera courses? >> Of course, the iMBA is a big thing, as you know, for a college now. >> That right. >> And we're so proud of it and we're also all working so hard towards this. And we have some of the best faculty members that we have, such like Scott. >> Someone told me the professors are underpaid. No, I'm joking, I'm joking. >> Such as Scott, the best professors here, teaching in the program. And that's a conversation that we should have with Dean Brown at some point. >> No, I'm joking. You might want to edit that out. >> Right, exactly [LAUGH]. The iMBA program itself now, as we know, we have two cohorts now. And we have about 275 enrolled students already. >> One that's joined in January and ones that join in August. >> January, the other was August, exactly. Altogether about 275 students now, and that's representing about 23 countries. >> Wow. >> It's already very global. >> I'm started to get nervous. I'm very proud that I've traveled to a little over 30 countries, where pretty soon the iMBA's going to shoot right through that. >> Yeah, and also be mindful that a lot of people now from different culture backgrounds might not even get the US reference that we sometimes use so much in our classroom. >> That's right, but they can Google it. >> Exactly, for sure. It's a very global program now, and what's interesting is that the as program just started, it's getting very popular and it's also very selective program. In that following sense that if you look at our acceptance rate, look at how much we retain in the program, and look at what's the yield? And it's all actually right now beating what the top rank schools like Harvard have. >> Really? >> Our yield right now is 95%, for example. >> Wow. >> That's sort of unheard of in the academic world. So that's that, but more important, I think, what we find is that we are really doing something great here. So what attracts our students here is what we call a trifecta. The trifecta being, one, it is a high quality program that's from a school with a very good reputation out there. And the second thing is that it's completely online, therefore it's very flexible. Now that's a very key point. >> It's flexible but not easy. >> We never aim for easy, we want to hold everything to the high standard. Flexible in the sense that a lot of people find themselves unable to go away from their work for two years. >> Of course. >> Or come here for an MBA program. This, you can do anywhere in the world according to your own schedule, or somewhat according to your own schedule. You still have to do the assignments and everything, the exams schedule. So that's the second thing. And the final thing is affordability. We really think that education should be more accessible to more people, a larger segment of the population. So this program is affordable. So all those three factors together makes it really, we hope that it will be a great success for everybody- >> Yes. >> Involved, not only just the students- >> It's really a democratizing education at the MBA level. >> Definitely, and what's interesting also, you said with the Coursera part and this part. A course, as we know, in the iMBA program is two parts. One is on the Coursera part. >> Yeah. >> What everyone is doing now. So you have those videos- >> In fact, some iMBA students may be watching this video right now. >> Right, exactly. You're watching this video right now. So on the Coursera part you have the, what we call, it's more thought of as an interactive textbook, video textbook. So you have some basic readings there, some quizzes there, and the interactive videos. But what's important is the other component in addition to the Coursera part which is a high engagement portion, which adds so much more value, I would say. Like this segment, for example, right. It's in high engagement section. Where the high engagement section really allows students to have this live interaction with faculty members through a virtual video based classroom. >> Yeah. >> Right? And then you can do- >> We have live sessions right in this studio. >> Exactly, you can do group assignments, you can then do more advanced quizzes. You can have office hours with faculty and TA. So it's really this high engagement and the educational content bringing it together that really mimics or even we can do everything that a brick and motor school classroom can actually do but we offer everything completely online. >> Well, in fact, one thing that is starting to teach in this is that I think is underestimated is the students working with each other, teaching other, like the professors are there, the teaching assistants. But the students and their interactions is actually better, I think, than like a regular brick and mortar. >> Exactly, and also it's from all over the world now. >> That's right. >> It's a virtual, and another thing I want to add, I think it's a very important point, is that the iMBA program, curriculum aside, in addition to that, once you actually join iMBA program, you now become a part of the network. It's much more than what Coursera- >> You're going to be wearing a lot of orange in your wardrobe to be part of the Illinois network now. >> Exactly, that's our color right? >> Exactly. >> So what happens is that what you see is that several things are made available to you. You now get accessibility to faculty, to leaders, to your peers and to the huge alumni network which is always valuable to any MBA students that's broadening their professional career and trying to broaden their network capabilities. So we actually have several things that's already launched and others in the works. For example, there's eminent speaker series that would actually bring prominent Illinois alumnis to give speaker series and students can actually ask questions live and receive answers. And then there's also the iMBA TV that's already being launched. And that's going to be interviewing faculty members, interviewing leaders like Dean Brown, and to basically talk about current events, but around the iMBA curriculum, around the courses that is being offered. That's a center on that. And also there has already been going around a lot of you guys taking the class probably have had the opportunity already, attending some events and some meet-ups all over the world. And the leadership team actually have travelled around the world to meet with students, and students meet with each other, with alumni. So that huge network is adding a lot of values [CROSSTALK] >> I saw your pictures on Twitter recently. >> Exactly, exactly. >> So this studio, I have to say, held some live sessions in here. It's like pretty cool, right? Whenever I'm here I always feel like I'm on CNN or ESPN. Now as we are filming this interview, the Cubs have just won the World Series and we're less than a week away from the big US presidential election, Hillary Clinton versus Donald Trump. I feel like I want to be here at the big board talking about states or talking about the Cubs. It's so awesome, it's like you're in a new studio here when you're projecting your live sessions for the iMBA. >> Yes, it's so cool here. I love to be here. And I've always wanted to do this, and I would say something and then I can use the phrase and say, back to you. [LAUGH] >> There we go. Not to mention these cool mics, right. >> Right. >> I feel like I'm in a Mission Impossible movie. >> Definitely, definitely. It's a very nice place. >> So this has been very great. I was wondering if you could indulge us for one final segment, and that segment is called the Awkward Moment! It's a favorite of ours. Do you think you'd be up for it? >> Of course, but I'm excited to see what this is about. >> You're excited to see- >> Yes. >> This like cartoon. >> Yes. >> It looks like it should say, Bam! >> Yeah. >> But instead it says Awkward Moment. >> Hopefully this is not going to make me awkward. >> We'll see. >> We'll see, yes. >> Usually, I'm always awkward, so usually it just kind of emphasizes my awkwardness. >> Okay, I'm sport. >> You're sport? >> Yeah. >> Excellent, this is great news. So we look forward to the Awkward Moment with so stay tuned. We'll take a quick break and then we'll be right back. >> My discussion with Professor is coming to a close, but module three is not over yet. >> Upcoming videos and module three will feature discussion of whether loss aversion could potentially explain the momentum affect and stop returns, whether the nature and skill of individual investors has change over time, and if psychopaths make the best investors. How can you pass that up? Now back to the interview. >> [SOUND] How many times have you seen a commercial selling some drug, and there's a reassuring doctor. And then at the end it's revealed, hey, this isn't a doctor after all, it's some paid actor. Well, I actually did some research here. We're a serious journalistic organization here. Article from Slate, back in 2013, should celebrities teach online courses? Okay, some programs, evidently, are already pushing the faculty out of the online courses, replacing them with more telegenic folks. Will the same thing happen here at the University of Illinois? Will professors like me be pushed out of these Coursera videos? So Yuhi, I have to ask, is there any truth to the rumors that the program is exploring the possibility of replacing professors in Coursera videos with paid actors? Now before you respond, my staff and by staff, I mean, me. >> [LAUGH] >> Just came up with a list of few options of actors that could maybe make sense to present my courses if you're deciding to go down that direction. So here's a few contenders that we kind of put together. >> Okay, let's see. >> Potential Actor Replacements here. Number one, I thought maybe David Letterman from the Midwest, kind of quirky appearance, it seems to be kind of like a good fit here. >> Okay, interesting. >> I like this choice here, I'm a big fan, remember this is Kelsey Grammer, Frasier, the show Cheers, the follow-up show, Frasier. There's some similarities here, this kind of annoying attention to detail. >> [LAUGH] >> Getting into these self-inflicted awkward situations. So this might not be a bad choice. In fact, I might donate to help if we can get him to do my classes here. This is a little out of the box. >> [LAUGH] >> But there has been some increasing interest obviously in animation. So not Dory, too expensive, I'm sure, but maybe Marlin, okay. Like this is Nemo's dad. Nemo, Marlin from the Finding Nemo. Finding Dory movie. I see some similarities. I'm also kind of, I'm not a clown fish. But I'm also like the nervous father figure. So, Marlin could be a possibility animation or cartoon Scott, right? We've loved him in the summaries with animations that U-High. I thought that maybe we could make use of him. Now on the one hand, I'm not very crazy about my job being outsourced. But if it is, we could maybe keep it in the family. And there's actually, this is the one I prefer. He looks kind of very hip, hand in the pocket. I like this waistline. >> I like this one. >> I did look like this at one point but this is probably 15, 18 years ago at this point. There's other version. Now, this one actually surprising looks a lot like my dad. So, maybe this is coming attraction for me- >> [LAUGH]. >> If I lose a little weight here. We also have, I don't know, maybe this is coming like doing me a lot of favor. This one here, maybe this is like 70 year old Scott or with an afro here. >> Wow. >> So maybe I started to use some hair tonic, it gets out of control and maybe this is how I look. >> This looks like a Simpson's character. [LAUGH] >> Exactly, exactly. So, here we have them all together. I think some great possibilities here. What do you guys kind of think as our viewers? So, time for the awkward moment. You're a leader of the IMBA program. Well respected. Certainly, if this move was a foot you would know about it. Can you confirm or deny rumors that actors will be hired to replace me and other professors in these videos? Say it ain't so X amount. >> I think my official line should be no comment. But since this is the awkward moment, I'll give you something, we've never actually thought about the idea, but you might be giving us some good ideas just right here. Now, this is getting interesting. I personally- >> So, I'm shooting myself in the foot here is what you're telling me. >> Yeah. >> [LAUGH] >> In the end though, the possibilities that you presented to me, just my personal view, I would never picked David Letterman or Kelsey- >> Grammer. Yeah. >> Yeah, exactly. I just don't. I don't trust actors to teach in the program. Remember, we need to hold the standards high [LAUGH]. >> [LAUGH] >> They can memorize scripts. >> Yeah. >> But a lot of the interactions, they probably can't handle. >> That's true. But remember Coursera is now providing these transcripts. So, they could just read those. >> Right, but remember, we have live session. >> That's true. >> How can they answer questions? That's the key point. >> That's true, that's right. >> Marlin, too nervous. >> Too nervous. >> Yeah, we won't consider him. So, I would consider one of these. >> [LAUGH] >> So for sure, we will pick one of these. And then instead of completely cutting Scott out of the picture, we'll give him a voice-over job. Exactly, we will not look at Scott anymore, we will animate these things and Scott will still be Scott talking to people, but- >> Okay >> Occasionally, you will see one of these, and I do like this one. >> Okay, well that's- >> Looks very heavy. >> Because frankly, I'm very torn here on the one hand, no one wants to be pushed out of the videos But on the other hand, fake doctors do sell a lot of drugs. >> Yeah. >> So, it might be in the interests of the program as a whole for this program to reach its kind of pinnacle of success. But if you're going to go with one of these, I would recommend >> Yeah. >> Let's go with this younger, hip >> That's my favorite. >> [CROSSTALK] >> Animation. Okay, that's good to hear. And I understand these animated characters don't actually ask for that much. >> Right. >> So, it might be affordable to you. Thanks so much for indulging with my silliness here. But maybe not too silly, right? We'll have to see, watch the years ahead. I really enjoyed the segment a lot. I'm sure viewers did as well. Thank you so much. >> Of course, thank you. I'm glad you meet this animated Scott. >> That's right, that's right. Who maybe there after my job, I'm going to keep my eye on that. >> Okay. >> So anyway remember, there will be two faculty focus interviews and modules for and as always thanks for watching. >> Thanks. [SOUND]
