In this case, students explore a situation that has implications relating to professional ethics(primarily as put forward in the IMA’s Statement of Ethical Professional Practice) in terms competence, conflict resolution, and confidentiality. As a fact-based case, it has sufficient complexity to provoke discussion. A young, relatively inexperienced, accountant was surprised to be offered the controllership of a prospering conglomerate of small construction-related businesses. While he had great rapport with the entrepreneur/owner/manager in the interview, he could only assume that a good word from his friend, an employee of the organization, had set him apart from more experienced candidates. At first, the work was challenging, but interesting. He was grateful for all he was learning and for the camaraderie. Then, after documents disappeared that would have helped him determine whether a lease was being incorrectly classified, he began to be more aware of areas that made him uneasy. There were charges to some of the businesses that could be personal expenditures. There were transactions recorded that could be construed as shifting assets or income among the separate business entities. When he tried to find answers to his concerns, his employer questioned his loyalty and told the accountant that the controller’s responsibility was to the business, not to any accounting rules or organizations. After working under strained circumstance for a while, the accountant found a way to leave gracefully in good standing. After time for reflection, he wanted to do something to rectify the situation he left. His was frustrated when he was advised by a hotline that the ethical standard of confidentiality prohibits his contacting outside agencies. (Teaching notes also address the multiple responsibilities of the internal accountant to the organization, the public, and the profession.)
{"title":"If it Seems Too Good to Be True...","authors":"Claudel B. McKenzie, Linda Nelms","doi":"10.2139/ssrn.1659367","DOIUrl":"https://doi.org/10.2139/ssrn.1659367","url":null,"abstract":"In this case, students explore a situation that has implications relating to professional ethics(primarily as put forward in the IMA’s Statement of Ethical Professional Practice) in terms competence, conflict resolution, and confidentiality. As a fact-based case, it has sufficient complexity to provoke discussion. A young, relatively inexperienced, accountant was surprised to be offered the controllership of a prospering conglomerate of small construction-related businesses. While he had great rapport with the entrepreneur/owner/manager in the interview, he could only assume that a good word from his friend, an employee of the organization, had set him apart from more experienced candidates. At first, the work was challenging, but interesting. He was grateful for all he was learning and for the camaraderie. Then, after documents disappeared that would have helped him determine whether a lease was being incorrectly classified, he began to be more aware of areas that made him uneasy. There were charges to some of the businesses that could be personal expenditures. There were transactions recorded that could be construed as shifting assets or income among the separate business entities. When he tried to find answers to his concerns, his employer questioned his loyalty and told the accountant that the controller’s responsibility was to the business, not to any accounting rules or organizations. After working under strained circumstance for a while, the accountant found a way to leave gracefully in good standing. After time for reflection, he wanted to do something to rectify the situation he left. His was frustrated when he was advised by a hotline that the ethical standard of confidentiality prohibits his contacting outside agencies. (Teaching notes also address the multiple responsibilities of the internal accountant to the organization, the public, and the profession.)","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123364320","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper identifies four approaches to resource allocation decisions in public services from the literature: a rational approach using devices such as budgets, cost-benefit analysis, statistical techniques, etc.; non-rational approaches such as satisficing, muddling through, and garbage can models of decision making; expectations analysis based on what managers believe is expected of them; and heuristics based on experience and values.Our research question was to understand, at the micro or operational level in public sector settings, how managers faced with finite resources and uncertain demand actually make resource allocation decisions and which of the approaches (or combinations of approaches) were used.A multimethods approach is adopted, comprising qualitative data collection and the analysis of timesheet data using statistical techniques and self-organising maps to identify how resource allocation decisions are made where resources are limited but demand is unpredictable and uncontrollable.The research findings are that rational devices, heuristics (informed by norms and values) and expectations (incorporating the non-rational approach) can be seen as complementary and mutually reinforcing, and are difficult to separate. Individual approaches (rational, non-rational, expectations, or heuristics) to resource allocation decisions provide an inadequate explanation for complex resource allocation decisions in a public sector setting.This is a model of resource allocation decision making that is useful both theoretically and practically, and is particularly pertinent to public sector settings where finite resources must be allocated to uncontrollable demand.
{"title":"Resource Allocation Decisions in the Public Sector: A Model Based on a Study of Policing","authors":"Zoe Yan Zhuang, P. Collier","doi":"10.2139/ssrn.1626070","DOIUrl":"https://doi.org/10.2139/ssrn.1626070","url":null,"abstract":"This paper identifies four approaches to resource allocation decisions in public services from the literature: a rational approach using devices such as budgets, cost-benefit analysis, statistical techniques, etc.; non-rational approaches such as satisficing, muddling through, and garbage can models of decision making; expectations analysis based on what managers believe is expected of them; and heuristics based on experience and values.Our research question was to understand, at the micro or operational level in public sector settings, how managers faced with finite resources and uncertain demand actually make resource allocation decisions and which of the approaches (or combinations of approaches) were used.A multimethods approach is adopted, comprising qualitative data collection and the analysis of timesheet data using statistical techniques and self-organising maps to identify how resource allocation decisions are made where resources are limited but demand is unpredictable and uncontrollable.The research findings are that rational devices, heuristics (informed by norms and values) and expectations (incorporating the non-rational approach) can be seen as complementary and mutually reinforcing, and are difficult to separate. Individual approaches (rational, non-rational, expectations, or heuristics) to resource allocation decisions provide an inadequate explanation for complex resource allocation decisions in a public sector setting.This is a model of resource allocation decision making that is useful both theoretically and practically, and is particularly pertinent to public sector settings where finite resources must be allocated to uncontrollable demand.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"255 ","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120942041","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines whether and how proprietary costs of mandatory disclosure influence a firm’s decision to first access the public bond market. First access to the public market implies a pre-commitment to mandatory disclosure. Both the industry-level and firm-level evidence suggest that an important economic determinant of the financing decision is proprietary costs of mandatory disclosure. More specifically, I characterize product markets where a firm’s marginal profit decreases (increases) in response to a rival’s increase in output as one where firms compete as strategic substitutes (complements). First, a larger proportion of firms in product markets characterized as “strategic complements” choose not to access the public bond market, which is consistent with the interpretation that firms in “strategic complements” prefer no pre-commitment to disclosure of proprietary information on firm-specific values. Second, when the potential cost of disclosing proprietary information on market-wide values is high, a larger proportion of firms in product markets characterized as “strategic substitutes” choose not to access the public bond market, which is consistent with the interpretation that firms in “strategic substitutes” prefer no pre-commitment to disclosure of market-wide values. Finally, in a given product market, more profitable firms are less likely to access the public bond market because they have economic incentives to avoid public disclosure in order to protect their abnormal profitability from competition.
{"title":"Proprietary Costs of Mandatory Disclosure and the Decision to First Access the Public Market","authors":"Vicki Wei Tang","doi":"10.2139/ssrn.1466127","DOIUrl":"https://doi.org/10.2139/ssrn.1466127","url":null,"abstract":"This study examines whether and how proprietary costs of mandatory disclosure influence a firm’s decision to first access the public bond market. First access to the public market implies a pre-commitment to mandatory disclosure. Both the industry-level and firm-level evidence suggest that an important economic determinant of the financing decision is proprietary costs of mandatory disclosure. More specifically, I characterize product markets where a firm’s marginal profit decreases (increases) in response to a rival’s increase in output as one where firms compete as strategic substitutes (complements). First, a larger proportion of firms in product markets characterized as “strategic complements” choose not to access the public bond market, which is consistent with the interpretation that firms in “strategic complements” prefer no pre-commitment to disclosure of proprietary information on firm-specific values. Second, when the potential cost of disclosing proprietary information on market-wide values is high, a larger proportion of firms in product markets characterized as “strategic substitutes” choose not to access the public bond market, which is consistent with the interpretation that firms in “strategic substitutes” prefer no pre-commitment to disclosure of market-wide values. Finally, in a given product market, more profitable firms are less likely to access the public bond market because they have economic incentives to avoid public disclosure in order to protect their abnormal profitability from competition.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127805695","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examined some of the factors that influence the use of quality costs in TQM (Total Quality Management) environments by using survey data collected from Japanese manufacturing firms. The management accounting and quality management literatures suggest that TQM requires a greater emphasis on nonfinancial performance measures, such as defect rates, cycle time, and customer satisfaction, in order to identify the sources of defects, monitor the consequences of improvement activities, communicate strategic goals, and motivate employees to improve the quality of products and process. Some argue that traditional management accounting practices based on mainly financial performance data are too slow and aggregated to support TQM practices and nonfinancial performance measures should be emphasized to overcome the shortcomings of traditional financial based performance measures. Contrary to previous study, this study indicates that quality costs are used in particular situations even in TQM environments. Specifically, the results show that firms with high degree of quality risk, shortened product development cycles, inspections and interdependence among units are likely to use quality costs in TQM environments. This study contributes to existing literatures by providing empirical evidence on the factors influencing the use of quality costs in TQM environments. The results of this study provide a new insight about the choice of performance measures in TQM environments.
{"title":"Factors Influencing the Use of Quality Costs in TQM Environments: Evidence from Japan","authors":"Takehisa Kajiwara","doi":"10.2139/ssrn.1444763","DOIUrl":"https://doi.org/10.2139/ssrn.1444763","url":null,"abstract":"This paper examined some of the factors that influence the use of quality costs in TQM (Total Quality Management) environments by using survey data collected from Japanese manufacturing firms. The management accounting and quality management literatures suggest that TQM requires a greater emphasis on nonfinancial performance measures, such as defect rates, cycle time, and customer satisfaction, in order to identify the sources of defects, monitor the consequences of improvement activities, communicate strategic goals, and motivate employees to improve the quality of products and process. Some argue that traditional management accounting practices based on mainly financial performance data are too slow and aggregated to support TQM practices and nonfinancial performance measures should be emphasized to overcome the shortcomings of traditional financial based performance measures. Contrary to previous study, this study indicates that quality costs are used in particular situations even in TQM environments. Specifically, the results show that firms with high degree of quality risk, shortened product development cycles, inspections and interdependence among units are likely to use quality costs in TQM environments. This study contributes to existing literatures by providing empirical evidence on the factors influencing the use of quality costs in TQM environments. The results of this study provide a new insight about the choice of performance measures in TQM environments.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122148398","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I document the variation in measurement of financial covenants, focusing on three measurement rules: earnings (EBITDA vs. EBIT), firm value (including or excluding intangible assets) and inclusion of escalator clauses (provisions that increase the threshold of net worth covenants). I find that the selection of earnings and firm value measure is associated with the creditors’ demand for monitoring and that inclusion of escalators is driven by the risk of underinvestment. There is also evidence consistent with borrowers using discretion to lower depreciation and amortization and to inflate goodwill to avoid covenant violation. I draw two conclusions. First, earnings and firm value measurements are designed to aid the creditor in monitoring; however, borrowers use discretion to manipulate the reported figures. Second, escalator clauses encourage capital expenditures, and do so effectively. This evidence collectively supports an economic role for covenant measurement: the choice of measure facilitates efficient monitoring and limits underinvestment.
{"title":"Information, Monitoring, and Manipulation: The Economic Role of Covenant Measurement","authors":"Peter R. Demerjian","doi":"10.2139/ssrn.1463482","DOIUrl":"https://doi.org/10.2139/ssrn.1463482","url":null,"abstract":"I document the variation in measurement of financial covenants, focusing on three measurement rules: earnings (EBITDA vs. EBIT), firm value (including or excluding intangible assets) and inclusion of escalator clauses (provisions that increase the threshold of net worth covenants). I find that the selection of earnings and firm value measure is associated with the creditors’ demand for monitoring and that inclusion of escalators is driven by the risk of underinvestment. There is also evidence consistent with borrowers using discretion to lower depreciation and amortization and to inflate goodwill to avoid covenant violation. I draw two conclusions. First, earnings and firm value measurements are designed to aid the creditor in monitoring; however, borrowers use discretion to manipulate the reported figures. Second, escalator clauses encourage capital expenditures, and do so effectively. This evidence collectively supports an economic role for covenant measurement: the choice of measure facilitates efficient monitoring and limits underinvestment.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115521826","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The economic survival of this country may well depend upon how effectively our firms can innovate. If this statement is remotely true, then accounting majors should be aware of the issues surrounding the successful measurement and management of a firm’s innovation processes. A review of all managerial textbooks finds no meaningful treatment of this topic. A review of the literature finds about a dozen relevant articles, three of them just published in June 2009. A request made to 142 accounting department chairs for a copy of their program’s advanced managerial accounting syllabus garnered 26 syllabi, none of which had any treatment of innovation. The objective of this paper is to get the ball moving and provide students with materials to assist them in their understanding of the topic. Toward this goal a PowerPoint presentation is included that should help students understand Davila, Epstein and Shelton’s Making Innovation Work. Also included are an innovation flowchart, class discussion questions and exercises, the results of a literature search and a (62-page) summary of the Davila, et al. book.
{"title":"A Powerpoint Presentation and Ancillary Materials to Accompany Davila, Epstein and Shelton's Making Innovation Work","authors":"Richard Ortman, J. Blaskovich","doi":"10.2139/SSRN.1444463","DOIUrl":"https://doi.org/10.2139/SSRN.1444463","url":null,"abstract":"The economic survival of this country may well depend upon how effectively our firms can innovate. If this statement is remotely true, then accounting majors should be aware of the issues surrounding the successful measurement and management of a firm’s innovation processes. A review of all managerial textbooks finds no meaningful treatment of this topic. A review of the literature finds about a dozen relevant articles, three of them just published in June 2009. A request made to 142 accounting department chairs for a copy of their program’s advanced managerial accounting syllabus garnered 26 syllabi, none of which had any treatment of innovation. The objective of this paper is to get the ball moving and provide students with materials to assist them in their understanding of the topic. Toward this goal a PowerPoint presentation is included that should help students understand Davila, Epstein and Shelton’s Making Innovation Work. Also included are an innovation flowchart, class discussion questions and exercises, the results of a literature search and a (62-page) summary of the Davila, et al. book.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129747777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Agency theory argues that pay-performance sensitivity should be negatively associated with risk. Yet, empirical studies have reported mixed findings on this relationship, which may be attributable to such confounding factors as different levels of delegation and monitoring costs. Extending prior research, we use data from the proprietary database of a major car dealership in Taiwan to examine the relationships among risk, employee compensation contract design, and firm performance. Results show that pay-performance sensitivity (incentive) for salespersons is negatively associated with risk (i.e., volatility of sales volume), which supports the prediction of agency theory. Importantly, findings indicate that branch managers who adjust salespersons’ pay-performance sensitivity consistent with the suggestion of agency theory perform better than those who do not make prompt or sufficient adjustments.
{"title":"Employee Compensation Contracts and Firm Performance in Uncertain Environments Empirical Evidence for Adjusting Pay-Performance Sensitivity","authors":"Joanna L. Y. Ho, Ling-Chu Lee, A. Wu","doi":"10.2139/ssrn.1441882","DOIUrl":"https://doi.org/10.2139/ssrn.1441882","url":null,"abstract":"Agency theory argues that pay-performance sensitivity should be negatively associated with risk. Yet, empirical studies have reported mixed findings on this relationship, which may be attributable to such confounding factors as different levels of delegation and monitoring costs. Extending prior research, we use data from the proprietary database of a major car dealership in Taiwan to examine the relationships among risk, employee compensation contract design, and firm performance. Results show that pay-performance sensitivity (incentive) for salespersons is negatively associated with risk (i.e., volatility of sales volume), which supports the prediction of agency theory. Importantly, findings indicate that branch managers who adjust salespersons’ pay-performance sensitivity consistent with the suggestion of agency theory perform better than those who do not make prompt or sufficient adjustments.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"147 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114563417","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A dual-class ownership structure, accompanied by disproportional control rights, is traditionally considered to be an inferior form of governance. We examine how the capital structure choices made by dual-class firms (i.e., by their controlling shareholders or insiders), as well as the investment choices made by the non-controlling institutional investors in these firms, vary with the presence of dual-class ownership and the degree of disproportional control it entails. We consider two sources of disproportional control: the difference between voting rights and cash flow rights and the difference between board election rights and cash flow rights. We find that dual-class firms, as well as firms with higher levels of disproportional control, have higher levels of leverage, a greater likelihood of issuing private debt, a higher fraction of long-term debt, and greater reliance on financial covenants. We also find that dual-class firms have significantly higher levels of institutional ownership, including ownership by institutions that are activist types, face stricter prudence laws, and have longer horizons. Overall, our evidence is not consistent with dual-class ownership promoting rent-seeking behavior. On the contrary, our evidence supports the view that insiders choose other mechanisms, debt in particular, to commit to not expropriate non-controlling shareholders.
{"title":"Disproportional Control and Insider Entrenchment: Evidence from Capital Structure Choices and Institutional Investment","authors":"Aiyesha Dey, Valeri V. Nikolaev, Xue Wang","doi":"10.2139/ssrn.1466027","DOIUrl":"https://doi.org/10.2139/ssrn.1466027","url":null,"abstract":"A dual-class ownership structure, accompanied by disproportional control rights, is traditionally considered to be an inferior form of governance. We examine how the capital structure choices made by dual-class firms (i.e., by their controlling shareholders or insiders), as well as the investment choices made by the non-controlling institutional investors in these firms, vary with the presence of dual-class ownership and the degree of disproportional control it entails. We consider two sources of disproportional control: the difference between voting rights and cash flow rights and the difference between board election rights and cash flow rights. We find that dual-class firms, as well as firms with higher levels of disproportional control, have higher levels of leverage, a greater likelihood of issuing private debt, a higher fraction of long-term debt, and greater reliance on financial covenants. We also find that dual-class firms have significantly higher levels of institutional ownership, including ownership by institutions that are activist types, face stricter prudence laws, and have longer horizons. Overall, our evidence is not consistent with dual-class ownership promoting rent-seeking behavior. On the contrary, our evidence supports the view that insiders choose other mechanisms, debt in particular, to commit to not expropriate non-controlling shareholders.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-07-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122159190","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Management accounting provides a range of non-directive techniques that can be adopted, implemented and discarded at the organization’s will. Management accounting is embedded in routines that satisfy the definition of dynamic capabilities because those routines aid organizations to achieve new resource configurations. The application of specific management accounting techniques has not previously been studied in their function as dynamic capabilities. The literature of dynamic capabilities provides a lens through which management accounting techniques can be seen to leverage organizational resources. The paper describes the case study of the introduction of ‘target costing’ for purchased components within the supply chain of a division of a multinational, non-Japanese automotive assembler faced with considerable cost pressures. The paper makes three specific contributions to the literature. First, the dynamic capabilities literature is applied within management accounting to show how the adoption of particular techniques in particular organizational settings can provide decision useful information for the improvement of substantive capabilities and improvements in the resource base. Second, a revised model of dynamic capabilities is presented which takes into account the hierarchical and inter-related nature of resources and capabilities. The managerial role is emphasised through the role of managers in accessing external knowledge resources, transferring that new knowledge into new or modified organizational routines and using that knowledge to develop substantive capabilities, thereby leveraging the use of internal organizational resources. Dynamic capabilities must be learned and embedded within organizational routines. These routines include management accounting routines. Third, the literature of capability lifecycles has been expanded to reflect some additional causes of failure of dynamic managerial capabilities. Path dependency, structural inertia, and psychological commitment have previously been identified as impediments to adopting new dynamic capabilities. To this list the present case study adds external pressures, and organizational politics. A failure to understand epistemic issues and differences in cultural, organizational and strategic issues may also have contributed to the failed implementation.
{"title":"Target Costing in the Automotive Industry: A Case Study of Dynamic Capabilities","authors":"K. Knight, P. Collier","doi":"10.2139/ssrn.1404366","DOIUrl":"https://doi.org/10.2139/ssrn.1404366","url":null,"abstract":"Management accounting provides a range of non-directive techniques that can be adopted, implemented and discarded at the organization’s will. Management accounting is embedded in routines that satisfy the definition of dynamic capabilities because those routines aid organizations to achieve new resource configurations. The application of specific management accounting techniques has not previously been studied in their function as dynamic capabilities. The literature of dynamic capabilities provides a lens through which management accounting techniques can be seen to leverage organizational resources. The paper describes the case study of the introduction of ‘target costing’ for purchased components within the supply chain of a division of a multinational, non-Japanese automotive assembler faced with considerable cost pressures. The paper makes three specific contributions to the literature. First, the dynamic capabilities literature is applied within management accounting to show how the adoption of particular techniques in particular organizational settings can provide decision useful information for the improvement of substantive capabilities and improvements in the resource base. Second, a revised model of dynamic capabilities is presented which takes into account the hierarchical and inter-related nature of resources and capabilities. The managerial role is emphasised through the role of managers in accessing external knowledge resources, transferring that new knowledge into new or modified organizational routines and using that knowledge to develop substantive capabilities, thereby leveraging the use of internal organizational resources. Dynamic capabilities must be learned and embedded within organizational routines. These routines include management accounting routines. Third, the literature of capability lifecycles has been expanded to reflect some additional causes of failure of dynamic managerial capabilities. Path dependency, structural inertia, and psychological commitment have previously been identified as impediments to adopting new dynamic capabilities. To this list the present case study adds external pressures, and organizational politics. A failure to understand epistemic issues and differences in cultural, organizational and strategic issues may also have contributed to the failed implementation.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"183 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116423601","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate whether risk-related incentives of executive stock option (ESO) compensation plans are associated with income smoothing. Given that risk has both potential benefits and costs, including possible losses and/or large fluctuations that affect reported financial outcomes, flexibilities in financial reporting enable a manager to make apparent risk lower while masking the underlying real risk. As such, income smoothing can be a means by which a manager can reduce the unintended consequences of risk taking without at the same time reducing its intended consequences. Using a sample of approximately 7,000 firm-years, we find that risk-taking incentives and income smoothing are positively related. Our results are robust to alternate specifications of income smoothing and risk-taking, and to various firm-level characteristics, including governance structures, CEO share and option holdings. Additionally, we find that our results are especially pronounced in firms whose risk and risk-taking behavior are high.
{"title":"CEO Risk-Related Incentives and Income Smoothing","authors":"J. Grant, A. Parbonetti, G. Markarian","doi":"10.2139/ssrn.1106096","DOIUrl":"https://doi.org/10.2139/ssrn.1106096","url":null,"abstract":"We investigate whether risk-related incentives of executive stock option (ESO) compensation plans are associated with income smoothing. Given that risk has both potential benefits and costs, including possible losses and/or large fluctuations that affect reported financial outcomes, flexibilities in financial reporting enable a manager to make apparent risk lower while masking the underlying real risk. As such, income smoothing can be a means by which a manager can reduce the unintended consequences of risk taking without at the same time reducing its intended consequences. Using a sample of approximately 7,000 firm-years, we find that risk-taking incentives and income smoothing are positively related. Our results are robust to alternate specifications of income smoothing and risk-taking, and to various firm-level characteristics, including governance structures, CEO share and option holdings. Additionally, we find that our results are especially pronounced in firms whose risk and risk-taking behavior are high.","PeriodicalId":356551,"journal":{"name":"American Accounting Association Meetings (AAA)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123182256","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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