The Effect of Clients’ Auditing Experience and Concession-Timing Strategies on Auditor-Client Negotiations

The objective of this study was to examine the role of auditing experience, in auditor-client negotiations, in determining the value of the negotiated outcome. We also assessed whether it alters the effect of auditors’ concession timing-strategies on this outcome. Using an experimental method, we selected our respondents from two groups of financial officers (clients), those with and those without auditing experience. To determine the effect of the financial officers’ auditing experience and the concession-timing strategies adopted by their auditors, we measured the magnitude of the audit adjustment in an auditor-client negotiation. Our findings showed that auditing experience and concession-timing strategies affect the magnitude of the audit adjustments separately, but that auditing experience has no moderating effect on the relationship between concession timing and the final audit adjustment of the financial officers. A practical implication of this study is that it identified the ways in which auditor-client negotiations actually work. It is important that auditors obtain background information about their clients before they start a negotiation, as this information may affect its outcome.     

Cultural and Ethical Effects on Managerial Decisions: Examined in a Throughput Model

Financial and cost accounting information is processed by decision-makers guided by their particular need to support decisions. Recent technological advances impacting on information as well as organizations such as the European Community mandating financial reporting requirements for many countries is rapidly changing the landscape for decision making using accounting information. Hence, the importance of individuals' decision making is more important than it was previously. These decisions are also influenced by individuals' ethical beliefs. The Throughput Modeling approach to cultural and ethical concerns provides a way of dealing with accounting information processed through various pathways by decision-makers. This modeling approach captures different philosophical perspectives from which to understand what is involved in "thinking scientifically." In the Throughput Modeling approach, pathways highlight the importance of how different philosophical perspectives may be used by individuals in arriving at a decision. This paper highlights key concepts involved in rethinking the basis of moral decision making in terms of an underlying process, rather than focusing on the application of principles or the development of a virtuous character. Examples are provided from both English and Spanish settings to help emphasize the importance of modeling ethical decision making globally.     

Expatriate utilization,subsidiary knowledge creation and performance: The moderating role of subsidiary strategic context

Little research examines the mechanisms for the relationship between expatriate utilization and subsidiary performance. Building on the knowledge-based view of the firm, we propose a multi-stage mediation model to explain how expatriate staffing promotes subsidiary financial performance. Our results underscore that expatriate utilization has an indirect, mediated effect on subsidiary financial performance through its links with subsidiaries’ knowledge creation and product performance. Adopting a moderated mediation approach, we also find that the indirect relationship between expatriate utilization and subsidiary product performance via subsidiary knowledge creation is strengthened by the context of transnational strategy as a moderating contingency.     

Using the Analytic Hierarchy Process as a Two-phase Integrated Decision Approach for Large Nominal Groups

When decision makers who comprise a large nominal group face an unstructured decision problem and no simultaneous interactive communications are available, problem identification and consensus building are difficult, if not impossible. Few tools are available to assist decision makers in this situation. The Analytic Hierarchy Process (AHP) has typically been used to evaluate a set of alternatives after a decision problem has been structured as a hierarchy with various levels of criteria above the alternatives. With a group of decision makers, AHP has been used to evaluate those alternatives either by consensus building or by combining judgments or priorities using the geometric mean to aggregate their preferences. In this paper, we extend the use of AHP to a situation involving a large nominal group of dispersed decision makers where the entire hierarchy is not defined at the outset. In particular, we use the AHP as an integrative approach to identify the priorities of the various criteria and then use those priorities to screen and consolidate a large set of potential alternatives. This results in considering a reduced set of alternatives that will be affected by the more important criteria. The consolidated set of alternatives is evaluated by each individual in the group using AHP, combined using the geometric mean, and the results are synthesized to obtain the overall priorities of the alternatives. The approach is demonstrated and evaluated in a case study to select an alunmi anniversary gift to the U.S. Coast Guard Academy with a large nominal group of decision-makers dispersed throughout the United States.     

Go small or go home: Operational exposure to violent conflicts and foreign subsidiary exit

This study aims to open the black box of heterogeneous responses to violent conflicts by focusing on subsidiaries’ operational exposure to violent conflict and their decisions to exit host countries. Drawing on real options theory, we propose a viable approach multinational enterprises can take when they encounter violent conflicts in their operating locations. Our analysis of 3,479 foreign subsidiaries operating in 11 countries over 26 years suggests that the exit decision of any given subsidiary located in a conflict-affected country depends on its operational scope. However, this effect depends on the characteristics of the operations the subsidiary undertakes, specifically, whether the subsidiary conducts natural resource-seeking operations and the degree of operational overlap with the same-parent affiliates.     

Is transparency a good thing? How online price transparency and variability can benefit firms and influence consumer decision making

The internet has empowered consumers and changed the way they search and shop for products and services by increasing the availability and transparency of pricing and other comparative information. However, what is less clear from a managerial perspective is just how transparent pricing information should be. While it might seem that increasing price transparency would reduce consumer search, we find that it may actually increase search and delay. In this article, we review the use of firms’ application of price transparency in practice and propose that specific types of information can influence how transparent prices are to consumers, and how such transparency can influence consumer decisions in a way that is beneficial for the firm. We focus on a specific form of transparency: whether or not the consumer knows the range of pricing. We also discuss whether a high variability pricing approach versus a low variability pricing approach influences consumer decision making—and whether this influence is moderated by transparency.     

The impact of corporate and national cultures on decentralization in multinational corporations

We develop and test a model of multinational corporation (MNC) decentralization in which the allocation of decision rights to subsidiaries is explained by aspects of both internal corporate culture as well as external national cultures. We extend the literature on MNC decentralization by testing the impact of both of these factors as determinants within the same model. Drawing on management control theory as a conceptual platform, we argue that the assignment of decision rights to a subsidiary in the MNC is impacted by corporate innovativeness and shared values, as well by aspects of home and host country cultures. We test our model on a sample of 119 MNC subsidiary managers drawn from a diverse range of industries and locations. The findings provide support to the proposition that corporate innovativeness positively impacts the decision to decentralize, whilst also indicating that home country individualism and host country uncertainty avoidance have a significant influence. The findings challenge established international management logic with respect to shared values—this variable is found to have a negative relationship with decentralization. Overall cultural distance is not found to be significant.     

Deploying Environmental Management Across Functions: The Relationship Between Green Human Resource Management and Green Supply Chain Management

Balancing environmental, social, and economic performance is today considered a key responsibility that firms have toward society. As a result, academics, practitioners, and political decision makers are increasingly paying attention to environmental management systems improving a full spectrum of environmental performance. In that regard, even if recent literature suggests that environmental management should be deployed through a cross-functional approach, extant literature mostly focuses on independent functional systems. This paper addresses this gap investigating how the deployment of environmental management in the human resource function—adopting green human resource management (GHRM) practices—and the supply chain function—adopting green supply chain management (GSCM) practices—impact on environmental and financial performance. We draw from a multiple-respondent survey of human resource and supply chain managers in multiple industries in Italy. The study suggests that GHRM and GSCM impact on both environmental and financial performance and shows that GHRM and GSCM exert those impacts in a joint fashion. Indeed, our results show that GSCM plays a mediating role in the relationship between GHRM and performance. Overall, our results provide researchers and managers with relevant insights into the cross-functional deployment of the environmental values and principles across functions.     

Exploring Top Management Language for Signals of Possible Deception: The Words of Satyam’s Chair Ramalinga Raju

This paper explores the potential for systematic scrutiny of the language of top management to reveal signals of possible deceptive conduct. The language used in letters signed by Ramalinga Raju, Chair of the Indian multi-national company Satyam, are analysed using a multi-method quantitative approach. We explore the language in Raju’s annual report letters from 2002–2003 to 2007–2008; and in his letter of January 7, 2009 in which he confessed to deceptive conduct. We analyse the frequency of personal pronouns, the tone of positivity or negativity, the frequency of words of extreme emotion and aspects of the characteristics of language use indicated by the DICTION 5.0 text analysis master variable, CERTAINTY. The text of Raju’s letters appears to have been influenced by his self-confessed deceptive behaviour. Raju’s word choice changed noticeably in his five annual report letters prior to the collapse of Satyam as the scale and impact of his financial misstatements increased. The methods presented should be considered for adoption by auditors and regulators—as a way of assessing whether signals emerging from language use warrant closer (including audit) scrutiny of a firm’s financial reporting and governance. They should also be considered for use by monitors of entity risk, such as credit rating agencies and financial analysts.     

Does the “management approach” contribute to segment reporting transparency?

Segment reporting creates an opportunity for companies to add value to the information they disseminate about their industry and geographic operations. This article examines the “management approach” to segment reporting from a user perspective that should be of great interest to corporate financial executives. The management approach to segment reporting requires companies to report segment financial information consistent with the way they manage their businesses. We conclude that, despite more segment data being reported, the potential of the new management approach to significantly benefit users is compromised by uneven compliance among reporting companies. The complicity of external auditors in compliance shortcomings should concern all stakeholders in the financial reporting process. Noting two high-profile examples of accounting fraud, we comment on how the management approach sheds light on Enron's operations, while WorldCom concealed important segment information due to probable auditor malfeasance.     

The role of subsidiary learning behavior and absorptive capacity in foreign subsidiary expansion

We examine how subsidiaries can implement business expansion successfully to capitalize on growth potentials. Building on our baseline hypothesis, which examines the effect of the extent of business expansion on subsidiary divestment, we identify the boundary condition of the tendency of subsidiary’s learning behavior in foreign expansion. Specifically, we argue that subsidiaries that expand multiple businesses through competence-creating learning behaviors are more likely to be divested due to increasing complexity. We further suggest a remedial condition to offer a viable approach to implement business expansion through competence-creating learning successfully. Based on a sample of 6040 foreign subsidiaries operating over 14 years, we show that affiliates are more likely to expand into unfamiliar business domains successfully if they have a higher level of absorptive capacity.     

Financial Statement Frauds and Auditor Sanctions: An Analysis of Enforcement Actions in China

The rising tide of corporate scandals and audit failures has shocked the public, and the integrity of auditors is being increasingly questioned. It is crucial for auditors and regulators to understand the main causes of audit failure and devise preventive measures accordingly. This study analyzes enforcement actions issued by the China Securities Regulatory Commission against auditors in respect of fraudulent financial reporting committed by listed companies in China. We find that auditors are more likely to be sanctioned by the regulators for failing to detect and report material misstatement frauds rather than disclosure frauds. Further analysis of the material misstatements indicates that auditors are more likely to be sanctioned for failing to detect and report revenue-related frauds rather than assets-related frauds. In sum, our results suggest that regulators believe auditors have the responsibility to detect and report frauds that are egregious, transaction-based, and related to accounting earnings. The results contribute to our knowledge of auditors’ responsibilities for detecting frauds as perceived by regulators.     

Ethical Behaviour in the U.K. Audit Profession: The Case of the Self-Fulfilling Prophecy Under Going-Concern Uncertainties

External auditors owe a professional duty to the company's stockholders and to society in general. However their remuneration is determined by management. The resulting conflicts of interest are particularly acute in distressed companies where the auditors are required to disclose uncertainties regarding future survival. We focus on the consequentialist self-fulfilling prophecy argument whereby auditors may fail to disclose such uncertainties due to the belief that the disclosure itself would precipitate the company's bankruptcy. We find no empirical support for such beliefs for a sample of distressed U.K. companies with audit reports published between 1986 and 1993. Companies whose auditors disclose going concern uncertainties are no more likely to fail than those without such disclosures; indeed three out of four reports containing going concern uncertaintiesare not followed by failure before publication of a subsequent set of accounts. Instead we find that it is the degree of financial distress that drives both bankruptcy and the auditor's going concern disclosure rather than that the disclosure itself causes failure. Belief in the self-fulfilling prophecy effect nevertheless persists, and this despite the profession's clear ethical guidelines that audit opinions should provide an objectively true and fair view, paying no regard to possible consequences. It may be that the continued attractiveness of the self-fulfilling prophecy belief is due to its providing a means of resolving intense auditor/management conflict in what is a particularly complex decision situation. We argue that, if the profession's clear ethical guidelines are to play a greater role in this area, issues such as enforcement will need to be addressed.     

Added distance,entry mode choice,and the moderating effect of experience: The case of British MNEs in emerging markets

Distance has been viewed as a crucial determinant of the internationalization strategy of firms. Nonetheless, in recent years, there has been considerable debate with regards to, first, the type of distance considered most important when it comes to explaining the internationalization strategy of firms, and, second, how distance should be measured. In our study, we argue that a developed market multinational enterprise (DMNE)’s decision regarding the mode of entry into an emerging market (EM) will be affected by the geographic and administrative distance between the locations in which the MNE has previously held operations. Drawing our arguments on transaction costs economics (TCE) and Internalization Theory, we propose that, for low and high geographic and administrative distance, DMNEs will opt to enter EMs via a wholly owned subsidiary, while for moderate levels of distance via a joint venture. Furthermore, we argue that DMNEs’ previous international experience in EMs will have a positive effect on the suggested U‐shaped relationship, alleviating the negative effects associated with the coordination and knowledge dissipation costs incurred as a result of the level of distance. Our study contributes to existing literature both theoretically—notably via the examination of under‐researched facets of distance on entry mode choice—and also methodologically—through the adoption of a novel methodological approach in measuring distance. We test our hypotheses against a data set comprising 316 entries of FTSE 250 British MNEs in 39 EMs spanning the period 1971–2010.     

Danish Evidence of Auditors' Level of Moral Reasoning and Predisposition to Provide Fair Judgements

The community has legislatively conferred on external auditors a special but lucrative responsibility to provide fair and independent opinions about management's preparation of company financial statements. In return, auditors are obliged by professional standards to act with integrity, independently and in the public interest. This study examined 174 auditors' predisposition to provide just and fair judgements, using Kohlberg's theory of developmental moral reasoning, one of the most widely accepted theories in justice psychology. Respondents came from five international audit firms in Copenhagen. Results indicated that auditors with pre-conventional or low level of just reasoning or comprised 64 respondents, the largest group in the sample. The pre-conventional level suggests that people will act in their own self-interest and do the right only to avoid punishment. Pre-conventional auditors have the ability to "do deals", advantageous for business. When faced with an ethical crisis, however, auditors as this level will tend to focus on their own needs at the expense of others. The post-conventional or mid level of just reasoning comprised 59 auditors, second largest group in the sample. This level indicates that these auditors have the predisposition to act fairly on principal, particularly when faced with an ethical crisis. The conventional level or mid-just reasoning consisted of 51 auditors. People with a conventional level of just reasoning believe in law and order, the maintenance of the status quo, however they tend not to be critical of laws, nor authority even if those laws and authority are unjust or evil.     

管理者声誉对决策质量影响作用的实证研究

管理者的声誉在战略决策过程中的作用如何?本文研究管理者的声誉与公司决策质量的关系,研究结果显示,声誉与决策质量之间存在显著的正相关关系,并且决策承诺在声誉和决策质量的关系中起中介作用。因此,中国企业决策制定的过程中,不能仅仅关注反映决策质量的简单财务指标,更要关注决策者对决策的承诺,加强决策者对决策实施的承诺有助于提高最终的决策质量。     

Testing the bases of ethical decision-making: a study of the New Zealand auditing profession

This paper reports on a survey of auditors in New Zealand which investigates the nature of the moral judgements they make on a series of problems with ethical dimensions. The framework adopted for this purpose is developed from earlier work which identifies a range of ethical principles which may be involved in business ethical decision-making. Auditors responded to a questionnaire which posed, firstly, several questions about the context of their ethical decision-making, and secondly, a series of vignettes elaborating problematical dilemmas which required the selection of one of four possible responses. Data was analysed to determine whether or not it confirmed previous findings in suggesting a predominant ethical orientation for auditors. The results were correlated with demographic variables in order to determine whether or not age, gender, position in firm and size of employee firm were significantly correlated to ethical response. The survey results, on the whole, confirmed the ethical orientation suggested by previous findings, but there were some unexpected results in three out of the ten vignettes examined. Although some correlations were found between the demographic variables and subject responses, the evidence of this survey does not strongly suggest a consistent significant correlation.     

Knowledge flows in MNCs: An empirical test and extension of Gupta and Govindarajan's typology of subsidiary roles

This study offers an empirical test and extension of Gupta and Govindarajan's typology of subsidiary roles based on knowledge inflows and outflows. A four-fold typology of subsidiary roles—global innovators, integrated players, implementors and local innovators—is tested using a sample of 169 subsidiaries of MNCs headquartered in the US, Japan, UK, Germany, France and the Netherlands. Results confirm the typology and show that different subsidiary roles are associated with different control mechanisms, relative capabilities and product flows. In comparison to earlier studies, our results show an increased differentiation between subsidiaries, as well as an increase in the relative importance of both knowledge and product flows between subsidiaries suggesting that MNCs are getting closer to the ideal-type of the transnational company.     

Technology and Group Decision Process in Going-Concern Judgements

Accounting and auditing practices are continually being affected by advances in technology. This study empirically examined the effect of group decision processes and technological advances on group going-concern decision making. Groups with access to group decision support systems (GDSS) were compared to groups without access to GDSS for their going-concern judgments. The results show group discussion induced auditors to be more conservative and to consider factors which may have overlooked at the individual level, though neither structure significantly reduced the considerable variance in the individual going-concern judgments. Further, as compared to their counterparts in the face-to-face discussion groups, GDSS groups indicated much higher confidence in their group's final assessment of the client's going-concern status and a higher level of satisfaction and agreement with the group decision processes. The findings suggest that while group discussions did not significantly reduce auditors' considerable variance in going-concern judgments, future research should investigate which explicit models would improve the consensus on going-concern evaluations.