The Role of Informal Controls and a Bargaining Opponent's Emotions on Transfer Pricing Judgments

While accounting research has demonstrated the role of a decision maker's own emotions during judgments, psychology research proposes that others’ emotions provide an informational signal to assess an opponent's limits, cooperativeness, and toughness during bargaining. We examine how a bargaining opponent's emotions provide information signals that can be used by a selling division manager during transfer pricing decisions and whether informal control system choices by corporate management to foster cooperation can create a context that influences how managers react to these signals. In an experiment, when informal controls to encourage cooperation were absent (less collaborative environment), managers’ selling price estimates were more conciliatory when the opponent was described as displaying negative emotions than when described as displaying positive emotions. However, when informal controls to cooperate were present (more collaborative environment), managers’ selling price estimates were more conciliatory when the opponent displayed positive rather than negative emotions. Path analyses suggest that managers’ perception of their opponents’ signals is the mechanism by which opponents’ emotions influence transfer‐price decisions. This study highlights the role of others’ emotions as information signals during accounting bargaining and provides insight into the context dependency of opponents’ emotions under various control system structures.     

Managerial Myopia,Earnings Guidance,and Investment*

This study investigates the real effects of management communication, specifically of forecasts or earnings guidance, on investment. Managers can signal the strength of their projects through accuracy in their earnings guidance. This leads less accurate managers to distort their investments; the equilibrium investment strategy involves over-investment when earnings exceed the forecast and under-investment when earnings fall short. Moreover, we find that managers are pessimistic in their forecasts, which helps to explain the corresponding well-documented empirical regularity. This downward bias increases the likelihood of investment manipulation but decreases the real loss from distortion. Interestingly, the over-investment induced by earnings guidance helps to mitigate the classic under-investment problem for a myopic manager with unobservable investment. Earnings guidance can therefore be value-increasing when managerial myopia is severe.     

论风险投资基金管理人的法律制度——比较借鉴美国法律规定为视角

风险投资是指风险投资者将资金投入到未上市的企业尤其是高科技企业的一种投资行为。风险投资基金是风险资本的主要形式,风险投资基金是由基金管理人来运营的,因此基金管理人的行为决定了风险投资的成败。对此我国立法应该把建立风险投资基金管理人制度放在首要地位。本文主要分析我国风险投资基金管理人存在的问题,比较借鉴美国风险投资基金管理人的相关法律规定,对我国风险投资基金管理人的规制提出立法建议。     

Voluntary Disclosures When There Is an Option to Delay Disclosure

What incentives drive managers to disclose immediately when they have an option to delay disclosures? I examine this question in a two-period setting in which public news that is positively correlated with firm value arrives periodically. I show that, when the manager's likelihood of receiving information is independent of the public news, an informed manager is more likely to disclose immediately when the public news is good. This happens even as the disclosure threshold itself increases in the public news. My model provides a potential explanation for why managers have a higher propensity to provide earnings forecasts when current earnings are high. I also show that, even when disclosures are credible, the average price reaction to a voluntary disclosure is (i) decreasing in the magnitude of the public news and (ii) lower when the manager is more myopic. These results have potential implications for studies that use stock returns to measure the news contained in management disclosures.     

Labor Unions and Management’s Incentive to Signal a Negative Outlook*

Evidence suggests that the negotiated wage for a unionized employee group is an increasing function of the firm’s prior profitability. As a result, managers may have an incentive to strategically signal a negative outlook to their unionized workers in order to improve the firm’s bargaining position. I assess the strategy of missing mean consensus analysts’ earnings estimates as a way for managers to signal a negative outlook to their unionized employees. I find that unionized firms are more likely to miss estimates than their nonunionized counterparts. Additionally, this propensity to miss estimates is increasing in both the firm’s percentage of unionized employees and multiunionism, but is unaffected by the timing of the signal relative to contract renewal. Finally, the increased propensity to miss estimates appears to be driven by both differences in expectations management and earnings management across the two groups. Specifically, managers of unionized firms take less action than their nonunionized counterparts to guide forecasts downward when estimates are too high, and they take more action to deflate earnings when expectations are too low. Taken together, the findings suggest that managers do seek to project a negative outlook to their unions, and that this tendency is increasing in the union’s negotiation strength.     

Voluntary Disclosure and Informed Trading*

This study analyzes the impact of informed trading on voluntary corporate disclosure in the presence of two factors: the cost of disclosure and the value of a manager's informedness. In the absence of both factors, informed trading has no impact on disclosure even when traders are not certain whether the manager has information. When disclosure is costly, informed trading serves as a free substitute for the disclosure of favorable information, and reduces disclosure. Surprisingly, when the manager's informedness is valuable for the firm, informed trading can also increase disclosure. Traders can discover unfavorable information about the firm, so managers with such information have less incentive to pool with uninformed managers and disclose to show that they are informed. The study also demonstrates that informed trading can have either a positive or a negative effect on firm value by crowding in or crowding out information production in the firm. These results hold for general information structures and are robust if traders can choose how much information can be acquired.     

The Relation Between Earnings Management and Non‐GAAP Reporting

Managers have a variety of tools at their disposal to influence stakeholder perceptions. Earnings management and the strategic reporting of non‐GAAP earnings are just two of the available menu choices. We explore how real earnings management and accruals management influence the probability that a company will disclose a non‐GAAP adjusted earnings metric in its earnings press release and the likelihood that it will do so aggressively. We first investigate situations where managers already meet analysts’ expectations either based on strong operating performance or after employing real and accruals management. We find that when solid operating performance alone allows firms to meet expectations, managers do not employ earnings management or non‐GAAP reporting. However, when managers meet expectations using real and accruals management, they are significantly less likely to report a non‐GAAP earnings metric. Next, we explore scenarios where companies fall short of expectations. We find that when they just miss expectations after managing GAAP earnings, they are significantly more likely to employ non‐GAAP reporting, suggesting that the timing and relatively costless nature of non‐GAAP reporting allows managers to appear to meet expectations on a non‐GAAP basis when managed GAAP earnings fall short. Moreover, we find that companies are more likely to report non‐GAAP earnings (and to do so aggressively) when (i) they are unable to use real or accruals earnings management, (ii) are constrained by prior‐period accruals management, and (iii) their operating performance is poor. Taken together, our results are consistent with a substitute relation between non‐GAAP reporting and both real and accruals management.     

Managerial Discretion and Task Interdependence in Teams

This study investigates whether task interdependence in teams alters the effectiveness of managerial discretion in motivating team performance. Teams are particularly useful when employees' tasks are interdependent—that is, when the degree to which the increase in team performance resulting from a team member's effort depends on the effort and skills of the other team members. The reason is that the more interdependent tasks are, the more employees need to coordinate their actions and help one another to achieve their objectives. Prior research analyzing settings where task interdependence is absent suggests that providing managers with discretion over team bonus allocation can improve team performance relative to equal team bonus allocations because it strengthens the link between contributions to team output and rewards. Economic theory suggests that managerial discretion will also improve team performance when task interdependence is present and information is efficiently used. However, we use behavioral theory to predict that managerial discretion is less effective in the presence of task interdependence, because managers do not fully incorporate all relevant information into bonus decisions and because managerial discretion hurts coordination and helping, which is particularly problematic under task interdependence. We find that while discretion over compensation has a positive effect on team performance relative to equal bonus allocation when task interdependence is absent, it has a negative effect when task interdependence is present. Additional analyses provide support for our underlying theory. Results of our study contribute to both theory and practice by suggesting that, ironically, managerial discretion may be most useful when the potential benefits of employing teams are lowest and least useful when the potential benefits are highest. Our results help explain why firms often grant managers only partial or no discretion over team members' compensation.     

Blockholder Exit Threats and Financial Reporting Quality

Recent theoretical and empirical studies suggest that blockholders (shareholders with ownership ≥ 5 percent) exert governance through the threat of exit. Blockholders have strong incentives to gather private information and sell their shares when managers are perceived to underperform. To prevent blockholders from selling their shares and the firm from suffering a stock price decline, managers align their actions with the interests of shareholders. As a result of the greater manager‐shareholder alignment, managers' actions are more likely to be in shareholders' best interest, and consequently there is less need for managers to manipulate earnings. Consistent with these predictions from economic theory, we find evidence that as exit threat increases, firms have higher financial reporting quality. Theory also predicts that the impact of blockholders' exit threat on financial reporting quality (FRQ) should increase as the manager's wealth is tied more closely to the stock price, and this is what we find. Our study contributes to the research on the impact of shareholders on FRQ and to an emerging literature on the impact of blockholders in financial markets. Blockholders play an important role in managers' reporting outcomes through their actions as informed investors.     

文化差异与个体选择：一个基于中美样本的实验研究

通过一个公共物品自愿供给实验和最后通牒实验,研究了不同文化背景下被试的行为差异以及文化差异在个体决策中所起的作用。实验结果显示：中美两国被试在实验中的行为有系统性的差异：在公共物品实验中,美国被试相对中国被试表现出更强的合作倾向;在最后通牒实验中,虽然美国被试作为提议者时的出价相对于中国被试并无太大差别,但是作为回应者时其拒绝行为更多。这一结果表明：美国参与者对自身收益低于他人时的忍受程度低于中国被试,而中国被试对制裁机制的存在与否表现出更大的敏感性。实验结果证实：行为差异确实在不同文化的被试中存在,即使他们的实验环境几乎完全一样。

Abstract：

Through the public good game and the ultimatum game,this thesis studies different behaviors of experiment participants from diverse cultural backgrounds and the role cultural dif-ferences play in individual decision.The experiments conducted in this paper show systematic differences in American and Chinese experiment participants’ behaviors：in the public good game,compared with Chinese subjects,American participants express more willingness for cooperation;in the ultimatum game,although as proposers American subjects do not make significantly different offers from Chinese subjects,American subjects reject more frequently as responders.The result implies that American participants are less tolerant than Chinese partici-pants when they get incomes lower than others,while the latter group behaves more sensitively to the existence of sanctioning system.Experimental results prove that behavioral differences do exist in experiment participants from different cultures,even if under almost the same experi-ment environment.     

Book reviews

Books reviewed: Peasants, merchants, and markets: inland trade in medieval England, R. H. Britnell Controlling misbehaviour in England, 1370-1600,John Walter The new Cambridge medieval history, VII: c. 1415- c.1500, David Nicholas Metropolitan communities: trade guilds, identity and change in early modern London, Paul Griffiths Albion ascendant: English history, 1660-1815, Trevor Griffiths Cheshire cheese and farming in the north west in the 17th and 18th centuries, Steve Caunce Some British empiricists in the social sciences, 1650-1900, A. W. Coats From family firms to corporate cap-talism: essays in business and industrial history in honour of Peter Mathias, Julian Hoppit Charity, philanthropy and reform: from the 1690s to 1850, Pamela Sharpe The mid-Victorian generation, 1846-1886, Duncan Bbythell Morality and the market in Victorian Britain, Paul Johnson Change, continuity and class: labour in British society, 1850-1920, Joseph Melling Speaking for the people: party, language and popular politics in England, 1867-1914, Tony Adams Reconstructing women’s wartime lives: discourse and subjectivity in oral histories of the Second World War, Penny Starns Capitalism in contention: business leaders and political economy in modern Britain, W. R. Garside Selected cliometric studies on German economic history, Catherine R. Schenk The economic aspects of Spanish imperialism in America, 1492-1810, Kenneth Morgan Corsairing to commerce: Maltese merchants in XVIII century Spain, Peter Earle Trade, traders and the ancient city, Philip De Souza Urban Europe, 1500-1700, Catherine Smith European economies since the Second World War, Derek H. Aldcroft The bondsman’s burden: an economic analysis of the common law of Southern slavery, W. M. Mathew Politics and property rights: the closing of the open range in the postbellum South, Gavin Wright Bold relief: institutional politics and the origins of modern American social policy, Julian Zelizer The money interest and the public interest: American monetary thought, 1920-1970, Anne Mayhew Missionaries and managers: American influences on European management education, 1945-60, Robert R. Locke Big money crime: fraud and politics in the saving and loan crisis, Geofrey T. Mills Transatlantic images and perceptions: Germany and America since 1776, R. A. Burchell Desegregating the dollar: African-American consumerism in the twentieth century, Rick Halpern The American finances of the Spanish empire: royal income and expenditure in colonial Mexico, Peru and Bolivia, 1680-1809, Luis Jauregui Slavery and colonial rule in French West Africa, A. J. H. Latham Commodity and exchange in the Mongol empire: a cultural history of Islamic textiles, P. A. Andrews The trading crowd: an ethnography of the Shanghai stock market, W. A. Thomas Environmental politics in Japan: networks of power and protest, Kenneth D. Brown Rice: the primary commodity, Pierre Van Der Eng People, land and time: an historical introduction to the relations between landscape, culture and environment, Grenville Astill Industrialization and development: a comparative analysis, J. R. Ward Durable inequality, Rodney Lowe Tracking the agricultural revolution in England, Robert C. Allen English servants and their employers during the eighteenth and nineteenth Centuries, Leonard Schwarz British incomes circa 1800, T.V. Jackson Principals and agents: the activities of the Crown Agents for the colonies, 1880-1914, David Sunderland The rise of interlocking directorates in imperial Germany, Caroline Fohlin Agricultural support policies in a small open economy: New Zealand in the 1920s, G.A. Fleming     

中美农产品市场整合及其价格传导机制研究——以大豆市场为例

本文在对中国和美国大豆价格进行格兰杰因果关系检验的基础上,运用VAR模型分析中美两国大豆市场动态的相互影响关系,并探索当面临由外部冲击所导致的上涨压力时,两个大豆市场分担上涨压力的贡献情况;之后运用VECH和TARCH模型分析中美大豆价格波动的传导机制和对称性问题。主要结论如下:首先,中美大豆市场相互影响,互为因果,但美国大豆市场对中国大豆市场的冲击要强于中国大豆市场对美国大豆市场的影响,且美国大豆市场应对外部冲击的能力要强于中国。其次,美国大豆价格的波动主要依靠上期自身波动的传导,而中国大豆价格波动更易受外部冲击的影响;美国大豆价格波动趋于收敛,而中国大豆价格波动趋于发散。再次,中美大豆市场的联合波动也主要受外部冲击影响,两个市场的整合机制较为脆弱。最后,中美大豆价格波动均体现出非对称的特征。     

Discriminatory Procurement Policy with Cash Limits

This paper presents a counterexample to the Miyagiwa ((1991) American Economic Review 81, 1320–1328) claim that discriminatory government procurement policy is ineffective as a protectionist device, when the goods are also consumed by the private sector. The procurement sector is a homogeneous product Cournot–Nash duopoly, with a home and a foreign firm. The procurement policy takes the form of an ad valorem premium over the import price. If both the firms play the output game in strategic complements, procurement policy can lower imports. This possibility arises when the product demand is unit elastic, corresponding to cash limits to public expenditure, and providing the home firm is smaller than the foreign firm. By adding a competitive export sector, the paper also derives sufficient conditions for macroeconomic coordination failures to occur.     

Relative productivity and factor-intensity in the manufacturing sectors of the U.S. and the U.K. during the nineteenth century

Summary The main objective of the paper is to examine the relationship between relative factor-costs and relative factor-intensity in the American and British textile sectors during the nineteenth century. The empirical attempt is made within an explicit theoretical framework (a model). This framework is based primarily onimplicit analytical arguments made by E. Rothbarth and H. J. Habakkuk while explaining the causes for the superiority of American industrial efficiency as compared with the British. It is shown that various indicators for the textile sectors during most of the second half of the nineteenth century favor a higher capitalintensity in the U.S.This work is part of a Ph.D. thesis written for the University of Rochester Department of Economics. The author is deeply indebted to S. Engerman for his valuable help and comments. He has also benefited from comments by E. Drandakis, G. S. Maddala, F. J. de Jong and T. K. Kumar. Needless to say, the author takes full responsibility for the content of this paper. Currently the author is an Assistant Professor at Florida State University, Tallahassee, Florida, U.S.A.     

Student attitudes toward markets: Comparative survey data from China, the United States and Russia

Survey data are used to compare Chinese undergraduates' attitudes toward markets with those of American and Russian undergraduates.¹ Some similarities were found between Chinese and American students' attitudes, particularly a shared interest in material gain and belief in the importance of material incentives. There were also significant differences: Chinese students were less comfortable with market outcomes and more willing to support government intervention in markets than Americans were, and expressed more doubts about the character of business people than did their American peers. In a comparison with Russian undergraduates, Chinese students were less concerned about the fairness of market outcomes, but they were also more supportive of government intervention in the market. Russian students were more interested in material gain and more supportive of business than their Chinese peers. These results suggest that recent differences between China and Russia's economic performance are not simply explained by differences in citizens' attitudes toward markets or reform.     

Book Reviews

Books reviewed in this article: A. D. M. Phillips and C. B. Phillips, eds., A new historical atlas of Cheshire Philip Riden, ed., The Victoria history of the counties of England: a history of the county of Northampton G. J. Benson and L. Ugolini, eds., A nation of shopkeepers: five centuries of British retailing Stanley Chapman, Hosiery and knitwear: four centuries of small‐scale industry in Britain. c.1589–2000 Peter Borsay and Lindsay Proudfoot, eds., Provincial towns in early modern England and Ireland: change, convergence and divergence John Cramsie, Kingship and Crown finance under James VI and I, 1603–1625 Matthew and George Culley, Travel journals and letters, 1765–1798 John Cantrell and Gillian Cookson, eds., Henry Maudslay and the pioneers of the machine age Desmond Greer and James W. Nicolson, The factory acts in Ireland, 1802–1914 Charles K. Rawding, The Lincolnshire wolds in the nineteenth century Derek J. Oddy, From plain fare to fusion food: British diet from the 1890s to the 1990s Alan Fowler, Lancashire cotton operatives and work, 1900–1950: a social history of Lancashire cotton operatives in the twentieth century Martin Daunton, Just taxes: the politics of taxation in Britain, 1914–1979 Becky E. Conekin, ‘The autobiography of a nation’: the 1951 Festival of Britain Andrea Rusnock, Vital accounts: quantifying health and population in eighteenth‐century England and France Martin Horn, Britain, France, and the financing of the First World War Mark Cioc, The Rhine: an eco‐biography, 1815–2000 Helena Hamerow, Early medieval settlements: the archaeology of rural communities in north‐west Europe, 400–900 Martina De Moor, Leigh Shaw‐Taylor, and Paul Warde, eds., The management of common land in north west Europe, c. 1500–1850 Johan Söderberg and Janken Myrdal, The agrarian economy of sixteenth‐century Sweden John Armstrong and Andreas Kunz, eds., Coastal shipping and the European economy, 1750–1980 Stephen A. Resnick and Richard D. Wolff, Class theory and history: capitalism and communism in the USSR Virginia G. Drackman, Enterprising women: 250 years of American business W. Carl Bliven, Jimmy Carter's political economy: policy in an age of limits Colin M. Lewis, Argentina: a short history Maurice Wright, Japan's fiscal crisis: the Ministry of Finance and the politics of public spending, 1975–2000 Zhaojin Ji, A history of modern Shanghai banking: the rise and decline of China's finance capitalism Linsun Cheng, Banking in modern China: entrepreneurs, professional managers, and the development of Chinese banks, 1897–1937 Ts'ui‐jung Liu, James Lee, David Sven Reher, Osamu Saito, and Wang Feng, eds., Asian population history Andrea Colli, The history of family business, 1850–2000 Eric Helleiner, The making of national money: territorial currencies in historical perspective     

财务经理畸形决策行为与公司负债刚性

对财务经理人员的畸形决策行为,特别是财务困境下的畸形决策行为的动因、特点作了较详尽地分析,并据此提出、解释了实践中公司的负债刚性现象。     

Incentive Contract Design and Employee-Initiated Innovation: Evidence from the Field*

This study examines how the design of incentive contracts for tasks defined as workers' official responsibilities (i.e., standard tasks) influences workers' propensity to engage in employee-initiated innovation (EII). EII corresponds to innovation activities that are not formally assigned to workers but are nonetheless encouraged and considered to be important for the company's success. Like other extra-role behaviors, EII is difficult to incentivize directly. Therefore, it is important to understand whether and how explicit incentive contracts designed for the workers' standard tasks may indirectly influence their EII activity. We use field data from a manufacturing company that uses a dedicated information system to track workers' EII idea submissions. We find theory-consistent evidence that, compared to workers receiving fixed pay, employees rewarded for their standard tasks with variable compensation contracts exhibit a lower propensity to engage in EII. This result is concentrated among ideas benefiting other constituents and activities beyond the proponents' standard task (i.e., broad-scope ideas). In contrast, we find no difference attributable to standard task incentive design in the proposal of innovation ideas narrowly focused on the proponent's standard task (i.e., narrow-scope ideas). Our findings suggest that variable pay narrows employees' conceptual focus around the standard task and hinders employee engagement in broad-scope innovation activities compared to fixed compensation contracts. We contribute to the literature on incentives for innovation by showing that standard task compensation contracts have spillover effects on EII behavior. We also contribute to the nascent literature on EII by showing that innovation types, defined based on their relation with the proponent's standard task, matter. Our results are relevant for practitioners in that managers relying on variable pay contracts to incentivize standard task performance should expect lower employee engagement in broad-scope EII.     

The Janus face of race: Rhonda M. Williams on orthodox economic schizophrenia

The American Negro has the great advantage of having never believed that collection of myths to which white Americans cling. … The tendency has really been, insofar as this was possible, to dismiss white people as the slightly mad victims of their own brainwashing. [The problem of the color line is] a fearful and delicate problem, which comprises, when it does not corrupt, all the American efforts to build a better world—here, there, or anywhere. It is for this reason that everything white Americans think they believe in must now be reexamined.—James Baldwin (The Price of the Ticket, 377–378).     

The Economics Olympics: Ranking U.S. Economics Departments Based on Prizes,Medals, and Other Awards

This study ranks the top 25 U.S. economics departments on the basis of four prestigious awards won/held by these departments' current faculty: the Nobel Prize in Economic Sciences, the John Bates Clark Medal, the American Economic Association's (AEA's) Distinguished Fellow Award, and the American Economic Association's Richard T. Ely Lecturer. Based on our methodology, the top economics department is affiliated with the University of Chicago. This distinction stems from its affiliation with six Nobel Prize winners, four Clark Medal winners, and two participants each in the AEA Distinguished Fellow and Richard T. Ely Lecturer categories.