In his first job after earning a bachelor’s degree from Sydenham College at Bombay University, University of Redlands School of Business Professor Satish Thosar was working in accounting and finance for Voltas Ltd., a multinational conglomerate firm. Even then he knew that he wanted to research topics in the economics and finance fields. He went on to earn a master’s degree in India and a Ph.D. at Indiana University, Bloomington.
“I feel there are many important economic questions,” says Thosar, who holds the William R. and S. Sue Johnson Endowed Chair in Finance. “I have been paying attention to recent studies in the areas of inequality in the context of wealth and income but also society in general. There are significant macro questions relating to unemployment and regulation, and, in my own area of finance, there are topics of interest to me, such as executive compensation and corporate restructuring.”
After teaching in Boston, Massachusetts, and Sydney, Australia, Thosar landed at the University of Redlands, where he teaches courses in managerial finance, financial markets and institutions, valuation, and topics in corporate finance and investments. He has been honored with the Award for Outstanding Teaching by the University of Redlands Faculty Review Committee and has received the Excellence in Teaching Award from the School of Business.
An active researcher, Thosar publishes in peer-reviewed journals and is often invited to submit articles in high-visibility outlets for practitioner and academic audiences. He also presents regularly at national and international conferences on topics of current economic and financial interest.
His most recent article, “Pay-For-Performance Incentives in the Finance Sector and the Financial Crisis,” was published in Managerial Finance. Thosar says it is always the right time to study economics, but it’s particularly important following the financial crisis of 2008. “Most academicians and researchers didn’t see it coming when the crisis erupted with the fall of Lehman Brothers,” he reflects. “Observers noticed that the housing bubble was beginning to deflate, but most did not realize how significantly it would affect the larger economy.”
He says the recent article establishes that incentive structures for performance in the finance industry should be revisited. Thosar and his co-author found that pay-for-performance for senior executives in the finance sector is closely tied to return on assets (ROA). This led to unreasonably high executive compensation, especially in larger firms, in the pre-crisis period. Thosar says executives were likely taking on excessive risk to earn high compensation, which is undesirable from a public policy perspective. When large financial institutions fail (or if failure is imminent), policymakers often have no alternative but to engineer taxpayer-funded bailouts.
The article concludes: “We believe financial regulators should consider monitoring [pay for performance] in addition to capital ratios, credit default swap spreads, and other metrics in their risk containment strategies.”
As for the future, Thosar believes his field will continue to grapple with new and important questions: “There are many economic challenges ahead, depending on what policy decisions are made in areas such as foreign trade, financial regulation, and so on.”