GaWC Project 48

Geographies of Quantitative Finance: American MBA Programmes and Investment Banking in London's Financial District

Funded by: The Nuffield Foundation (2005-2007)

Grant Holder: Sarah Hall

Context

Following the suite of regulatory changes in the early 1980s, labelled ‘Big Bang', financial services in London have increasingly adopted working practices originating in America (Moran 1991). Within London's commercial banking sector, this is reflected in the rise of the American investment banking model at the expense of British merchant banks (Roberts and Kynaston 2001). This is partly due to the increased presence of American firms in London as almost all UK merchant banks have now been taken over by foreign (often American) competitors using the investment banking model (Augar 2001). However, the applicant's previous research shows that this shift from merchant to investment banking is more than simply a change in nomenclature or country of firm ownership and actually reflects fundamental changes in the ways the industry is structured and practised (Hall 2004). Merchant banking was predominately relationship and trust-based industry with business built on long-term client-advisor relationships, whereas investment banking is transaction and cost based. In this model, banks bid aggressively for each client mandate as a one-off piece of business.

The proposed research concentrates on one under-researched facet of this change, the rise of quantitative financial methodologies. These were not widely used in London until the early 1980s and have risen in significance following the growing American investment banking presence within London's financial district (Kynaston 2001). Quantitative finance originated in American university economics departments in the late 1960s (MacKenzie 2001), facilitated partly through significant developments in computer technology. However, although extant research explores the relationship between economics as an academic discipline and the rise of New York as an international financial centre (Bernstein 1992) little is known about the transatlantic flow of theoretical quantitative finance developed from American Universities to financial practice in London. The proposed research will address this lacuna by building on the applicant's previous research into London's corporate finance industry. Specifically the research will consider the role of MBA programmes offered by US business schools as an intermediary between US university economics departments where quantitative finance originated and corporate finance departments in London employing US MBA graduates. Business schools originated in the US in the late nineteenth century but grew most rapidly in the middle of the twentieth century, largely through the introduction of MBA programmes (Thrift 2001, Crainer and Dearlove 1998). Therefore, the aim of this study is to investigate the role of MBA programmes in US business schools in facilitating and shaping the growth of quantitative corporate finance in London's financial district.

Objectives

To meet this research aim, the project has three major research objectives: (1) to identify and analyse the importance of MBA programmes offered by American business schools in the production of quantitative corporate finance in London's contemporary financial district; (2) to generate new data on the trans-atlantic stretching of quantitative corporate finance knowledge, including a consideration of the mechanisms and agents involved in the transfer between US business school academics and students and London based finance practitioners; (3) to publish and disseminate results to academics in geography and the social studies of finance and relevant practitioner stakeholders.