We develop a theory of how the intersection of business goals and the pursuit of "higher purpose" — something that produces a non-pecuniary social benefit valued by the principal and the agent — affects economic outcomes. Two types of principals — those pursuing only wealth maximization and those pursuing both wealth and a higher purpose — are considered. These are typically viewed as competing approaches to running organizations. However, the theory we develop, which shows that the pursuit of higher-purpose projects reduces labor costs and increases capital investments, highlights a potential complementarity between the principals pursuing a higher purpose and those exclusively pursuing wealth. The complementarity arises because the pursuit of higher-purpose projects by others can relax budget constraints for wealth-maximizing principals, and the presence of purely-wealth-maximizing principals may be essential for the higher-purpose-pursuing principals to obtain external financing. The absence of either type of principal may lead to a market breakdown involving no projects being undertaken.
{"title":"The Economics of Higher Purpose","authors":"A. Thakor, R. Quinn","doi":"10.2139/ssrn.2362454","DOIUrl":"https://doi.org/10.2139/ssrn.2362454","url":null,"abstract":"We develop a theory of how the intersection of business goals and the pursuit of \"higher purpose\" — something that produces a non-pecuniary social benefit valued by the principal and the agent — affects economic outcomes. Two types of principals — those pursuing only wealth maximization and those pursuing both wealth and a higher purpose — are considered. These are typically viewed as competing approaches to running organizations. However, the theory we develop, which shows that the pursuit of higher-purpose projects reduces labor costs and increases capital investments, highlights a potential complementarity between the principals pursuing a higher purpose and those exclusively pursuing wealth. The complementarity arises because the pursuit of higher-purpose projects by others can relax budget constraints for wealth-maximizing principals, and the presence of purely-wealth-maximizing principals may be essential for the higher-purpose-pursuing principals to obtain external financing. The absence of either type of principal may lead to a market breakdown involving no projects being undertaken.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"62 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132532305","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}
Joshua T. White, Tracie Woidtke, Harold A Black, Robert L. Schweitzer
We examine the outside director selection process using unique data on appointments of academic directors. Overall, we find that academic directors tend to be appointed by small- and mid-cap firms expanding their boards. However, we find important differences in both the factors influencing academic appointments and the market's reaction when allowing for firm, board, and director heterogeneities. Academics in science, medicine and engineering appear to be appointed for their expertise, and the market reacts favorably. Academic administrators appear to be appointed for their networks, and the market reacts favorably when the administrator is affiliated with a business school but negatively when the administrator is not within close geographic proximity. Business professors appear to be appointed for general expertise and reputation, but we find little evidence of any significant market reaction. The results in this paper highlight the importance of recognizing heterogeneity in understanding the director selection process and the role of outside directors.
{"title":"Appointments of Academic Directors","authors":"Joshua T. White, Tracie Woidtke, Harold A Black, Robert L. Schweitzer","doi":"10.2139/ssrn.2214365","DOIUrl":"https://doi.org/10.2139/ssrn.2214365","url":null,"abstract":"We examine the outside director selection process using unique data on appointments of academic directors. Overall, we find that academic directors tend to be appointed by small- and mid-cap firms expanding their boards. However, we find important differences in both the factors influencing academic appointments and the market's reaction when allowing for firm, board, and director heterogeneities. Academics in science, medicine and engineering appear to be appointed for their expertise, and the market reacts favorably. Academic administrators appear to be appointed for their networks, and the market reacts favorably when the administrator is affiliated with a business school but negatively when the administrator is not within close geographic proximity. Business professors appear to be appointed for general expertise and reputation, but we find little evidence of any significant market reaction. The results in this paper highlight the importance of recognizing heterogeneity in understanding the director selection process and the role of outside directors.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122245208","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}
On one hand, managers, and especially CEOs, are hired and paid to exercise their managerial discretion. On the other hand, within the agency theory approaches to corporate governance, managerial discretion is a source of moral hazard to be removed by incentives or monitoring. In this paper we draw on in-depth interviews with FTSE 100 CEOs and chairmen to enhance understanding of the corporate governance problematic by clearly distinguishing between different kinds of discretion, establishing the part each plays in corporate governance theory and practice and exploring the problems that arise from the difficulty of distinguishing in practice between them. We conclude that the different kinds of discretion that come into play as we move from a formal agency problem to the real-life problems of corporate governance both disrupt the logic and destroy the practical effectiveness of incentive and monitoring measures derived from the formal theory.
{"title":"Managerial Discretion and the Practice of Corporate Governance","authors":"J. Hendry","doi":"10.2139/ssrn.2029289","DOIUrl":"https://doi.org/10.2139/ssrn.2029289","url":null,"abstract":"On one hand, managers, and especially CEOs, are hired and paid to exercise their managerial discretion. On the other hand, within the agency theory approaches to corporate governance, managerial discretion is a source of moral hazard to be removed by incentives or monitoring. In this paper we draw on in-depth interviews with FTSE 100 CEOs and chairmen to enhance understanding of the corporate governance problematic by clearly distinguishing between different kinds of discretion, establishing the part each plays in corporate governance theory and practice and exploring the problems that arise from the difficulty of distinguishing in practice between them. We conclude that the different kinds of discretion that come into play as we move from a formal agency problem to the real-life problems of corporate governance both disrupt the logic and destroy the practical effectiveness of incentive and monitoring measures derived from the formal theory.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-02-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132725757","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}
ABSTRACT: Regulation G (SEC 2003b) requires managers to reconcile textual non-GAAP performance measures (i.e., pro forma disclosures) to GAAP. Graphical disclosures also require reconciliation; however, neither the format nor the placement of the reconciliation is specified. We apply cognitive fit theory to argue that the influence of graphical information presentation formats is contingent on investor type and judgment complexity. Participants in our study viewed a simulated Investor Relations website for a large drug retailer and made judgments regarding current fiscal year earnings performance, earnings potential, and investment amount. We manipulated graphical (GAAP-only versus GAAP and pro forma) and textual (GAAP-only versus pro forma reconciled to GAAP) earnings disclosure content in a 2 × 2 between-participants design. We find that nonprofessional investors' current fiscal year earnings performance, earnings potential, and investment amount judgments are all influenced by graphical displays, which...
{"title":"The Impact of Graphical Displays of Pro Forma Earnings Information on Professional and Nonprofessional Investors' Earnings Judgments","authors":"William N. Dilla, Diane J. Janvrin, C. Jeffrey","doi":"10.2139/ssrn.1646607","DOIUrl":"https://doi.org/10.2139/ssrn.1646607","url":null,"abstract":"ABSTRACT: Regulation G (SEC 2003b) requires managers to reconcile textual non-GAAP performance measures (i.e., pro forma disclosures) to GAAP. Graphical disclosures also require reconciliation; however, neither the format nor the placement of the reconciliation is specified. We apply cognitive fit theory to argue that the influence of graphical information presentation formats is contingent on investor type and judgment complexity. Participants in our study viewed a simulated Investor Relations website for a large drug retailer and made judgments regarding current fiscal year earnings performance, earnings potential, and investment amount. We manipulated graphical (GAAP-only versus GAAP and pro forma) and textual (GAAP-only versus pro forma reconciled to GAAP) earnings disclosure content in a 2 × 2 between-participants design. We find that nonprofessional investors' current fiscal year earnings performance, earnings potential, and investment amount judgments are all influenced by graphical displays, which...","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129787168","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 self-serving attribution bias ("SAB") refers to individuals taking responsibility for good outcomes and blaming others for bad outcomes. Consistent with the existence of managerial SAB, I find that managers tend to use more first-person pronouns (relative to second- and third-person pronouns) in the Management Discussions and Analysis Section of the 10-K filings when firm performance is better. A consequence of SAB is overconfidence (i.e., overestimating the mean and underestimating the variance of future cash flows). Consistent with this argument, managers with more SAB are more likely to issue forward-looking statements and make earnings forecasts, the tone (e.g., positive versus negative) of their forward-looking discussions has smaller variation, and their earnings forecasts tend to be overly optimistic. Firms whose managers have more SAB have higher investment-cash flow sensitivity and experience more negative market reactions around acquisition announcements. These firms also tend to have higher leverage, rely more on long-term debt financing, are more likely to repurchase stocks, and are less likely to issue dividends. Collectively, the evidence suggests that managers have self-serving attribution bias and this bias has implications for corporate policies.
{"title":"Managers’ Self-Serving Attribution Bias and Corporate Financial Policies","authors":"Feng Li","doi":"10.2139/ssrn.1639005","DOIUrl":"https://doi.org/10.2139/ssrn.1639005","url":null,"abstract":"The self-serving attribution bias (\"SAB\") refers to individuals taking responsibility for good outcomes and blaming others for bad outcomes. Consistent with the existence of managerial SAB, I find that managers tend to use more first-person pronouns (relative to second- and third-person pronouns) in the Management Discussions and Analysis Section of the 10-K filings when firm performance is better. A consequence of SAB is overconfidence (i.e., overestimating the mean and underestimating the variance of future cash flows). Consistent with this argument, managers with more SAB are more likely to issue forward-looking statements and make earnings forecasts, the tone (e.g., positive versus negative) of their forward-looking discussions has smaller variation, and their earnings forecasts tend to be overly optimistic. Firms whose managers have more SAB have higher investment-cash flow sensitivity and experience more negative market reactions around acquisition announcements. These firms also tend to have higher leverage, rely more on long-term debt financing, are more likely to repurchase stocks, and are less likely to issue dividends. Collectively, the evidence suggests that managers have self-serving attribution bias and this bias has implications for corporate policies.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"69 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115953515","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 root cause of the financial crisis that erupted in 2008 is psychological. In the events which led up to the crisis, heuristics, biases, and framing effects strongly influenced the judgments and decisions of financial firms, rating agencies, elected officials, government regulators, and institutional investors. Examples involving UBS, Merrill Lynch, Citigroup, Standard & Poor’s, the SEC, and end investors illustrate this point. Among the many lessons to be learned from the crisis is the importance of focusing on the behavioral aspects of organizational process.
{"title":"How Psychological Pitfalls Generated the Global Financial Crisis","authors":"H. Shefrin","doi":"10.2139/ssrn.1523931","DOIUrl":"https://doi.org/10.2139/ssrn.1523931","url":null,"abstract":"The root cause of the financial crisis that erupted in 2008 is psychological. In the events which led up to the crisis, heuristics, biases, and framing effects strongly influenced the judgments and decisions of financial firms, rating agencies, elected officials, government regulators, and institutional investors. Examples involving UBS, Merrill Lynch, Citigroup, Standard & Poor’s, the SEC, and end investors illustrate this point. Among the many lessons to be learned from the crisis is the importance of focusing on the behavioral aspects of organizational process.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122373797","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 explores philanthropic finance by analysing data on the sizes and structures of the 20 highest-giving private foundations in the United States, the United Kingdom, Germany, and Japan in 2005. It is shown that socio-cultural rather than purely economic indicators are better predictors of private foundation giving. Foundations in the four countries show similarities in terms of age, geographic scope, areas of funding and lack of performance measurement. Methods of income generation, asset management, and capital deployment however, differ significantly between countries. We suggest that while philanthropic culture and governance exist, they bear the features of national business culture and governance. Conclusions are drawn for the feasibility of competition and collaboration, as well as the use of performance metrics, among private foundations.
{"title":"The Cultures of Philanthropy: Private Foundation Governance in the USA, the UK, Germany, and Japan","authors":"Stephen Lew, D. Wójcik","doi":"10.2139/ssrn.1508858","DOIUrl":"https://doi.org/10.2139/ssrn.1508858","url":null,"abstract":"This paper explores philanthropic finance by analysing data on the sizes and structures of the 20 highest-giving private foundations in the United States, the United Kingdom, Germany, and Japan in 2005. It is shown that socio-cultural rather than purely economic indicators are better predictors of private foundation giving. Foundations in the four countries show similarities in terms of age, geographic scope, areas of funding and lack of performance measurement. Methods of income generation, asset management, and capital deployment however, differ significantly between countries. We suggest that while philanthropic culture and governance exist, they bear the features of national business culture and governance. Conclusions are drawn for the feasibility of competition and collaboration, as well as the use of performance metrics, among private foundations.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-11-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122848966","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}
In this paper, we describe the concept of ontological design. We show how ontologies can be used as cognitive maps of complex, ill-structured, plastic problems. They can be used to concisely encapsulate the core logic of a problem. From it one can also derive a closed set of a very large number of natural language descriptions of a problem. The ontologies can be plastic but at the same time systematic, repeatable, and extensible. They can be used to map the gaps between the states-of-the-art, -practice, and - need. Knowing the gaps strategies can be designed to bridge them. Thus, ontological design is a method of logical analysis, synthesis of research and practical knowledge, its interpretation, and application to the design of solutions to complex, ill-structured, and plastic problems. We illustrate ontological design in the context of eHealth.
{"title":"Ontological design","authors":"A. Ramaprasad, Sridhar S. Papagari","doi":"10.2139/ssrn.1335984","DOIUrl":"https://doi.org/10.2139/ssrn.1335984","url":null,"abstract":"In this paper, we describe the concept of ontological design. We show how ontologies can be used as cognitive maps of complex, ill-structured, plastic problems. They can be used to concisely encapsulate the core logic of a problem. From it one can also derive a closed set of a very large number of natural language descriptions of a problem. The ontologies can be plastic but at the same time systematic, repeatable, and extensible. They can be used to map the gaps between the states-of-the-art, -practice, and - need. Knowing the gaps strategies can be designed to bridge them. Thus, ontological design is a method of logical analysis, synthesis of research and practical knowledge, its interpretation, and application to the design of solutions to complex, ill-structured, and plastic problems. We illustrate ontological design in the context of eHealth.","PeriodicalId":448402,"journal":{"name":"Corporate Governance & Sociology or Psychology eJournal","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131150280","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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