Prior literature shows that how creditors monitor borrowers and exercise control rights affect borrowers’ investment and financial policies, but little is known about their impact on borrowers’ operating decisions. The availability of a credit default swap (CDS) reduces creditors’ monitoring incentives ex ante but increases their liquidation incentives in the events of default ex post. After the inception of CDS trading, reference firms exhibit an increase in the elasticity of cost structure. Results are consistent in instrumental variable analyses and are robust with alternative matching samples. The increase in cost structure elasticity is more pronounced for firms with greater credit risk and more restrictive covenants, financially constrained firms, and those face greater product market competition and provide higher convexity in managers’ compensation. We provide the first evidence showing that managers choose a more elastic cost structure when creditors become less forgiving.
{"title":"THE INCEPTION OF CREDIT DEFAULT SWAP TRADING AND CORPORATE COST STRUCTURE","authors":"Shunlan Fang, Xiaoling Pu, Sarah Qian Wang","doi":"10.2308/jmar-2021-055","DOIUrl":"https://doi.org/10.2308/jmar-2021-055","url":null,"abstract":"Prior literature shows that how creditors monitor borrowers and exercise control rights affect borrowers’ investment and financial policies, but little is known about their impact on borrowers’ operating decisions. The availability of a credit default swap (CDS) reduces creditors’ monitoring incentives ex ante but increases their liquidation incentives in the events of default ex post. After the inception of CDS trading, reference firms exhibit an increase in the elasticity of cost structure. Results are consistent in instrumental variable analyses and are robust with alternative matching samples. The increase in cost structure elasticity is more pronounced for firms with greater credit risk and more restrictive covenants, financially constrained firms, and those face greater product market competition and provide higher convexity in managers’ compensation. We provide the first evidence showing that managers choose a more elastic cost structure when creditors become less forgiving.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":"1 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68996441","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}
Conor Brown, J. Evans, Donald V. Moser, Adam Presslee
The strength of performance incentives differs for employees within an organization. We describe how differences in incentive strength can lead to pay dispersion because employees facing stronger incentives work harder and earn more pay than those facing weaker incentives. We then conduct four experiments examining how the lower-paid employees respond to such pay dispersion. Consistent with our hypothesis derived from referent cognitions theory, we find that such pay dispersion decreases the lower-paid employees’ perceived fairness and thus their effort. These results hold whether the employees are assigned to or self-select into the job with weaker incentives and whether they have more explicit or less explicit information about the economic rationale for the difference in incentive strength. Our findings are inconsistent with conventional economic reasoning and refine the conclusions from prior pay dispersion studies. The robustness of our results demonstrates their generalizability to a range of actual employment settings.
{"title":"The Strength of Performance Incentives, Pay Dispersion, and Lower-Paid Employee Effort","authors":"Conor Brown, J. Evans, Donald V. Moser, Adam Presslee","doi":"10.2308/jmar-2021-032","DOIUrl":"https://doi.org/10.2308/jmar-2021-032","url":null,"abstract":"The strength of performance incentives differs for employees within an organization. We describe how differences in incentive strength can lead to pay dispersion because employees facing stronger incentives work harder and earn more pay than those facing weaker incentives. We then conduct four experiments examining how the lower-paid employees respond to such pay dispersion. Consistent with our hypothesis derived from referent cognitions theory, we find that such pay dispersion decreases the lower-paid employees’ perceived fairness and thus their effort. These results hold whether the employees are assigned to or self-select into the job with weaker incentives and whether they have more explicit or less explicit information about the economic rationale for the difference in incentive strength. Our findings are inconsistent with conventional economic reasoning and refine the conclusions from prior pay dispersion studies. The robustness of our results demonstrates their generalizability to a range of actual employment settings.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48436649","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}
Jeremy Douthit, Steven T. Schwartz, D. Stevens, Richard A. Young
This study examines the effect of endogenous control choice on budgetary slack. The superior chooses between two alternatives: no control, wherein the superior commits to accept any budget, and a discretionary rejection authority control, wherein the superior decides ex post whether to accept or reject budgets. For both alternatives, we find that slack is lower when the superior chooses an alternative than when it is assigned exogenously. Our theory and results suggest that a superior’s choice of whether to introduce controls signals a superior’s expectations and intentions. The superior’s choice of no control signals trust and an intention to foster a norm of trustworthiness. The superior’s choice of rejection authority signals an above-average willingness to use rejections to enforce norms. Our results suggest that the value of participative budgeting may be increased if superiors can communicate to subordinates the expectations and intentions behind the design of the control system.
{"title":"The Effect of Endogenous Discretionary Control Choice on Budgetary Slack: An Experimental Examination","authors":"Jeremy Douthit, Steven T. Schwartz, D. Stevens, Richard A. Young","doi":"10.2308/jmar-2020-016","DOIUrl":"https://doi.org/10.2308/jmar-2020-016","url":null,"abstract":"This study examines the effect of endogenous control choice on budgetary slack. The superior chooses between two alternatives: no control, wherein the superior commits to accept any budget, and a discretionary rejection authority control, wherein the superior decides ex post whether to accept or reject budgets. For both alternatives, we find that slack is lower when the superior chooses an alternative than when it is assigned exogenously. Our theory and results suggest that a superior’s choice of whether to introduce controls signals a superior’s expectations and intentions. The superior’s choice of no control signals trust and an intention to foster a norm of trustworthiness. The superior’s choice of rejection authority signals an above-average willingness to use rejections to enforce norms. Our results suggest that the value of participative budgeting may be increased if superiors can communicate to subordinates the expectations and intentions behind the design of the control system.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-03-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46736989","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 examine how a holistic versus disaggregated performance evaluation system affects supervisors’ subjective evaluations of their subordinates in a promotion setting. A survey of actual supervisors and subordinates indicates that, compared to a holistic system, respondents prefer a disaggregated system and believe it provides more useful feedback and gives a fairer evaluation. We next conduct an experiment with MBA students to examine whether the two types of evaluation systems can lead supervisors to rate their subordinates’ job performance differently in a promotion setting. Results indicate that when supervisors are concurrently considering which subordinate to promote in the future, they inflate the overall rating of the subordinate who is best suited for promotion under a holistic system, but not under a disaggregated system. Results from a supplemental experiment suggest that supervisors under a holistic system mentally inflate the rating of the specific performance measure most relevant to the upcoming promotion decision.
{"title":"Disaggregated Versus Holistic Performance Evaluations in a Promotion Setting","authors":"E. Chan, Todd A. Thornock","doi":"10.2308/jmar-2021-035","DOIUrl":"https://doi.org/10.2308/jmar-2021-035","url":null,"abstract":"We examine how a holistic versus disaggregated performance evaluation system affects supervisors’ subjective evaluations of their subordinates in a promotion setting. A survey of actual supervisors and subordinates indicates that, compared to a holistic system, respondents prefer a disaggregated system and believe it provides more useful feedback and gives a fairer evaluation. We next conduct an experiment with MBA students to examine whether the two types of evaluation systems can lead supervisors to rate their subordinates’ job performance differently in a promotion setting. Results indicate that when supervisors are concurrently considering which subordinate to promote in the future, they inflate the overall rating of the subordinate who is best suited for promotion under a holistic system, but not under a disaggregated system. Results from a supplemental experiment suggest that supervisors under a holistic system mentally inflate the rating of the specific performance measure most relevant to the upcoming promotion decision.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":"1 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41624889","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 a setting with two tasks, we investigate the use of performance targets to motivate effort allocation. In addition to the classic target ratcheting relating to the performance on the same task, we predict a cross-task effect: good current-period performance on the lower-value task positively influences the target set for the task with greater value. We use data from a Taiwanese firm whose strategy emphasizes the sales of select products in its portfolio, and that sets separate revenue targets for select and other products. We find a positive association between the sales of other products and the revisions of targets for select products. We find no evidence of the reverse relation. We document that the cross-task effect is weaker when a salesperson’s current period allocation exhibits greater congruity with the goals of the firm. We contribute to the literature on target setting, which has largely examined a single task context
{"title":"Target Setting in a Multi-Task Environment: An Empirical Investigation","authors":"Ramji Balakrishnan, Jizhang Huang, A. Wu","doi":"10.2308/jmar-2021-024","DOIUrl":"https://doi.org/10.2308/jmar-2021-024","url":null,"abstract":"In a setting with two tasks, we investigate the use of performance targets to motivate effort allocation. In addition to the classic target ratcheting relating to the performance on the same task, we predict a cross-task effect: good current-period performance on the lower-value task positively influences the target set for the task with greater value. We use data from a Taiwanese firm whose strategy emphasizes the sales of select products in its portfolio, and that sets separate revenue targets for select and other products. We find a positive association between the sales of other products and the revisions of targets for select products. We find no evidence of the reverse relation. We document that the cross-task effect is weaker when a salesperson’s current period allocation exhibits greater congruity with the goals of the firm. We contribute to the literature on target setting, which has largely examined a single task context","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45722353","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}
Chung-Yu Hung, M. Abernethy, C. Hofmann, Laurence van Lent
We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We consider independent agents to be more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as these loans are less subject to competition than transparent loans. We find that opaque loans have higher prices than transparent loans for both types of agents, and the price difference is more pronounced for independent agents. Our evidence suggests that entrepreneurship enables agents to perform better in an environment where agents can profit from exploring opportunities, i.e., a less competitive environment.
{"title":"Benefits of independent agents' entrepreneurship: Evidence from the loan market","authors":"Chung-Yu Hung, M. Abernethy, C. Hofmann, Laurence van Lent","doi":"10.2308/jmar-2020-042","DOIUrl":"https://doi.org/10.2308/jmar-2020-042","url":null,"abstract":"We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We consider independent agents to be more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as these loans are less subject to competition than transparent loans. We find that opaque loans have higher prices than transparent loans for both types of agents, and the price difference is more pronounced for independent agents. Our evidence suggests that entrepreneurship enables agents to perform better in an environment where agents can profit from exploring opportunities, i.e., a less competitive environment.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46452177","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}
Top executives of the parent company often take positions as the directors and officers (D&Os) of subsidiaries. These parent-subsidiary common D&Os have better access to subsidiary information and can exert more influence over subsidiary operations. Therefore they can better identify tax planning opportunities and coordinate tax arrangements. Using the mandatory disclosure of top executives’ subsidiary positions for Chinese listed firms, we find that effective income tax rate is lower for firms with common D&Os. The tax-saving effect is stronger for firms with more intangible assets and with related-party transactions involving subsidiaries. The effect is also stronger when common D&Os have positions in economically significant subsidiaries and the subsidiaries entitled to preferential tax treatment and when common D&Os are involved in daily subsidiary operations. To our knowledge, this paper is the first to study the role of subsidiary governance in general and common D&Os in particular in corporate tax-planning.
{"title":"Subsidiary Governance and Corporate Tax Planning: The Effect of Parent-Subsidiary Common Directors and Officers","authors":"Xin Wang, Yongxin Xu, Liandong Zhang, Gaoping Zheng","doi":"10.2308/jmar-2019-510","DOIUrl":"https://doi.org/10.2308/jmar-2019-510","url":null,"abstract":"Top executives of the parent company often take positions as the directors and officers (D&Os) of subsidiaries. These parent-subsidiary common D&Os have better access to subsidiary information and can exert more influence over subsidiary operations. Therefore they can better identify tax planning opportunities and coordinate tax arrangements. Using the mandatory disclosure of top executives’ subsidiary positions for Chinese listed firms, we find that effective income tax rate is lower for firms with common D&Os. The tax-saving effect is stronger for firms with more intangible assets and with related-party transactions involving subsidiaries. The effect is also stronger when common D&Os have positions in economically significant subsidiaries and the subsidiaries entitled to preferential tax treatment and when common D&Os are involved in daily subsidiary operations. To our knowledge, this paper is the first to study the role of subsidiary governance in general and common D&Os in particular in corporate tax-planning.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43092233","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}
Firms often ask supervisors to appraise subordinates’ potential to succeed in higher-level positions. These appraisals can take place within social and organizational contexts that emphasize improving the experiences of females in male-dominated settings. Using this context, we experimentally examine whether supervisors differentially interpret and use the same accounting information when appraising the potential of subordinates of different genders. We draw on attribution theory and research suggesting that a diversity emphasis sends two conflicting signals—females are less able than males, but more valuable from a diversity standpoint. We find that supervisors’ beliefs about subordinates’ abilities in their current positions are lower for female than male subordinates. While prior research suggests this should result in supervisors appraising female subordinates’ potential as lower than males’, we find the opposite. Our results suggest that firm efforts to improve the workplace experiences of females may do little to mitigate underlying gender stereotypes.
{"title":"It’s Complicated: How a Subordinate’s Gender Influences Supervisors’ Use of Past Performance Information When Appraising Potential","authors":"A. M. Farrell, Michele L. Frank","doi":"10.2308/jmar-2020-031","DOIUrl":"https://doi.org/10.2308/jmar-2020-031","url":null,"abstract":"Firms often ask supervisors to appraise subordinates’ potential to succeed in higher-level positions. These appraisals can take place within social and organizational contexts that emphasize improving the experiences of females in male-dominated settings. Using this context, we experimentally examine whether supervisors differentially interpret and use the same accounting information when appraising the potential of subordinates of different genders. We draw on attribution theory and research suggesting that a diversity emphasis sends two conflicting signals—females are less able than males, but more valuable from a diversity standpoint. We find that supervisors’ beliefs about subordinates’ abilities in their current positions are lower for female than male subordinates. While prior research suggests this should result in supervisors appraising female subordinates’ potential as lower than males’, we find the opposite. Our results suggest that firm efforts to improve the workplace experiences of females may do little to mitigate underlying gender stereotypes.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2022-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43194487","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}
Following recommendations from a Congressional panel tasked with improving nonprofit governance, in 2005, the IRS began requiring nonprofit organizations to report the existence of family and business relationships among board members. We study these relationships and find they are common in U.S. nonprofits and not associated with assumed detrimental effects. Rather , we find that organizations reporting relationships between board members have less management spending, lower levels of excess cash, and better reporting quality, while receiving higher contributions. Further, using detailed disclosure information, we find that while both business and family relationships among board members are associated with less administrative spending, lower levels of excess cash, and higher contributions, family relationships are also associated with better reporting quality. Overall, our evidence supports the idea that relationships among board members do not harm nonprofit organizations.
{"title":"Nonprofit Governance: Are Related Board Members Bad for Nonprofits?","authors":"C. Boland, Erica E. Harris, Daniel G. Neely","doi":"10.2308/jmar-2020-020","DOIUrl":"https://doi.org/10.2308/jmar-2020-020","url":null,"abstract":"Following recommendations from a Congressional panel tasked with improving nonprofit governance, in 2005, the IRS began requiring nonprofit organizations to report the existence of family and business relationships among board members. We study these relationships and find they are common in U.S. nonprofits and not associated with assumed detrimental effects. Rather , we find that organizations reporting relationships between board members have less management spending, lower levels of excess cash, and better reporting quality, while receiving higher contributions. Further, using detailed disclosure information, we find that while both business and family relationships among board members are associated with less administrative spending, lower levels of excess cash, and higher contributions, family relationships are also associated with better reporting quality. Overall, our evidence supports the idea that relationships among board members do not harm nonprofit organizations.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2021-11-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47434250","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 examine the association between internal forecasting sophistication and end-of-the-year accounting misreporting. We draw on survey data from investment center managers of Dutch companies. Consistent with our hypothesis, results suggest that more sophisticated internal forecasting allows firms to reduce their costly accounting misreporting as these firms make more accurate projections and create contingency plans such that they can revise operational plans in a more appropriate and timely manner. Cross-sectional analyses reveal that the benefits in terms of greater forecasting capabilities can vary across conditions. We find that investments in internal forecasting are less effective in reducing the demand for misreporting when environmental volatility is high, when capital market pressure to meet expectations is comparably high, and when within-firm information asymmetry is high. The paper especially speaks to the planning role of budgeting and forecasting, as opposed to the relatively more extensively studied evaluation and incentive role.
{"title":"The Relation between Internal Forecasting Sophistication and Accounting Misreporting","authors":"P. Kroos, M. Schabus, F. Verbeeten","doi":"10.2308/jmar-2020-072","DOIUrl":"https://doi.org/10.2308/jmar-2020-072","url":null,"abstract":"We examine the association between internal forecasting sophistication and end-of-the-year accounting misreporting. We draw on survey data from investment center managers of Dutch companies. Consistent with our hypothesis, results suggest that more sophisticated internal forecasting allows firms to reduce their costly accounting misreporting as these firms make more accurate projections and create contingency plans such that they can revise operational plans in a more appropriate and timely manner. Cross-sectional analyses reveal that the benefits in terms of greater forecasting capabilities can vary across conditions. We find that investments in internal forecasting are less effective in reducing the demand for misreporting when environmental volatility is high, when capital market pressure to meet expectations is comparably high, and when within-firm information asymmetry is high. The paper especially speaks to the planning role of budgeting and forecasting, as opposed to the relatively more extensively studied evaluation and incentive role.","PeriodicalId":46474,"journal":{"name":"Journal of Management Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.7,"publicationDate":"2021-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48018179","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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