COVID-19 and Its Impact on Course Design of Finance Courses

Introduction

The continuing COVID-19 crisis is informing global investors, chief finance officers, risk managers, policymakers, regulatory bodies and the public at large that natural disasters can cause economic/financial damage on a previously unprecedented scale. It is different from a potential nuclear war that no one can survive or climate risk that is slow-moving or even localized disasters (Goodell, 2020). One thing is for sure, for researchers and academics in finance, the crisis brings in challenges that require investigation in almost all disciplines that spin out of core corporate finance and risk management.

On a micro level, a lot has been written on pedagogical changes in an increasingly digital classroom where delivery can be both synchronous and asynchronous. But in the author’s opinion, changes have become imminent in course design—curriculum/outline itself. This issue needs far more attention from academia and researchers in finance, rather than pedagogy.

This article is further divided into the following sections: in the second section, the author focuses on paradigm and cultural shifts in pedagogy and student involvement. In the third section, this article dwells on what this shift means for course design. The fourth section focuses briefly on some more questions that the pandemic has raised in core finance research areas, typically banking, and how this needs to be addressed by researchers and brought into the classroom discussions. Finally, the fifth section concludes.

Paradigm shift in Pedagogy and Student Involvement

On a typical day, the author would walk up from my office at 8:15 am at IIM Lucknow to take my 8:30 am morning class in my elective course on structured and project finance. Morning classes are typically difficult for students. But as the author would walk by the blooming flowers in our beautiful campus, the most common site was to see students rush in their tracksuits with morning coffees in hand towards the assigned 101 classrooms. They would sit at their preassigned places, marked by name cards in a semi-circular amphitheater. Each student carried a poly copy that contained the case to be discussed on that particular day. Many students would have scribbled and highlighted text, and data from the case and some groups would also have done a preliminary discussion. As the author entered, their faces, some eager, some doubtful, some simply bored, motivated him on to an engaging 90 minutes.

This year too, like every other year, the author walked from his home to his office in a campus where the flowers still bloomed, peacocks still cried, but the silence in the academic block was unnerving. He would open his office, log in to the Wi-Fi network, open his calendar for his scheduled class, connect another laptop as two computers made it easier to interact, then connect his tablet (that he would use as a whiteboard) and wait.

This article is highlighting this story to bring into focus the often-unmentioned issue of an educator’s mind-set. Finance professors typically thrive in a classroom that has multiple boards where they give analytical tools and examples of the concepts that they are lecturing or discussing. Slides are usually not the best friend of a finance faculty and the class engagement typically increases in an ‘S’ shaped curve during the class as the faculty keeps noticing the looks of comprehension on the students’ faces and some ‘aha’ moments as well.

Online, many a time where the students keep their cameras off, the quality of interaction suffers. Though two laptops/chat windows somehow solve the cold questioning and discussion issue to an extent and the use of a tablet as a whiteboard helps in the analytical part, but sometimes you do wonder if the students are really understanding.

This article would not spend more time on pedagogical innovations including permissions to record sessions and proctored online exams, quizzes, etc. The author believes that every faculty develops their own pedagogical style that is unique to them and more importantly suits their personality.

This article would now highlight that apart from just pure pedagogical issues, how did the COVID-19 pandemic drove business schools to relook into the finance curricula and course design. Its more relevant now as the best description of modern business school curricula even before the pandemic was that it taught managers theory and practice to respond to uncertainty. The pandemic presented the business schools a chance to demonstrate just this and also their relevance.

I would now focus on the need to relook at the course design and the curriculum.

Paradigm Shift in Traditional Course Designs

Each course has an objective and the desired learning outcome. A session-wise plan ensures that the course moves towards the desired learning outcome. Continuous evaluation is the metric that ensures assurance of learning. I would suggest the following:

Pre-class reads: Online, each session must usually have a pre-class read. It motivates the student to come to the class. The pre-reads in finance should usually be the unanswered questions around the theory/case that you are discussing in a particular session or two. The author usually sends his students a research paper/HBR discussion/ET editorials with a brief outline of how it is relevant for the upcoming session.

In class case analysis and excels: All finance courses need a lot of board work and analysis through cases. The author would strongly suggest using a tablet and keep opening new windows. It is imperative that we send students our annotated slides back. Excel work around cases need to be slowly explained, and if students need to have a discussion, break-out roomes need to be carefully monitored. To this effect, sometimes, online classes slow down your intended course coverage. Session-wise mapping of cases needs to be carefully thought out and evaluated as otherwise course may feel rushed and learning outcomes may be compromised.

Mapping each session to emerging possibilities and research around the pandemic: There is a theory in each session and a possible application through a case. But the finance faculty need to now discuss the changing reality or at least try to explore the implications with our students in our course design. For example, minimizing the cost of capital is an important concept in structured finance solutions. COVID-19 may change this equation permanently. Financial markets typically would not price the extreme tail events as they are assumed not survivable, but COVID-19 is. If that is so, what will be the impact on equity risk premiums and country risk premiums. What will be the effect on leverages, and will leverage now be a function of geographies that are likely to be more disaster-prone. Academia, therefore, needs to bring in new empirical research around the impact of COVID-19 into sessions.

 The author also observes that in some lectures, time should be dedicated to concepts wherein the soundness of it is being challenged right in front of our eyes or at least discuss with students how some concepts are being challenged right in front of us, in real time. Relevance of some topics would be permanently challenged in all finance courses.

Finally, in the last section, the author analyses as to how the changes highlighted above provides an opportunity to the faculty to work on emerging research areas that need to be studied and incorporated in course designs.

Emerging Research Areas in Banking

As I teach courses around banking and credit risk, it is important to not just conduct but bring empirical research as developing countries like us face imminent credit risk issues. For example, I am trying to study the sudden spikes in credit default spreads of Indian banks during the crisis, even though the underlying capital adequacy ratio and profitability metrics remain strong. Particularly interesting would be the study on the credit quality of small and medium enterprise and microfinance portfolios. This is in addition to research areas on digital banking, channels, payment systems, fraud detection in e-commerce and other transactions, regtech, enterprise risk management, etc. The author believes that data would become more granular for researchers.

This is excluding a wide array of research available on economic costs to both public and private, health and other infrastructure, productivity, foreign direct investments, etc.

As course design and new areas of research emerge, the author emphasis that the time for interdisciplinary (as in courses in macroeconomics, markets and institutions) in finance courses is really now. For example, we may take topical examples and demonstrate credit evaluation, risk management, distressed debt, financial restructuring, alternative finance and structured finance all in one case.

Conclusion

As I end my article, I would once again hope that this pandemic would make the academics in finance rethink the whole body of knowledge and concepts built around the narrow principles of Shareholders Wealth maximization or stock price maximization. The impact of market risk on the shareholder’s profitability metrics is still measurable, but what is perhaps unfathomable are the risks coming in from climate change that may lead to more health and medical crisis. The time has come for us to perhaps refine the metrics by which we define the risk-reward relationship around climate change.