The P&Q Interview: LBS’s Alex Edmans On Rewriting The ‘Bible of Finance’

Alex Edmans knew the book front to back long before he was asked to help write it. He studied it as an undergrad at Oxford University. He was handed a copy when he joined Morgan Stanley as a new analyst where it sat on the shelf of every senior banker.

He later taught Principles of Corporate Finance as a PhD candidate at MIT where he was a teaching assistant to one of the book’s original co-authors, Stewart Myers. He taught it again at The Wharton School alongside his mentor, Franklin Allen, another co-author. Today, he teaches it to 500 MBA and 300 master of finance students each year at London Business School.

First published in 1980 by Richard Brealey and Stewart Myers, Principles of Corporate Finance has long been known as the “Bible of Finance.” That’s not hyperbole. For decades, it has been the go-to source for settling debates over valuation, strategy, and the fundamentals of modern finance.

“I have known the book either as a student, banker, or professor every single year continuously since 1998,” says Edmans. For its 15th edition released this year, Edmans has rewritten the entire 1,000 page textbook.

WHAT’S NEW IN EDITION 15

Edmans was first added as a co-author in 2022 when he was asked to rewrite several chapters to add ESG and sustainability context. He also wrote a new chapter on Responsible Business. For the 15th edition, he was asked to write the entire book, updating it to address criticism that business schools and business textbooks too often focus on maximizing shareholder value with little concern about wider society.

“To some people, ‘MBA’ is synonymous with learning how to exploit everyone else to make profits for yourselves,” says Edmans, a professor of finance at LBS and P&Q’s 2021 MBA Professor of the Year. “They think the world would be better off if business schools suddenly disappeared.”

The new edition integrates ESG, sustainability, and responsible business concepts throughout, rather than throwing them into a single chapter that can be ignored by professors or glossed over by practitioners.

“I don’t do this in a way that might be dismissed as ‘woke,’” Edmans tells P&Q. “Instead, from Chapter 1, I stress how – to be profitable and deliver returns to shareholders – a company must create value for stakeholders. Caring about society doesn’t just save the dolphins; it makes companies more profitable.”

Q&A With Alex Edmans

Edmans pioneered research in CSR (Corporate Social Responsibility) and ESG (Environmental, Social, and Governance) years before it became fashionable. He showed that doing good for employees, customers, and society was also good (aka profitable) for business. He’s presented at the World Economic Forum in Davos and testified before the British Parliament. His book, Grow the Pie: How Great Companies Deliver Both Purpose and Profit, was a Financial Times’ Best Books of 2020.

Edmans was also one of the earliest voices calling for responsible business to be grounded in real economic principles rather than ideology.

For him, rewriting one of the most iconic textbooks in business education is about more than a co-author credit. He argues that MBA programs are often seen as too profit-focused, overly theoretical, and inaccessible to students without finance backgrounds. The new edition of Principles of Corporate Finance confronts those concerns directly.

P&Q spoke with Edmans about what the project means for him, what it says about the future of the MBA, and how he hopes it will serve students and faculty alike. The conversation has been edited for length and clarity.

First of all, can you put into context the importance of Principles of Corporate Finance.

So this book was always known as the Bible of finance. It was the one book read by every student of finance. It was a reference that anybody would always go to – the equivalent of the Encyclopedia Britannica, or not to be sacrilegious, the Bible.

We were all given a copy of it when we started at Morgan Stanley. Senior bankers would have it on their shelves. And again, this was the go-to if you wanted to discuss how to do a particular valuation. To be invited to co-author, it is a huge privilege.

What are the biggest changes you made for this rewrite?

One, in terms of content changes, is the integration of sustainability throughout the book. Now, that might immediately put people off – “Oh, is this just a woke book trying to push sustainability?”

But what I’ve always highlighted is that sustainability is just like a long-term investment; you can analyze it with the same rigor as you would with any other business decision. A hundred years ago, long-term investments might be drilling for oil or building a car factory. Now, they might be investing in carbon capture, green hydrogen, or a more diverse and inclusive workforce. We want to analyze that with the same rigor as you would do any other decision.

Despite being a sustainability advocate, I’m also somebody who recognizes the challenges and the lack of rigor that sometimes happens in ESG. I wrote a series of articles about that in 2023 on this and one of them, which I think is particularly relevant, is called “Applying Economics, Not Gut Feel, to ESG.”

Other books might say, “Sustainability is a big thing now, so let’s write one chapter on it.” If you pigeonhole it into one chapter that only gets read if students choose an elective, you’ve lost the battle.

I’ve integrated sustainability throughout the book, so for people who are positive about sustainability, this is a core topic. And for those who are skeptical, I’m showing that it’s a rigorous economic concept.

What is the significance of having these concepts integrated into what you call ‘the Bible of finance?’

I think it’s extremely significant. Another article I wrote is called “The End of ESG.” That might sound weird: Why would a sustainability expert write that? But what I mean is the end of ESG as a niche field. The problem with the “topic” of ESG is it gives the impression that ESG is only of interest to ESG people. What I’m saying is that ESG is something which matters for everybody.

Considering ESG is not ESG investing. It’s just investing. Any investing should consider anything that’s relevant for long-term value.

This is not something I came up with to be catchy in 2023. I said it in 2007 when I won the Moskowitz Prize for Socially Responsible Investing. I said, “I hope in the future there’s no such thing as socially responsible investing. There’s just investing.” It should be taken for granted.

Given the political pushback against ESG and DEI – especially in the U.S. – what is this particular period of time like for you?

I think the first thing you should do with any pushback is ask, might they actually be right? The immediate reaction is to think these people must be climate deniers or racists or sexists. But critical thinking means asking if there’s anything you can learn from their viewpoint.

I was an extremely strong “Remainer” during Brexit, and I forced myself to go to Brexit talks to listen to the other side. Maybe I disagreed with 90%, but 10% made sense.

So what might be right about some of the ESG critiques? That it doesn’t always pay off. You can still say, “I’m going to do it anyway because I care about the climate,” but the idea that it’s always a win-win is seductive and not always true. We need to be clear about trade-offs. ESG has become a sacred cow where people aren’t willing to challenge it or accept that it’s not a magic wand.

With DEI, being an ethnic minority myself, I care deeply about it. But the evidence shows that demographic diversity alone is not always linked to performance. A more holistic measure of DEI, including cognitive diversity and psychological safety, is.

You might be a white male, but the first in your family to go to university. That matters. Companies need to be psychologically safe, encouraging dissent. When we take those things into account, we do find a link to performance. We can acknowledge the lack of correlation between demographic diversity and performance without being anti-DEI.

So, does the textbook offer this kind of nuance?

Absolutely. The rigor with which we convey sustainability is important. ESG can improve long-term returns, but there are diminishing returns and trade-offs. When I look at the evidence, I show that some ESG factors are positively correlated with returns, and some are not.
ESG lumps everything under one label, like asking, “Is food good for you?” Some food is good, like broccoli. Some food is bad, like ice cream. We want to disentangle what’s typically conflated.

How does this update reflect how business – and business education – has changed?

I think there are two ways: content and delivery.

For content, we need to cover sustainability in a disciplined way. We also need to be international. Most people who work in business will deal globally, even if they never leave the U.S. Obviously, now we’ve seen the importance of global relationships and supply chains and so on, but books often use only U.S. examples. We wanted one integrated edition.

And we need to be practical. We teach models like efficient markets or CAPM (Capital Asset Pricing Model), but the assumptions often don’t hold in the real world. We want to show how to adjust the models when those assumptions don’t apply.

For delivery, often people think of it as an afterthought. They focus on content and assume delivery as something for fluffy marketers. I think that’s really patronizing.

When I was an undergrad, which was 1988, we didn’t have smartphones or email. We read the book in the library or in our dorm room. Now students are much more distracted, our attention spans are much shorter. They want content that is punchy, clearly defined, and digestible as opposed to swathes of dense text. You have to meet students where they are.

That doesn’t dumb it down – CEOs get bullet point presentations. We define terms clearly as soon as they appear. And we use logic rather than math when possible. That makes it accessible to those without finance backgrounds. And we still keep the rigor.

Is the book already being used?

It hit the stands officially last month, but most instructors won’t assign it until the fall. That’s when course adoption decisions are made. Practitioners and students can already buy it on Amazon.

Is it still as widely used as before?

So I think, hopefully, it will still be as widely used – and among practitioners as well. One way I know this is from my expert witness work. In that role, you’re often asked to assess damages, valuations, or the cost of capital. What regulators, lawyers, or economic consultants will often say is, “This is what Brealey and Myers recommend as the correct way to estimate the risk-free rate.”

That said, I also need to be realistic. Compared to 1998 or 2001, the general use of textbooks is going down. People might think, “I don’t need a textbook; I can just look it up on ChatGPT or Wikipedia.” But when the stakes are high, you can’t walk into a client meeting and say, “My valuation is based on what ChatGPT told me.” Hopefully, you’ll be able to say, “It’s because Brealey, Myers, Allen, and Edmans” said so.

So yes, overall textbook consumption may decline. But because this book has always been used by both practitioners and academics, I hope that legacy continues. That’s also why it’s important to include content that’s relevant to practitioners.

After a year of working on the rewrite, what did this project mean to you personally?

What I love about being a professor is the creation and dissemination of knowledge. It’s the ability to spread knowledge widely to lots of people. It’s a huge privilege for me to do that with LBS students. Next year, I’ll teach 500 MBA students and 300 master’s in finance students, 800 students in total. That’s a lot. But with a textbook, you can reach thousands and thousands more.

It’s very gratifying to think that students in the future will learn finance from a book I co-authored – with rigor, engagement, and relevance. This might sound fanciful, but I’d love it if, when my son goes to university, and if he studies finance, he’s using the book his dad helped write. That romantic idea is what motivates me to keep the book relevant and useful – at least for the next 15 years, when he turns 18.

Anything else you’d like to add?

I do give a lot of credit to Franklin Allen. He’s been an active co-author, especially during COVID. While I rewrote the book, he reviewed everything and served as a second set of eyes to make sure it stayed true to the original principles.

He’s also a legendary teacher. At Wharton, he basically won every teaching award. When I first started there, the school was hesitant to let me teach the core course because I would be teaching alongside Franklin who, frankly, was just a legend.

It was only after I showed them that I’d won teaching awards as a Ph.D. teaching assistant at MIT that they gave me a shot. And then I won a teaching award in my very first year. But Franklin was known as someone you just didn’t want to teach next to because the comparison would be so tough.

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