THE IMPACT OF FISCAL DECENTRALIZATION: A SURVEY

In this paper, we offer a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. Our first target is the examination of two crucial and yet unsolved issues in the empirical literature on decentralization: the proper measurement of decentralization itself and its potential endogeneity in econometric estimates. Then, we discuss the main existing findings on the effects of decentralization on a relevant list of socio-economic issues. The impact of fiscal decentralization reforms on political institutions and public policies is also considered. Complete answers on the impact of fiscal decentralization are not likely to be certain but, overall, there are reasons to be optimistic about the net positive result. Our survey by necessity has to be selective but it presents a balanced view of what is known and what is not yet known opening room for further research and practice on fiscal decentralization.     

The endogeneity bias in the relation between cost-of-debt capital and corporate disclosure policy

Abstract

The purpose of this paper is twofold. First, we provide a discussion of the problems associated with endogeneity in empirical accounting research. We emphasize problems arising when endogeneity is caused by (1) unobservable firm-specific factors and (2) omitted variables, and discuss the merits and drawbacks of using panel data techniques to address these causes. Second, we investigate the magnitude of endogeneity bias in Ordinary Least Squares (OLS) regressions of cost-of-debt capital on firm disclosure policy. We document how including a set of variables which theory suggests to be related with both cost-of-debt capital and disclosure and using fixed effects estimation in a panel data-set reduces the endogeneity bias and produces consistent results. This analysis reveals that the effect of disclosure policy on cost-of-debt capital is 200% higher than what is found in OLS estimation. Finally, we provide direct evidence that disclosure is impacted by unobservable firm-specific factors that are also correlated with cost of capital.     

Renaissance of case research as a scientific method

Since the seminal article by Eisenhardt (1989), scholarly interest in case research has mushroomed in operations management and organization sciences. Volumes of methodological texts are matched with a massive amount of empirical research that seeks to apply and further develop case research as a scientific method. What is missing from this literature is a treatment of the methodological diversity of case research. In this paper, we seek to unveil this heterogeneity by describing three distinct methodological accounts of case study: theory generation, theory testing, and theory elaboration. Each approach has its own idiosyncrasies, in particular when it comes to the interplay between theory and empirics. A typical case research incorporates both existing theories and empirical data to varying degrees. In light of this heterogeneity, we re-interpret key aspects of extant contributions and discuss guidelines for future case research. We propose that ultimately, case research rigor is determined by attention to idiosyncrasy and transparency of reasoning. We conclude by arguing that we have witnessed in the past 25 years in organization research what amounts to the Renaissance of case research.     

Fathoming empirical forecasting competitions’ winners

The M5 forecasting competition has provided strong empirical evidence that machine learning methods can outperform statistical methods: in essence, complex methods can be more accurate than simple ones. Regardless, this result challenges the flagship empirical result that led the forecasting discipline for the last four decades: keep methods sophisticatedly simple. Nevertheless, this was a first, and we can argue that this will not happen again. There has been a different winner in each forecasting competition. This inevitably raises the question: can a method win more than once (and should it be expected to)? Furthermore, we argue for the need to elaborate on the perks of competing methods, and what makes them winners?     

Analysis of the effect of risk management practices on the performance of new product development programs

Risk management is receiving much attention, as it is seen as a method to improve cost, schedule, and technical performance of new product development programs. However, there is a lack of empirical research that investigates the effective integration of specific risk management practices proposed by various standards with new product development programs and their association with various dimensions of risk management success. Based on a survey of 291 product development programs, this paper investigates the association of risk management practices with five categories of product development program performance: (A) Quality Decision Making; (B) High Program Stability; (C) Open, problem solving organization; (D) Overall new product development project success; and (E) overall product success. The results show that six categories of risk management practices are most effective: (1) Develop risk management skills and resources; (2) Tailor risk management to and integrate it with new product development; (3) Quantify impacts of risks on your main objectives; (4) Support all critical decisions with risk management results; (5) Monitor and review your risks, risk mitigation actions, and risk management process; and (6) Create transparency regarding new product development risks. The data shows that the risk management practices are directly associated with outcome measures in the first three categories (improved decision making, program stability and problem solving). There is also evidence that the risk management practices indirectly associate with the remaining two categories of outcome measures (project and product success). Additional research is needed to describe the exact mechanisms through which risk management practices influence NPD program success.     

Too much theory,not enough understanding

This essay and the following commentaries address the use of theory in operations management. While much is said about theory in the typical journal article, theory, as science defines it, is not at the center of much of our research. The discipline had fallen into some bad habits. This essay and its commentaries appeal for more attention to what theory can mean for our understanding of operations management.     

An empirical study of accountability: delegation of responsibility and external disclosure in some Swedish companies

There are increasing requirements for disclosure of future-oriented information, segmental reporting and information about financial risk management, i.e. information traditionally used internally in the management control process. The increasing influence of transnational corporations has contributed to pressure for wider accountability. An empirical study encompassing six transnational companies has been made. The research results suggest that information disclosed about goals for the group and outcome values for segments does not necessarily reflect how the company is managed. For industrial operations there appears to be a clear relationship between organization structure and goal parameters. None of these goal parameters and only certain outcome values for these parameters are disclosed which makes it difficult for external users to find out how the industrial operations are managed. For the financial activities there is no goal parameter used which is related to the goal for the group. Choice of organization structure and risk policy seems to influence disclosure. A lack of clear definitions and guidelines for futureoriented information makes difficult the comparison of what is disclosed with what it is required to disclose. The research results suggest the benefit of dealing with both management accounting and financial accounting when studying accountability.     

The impact of service design and process management on clinical quality: An exploration of synergetic effects

While service design and process management have received research attention in the past, there is limited empirical work examining both factors in the hospital setting. Through operationalizing focus as a service design approach and quality improvement (QI) initiatives as process management efforts, we hypothesize that focus and QI initiatives affect clinical quality both individually and collectively. Utilizing heart attack procedures as the study context, we examine a set of hypotheses based on a panel dataset consisted of 201 hospitals from 2005 to 2011 in the state of Florida. After accounting for potential lag effects and endogeneity biases, we find empirical support to the proposed hypotheses.     

Operations related groups (ORGs): A clustering procedure for production/inventory systems

Many production/inventory systems contain thousands of stock keeping units (SKUs). In general, it is not computationally (or conceptually) feasible to consider every one of these items individually in the development of control polices and strategies. Our objective here is to develop a methodology for defining groups to support strategic planning for the operations function. Accordingly, such groups should take into consideration all product characteristics which have a significant impact on the particular operations management problem of interest. These characteristics can include many of the attributes which are used in other functional groupings and will most certainly go beyond the cost and volume attributes used in ABC analysis.The ORG methodology is based on statistical clustering and can utilize a full range of operationally significant item attributes. It considers both statistical measures of discrimination and the operational consequences associated with implementing policies derived on the basis of group membership. The main departure of this analysis from earlier work is: 1) the approach can handle any combination of item attribute information that is important for strategy purposes, 2) management's interest in defining groups on the basis of operational factors can be accommodated, 3) statistical discrimination is considered directly, 4) group definition reflects the performance of management policies which are based (in part) on group membership, and 5) the method can be applied successfully to systems with a large number of SKUs.The specific application which motivated development of the ORG methodology was an analysis of distribution strategy for the service parts division of a major automobile manufacturer. The manufacturer was interested in developing optimal inventory stocking policies, which took into account the complexities of its multiechelon distribution network, supplier relationships and customer service targets for each market segment. This manufacturer stocked over 300,000 part numbers in an extensive network with approximately 50 distribution centers and thousands of dealer locations (i.e., 1.5 million SKU/ location combinations). The results of this application indicated that the advantage of using operationally relevant data for grouping and for defining generic, group-based policies for controlling inventory can be substantial. The ORG methodology can be of value to operations managers in industries with a large number of diverse items.     

Exogenous cash: testing financing constraints on inventory investment using dynamic panels with additional information from annual reports

In spite of the literature’s great interests in firms’ financing constraints on investment, the endogeneity problem between investment and cash flow have long plagued the empirical endeavor. To avoid the problem, we use firms’ nonoperating income, which is shown to be exogenous to profitability, both as a direct measure of liquidity and as an instrumental variable to control for the endogeneity problem of cash flow. Estimation results do not support the financing constraint hypothesis. We also conduct a narrative analysis on firms’ Annual Reports to identify factors causing inventory reduction. We find that accounting adjustments and decreases in market demand are two important factors in investment disinvestment, and financial difficulty does not play an important role in this regard.     

Designing a Better Business School: Channelling Herbert Simon,Addressing the Critics,and Developing Actionable Knowledge for Professionalizing Managers

Herbert Simon's 1967 article ‘The business school: a problem in organizational design’ anticipated many of the challenges business schools face today. Critics charge business schools with failing to realize their primary purpose, that is, to produce professional managers. This article revisits what Simon advocated with regard to a core feature of this professionalism, the production of essential management knowledge, and the process of educating people in applying it. With Simon as a guide, this article outlines educational and research interventions to help business schools realize their founding purpose. In doing so, it addresses the distinctive knowledge products that business school research can contribute to the management profession. This article also highlights the key role that evidence‐based management and the related practices of design science play in providing a more complete solution to the design problem Simon identified.     

In Search of the Impactful and the Interesting: Swings of the Pendulum?

In this article we reflect on our time as editors of JMS during the period 2003–09. First we describe the context as we saw it on assuming editorship of the Journal and the actions that we took to improve the quality of scholarship published in the journal in order to set JMS on the trajectory to become a world‐leading Journal. We articulate our view of what quality means in this context and observe that we eschewed the USA–Europe divide. Rather, to be publishable, all papers had to meet the highest standards relative to their epistemological assumptions. Finally, we address two important challenges facing the Journal, and indeed management research in general, and consider what they mean for the future of JMS, notably in relation to open access publishing and to provide greater practical relevance. We conclude that the latter represents a swing of the pendulum towards the kinds of papers published in the early years of JMS but that recent developments in JMS provide new conceptual frameworks and empirical methods that contribute to enhanced insights for practice.     

Environmental self-regulation for sustainable development: Can internal carbon pricing enhance financial performance?

Internal carbon pricing is an innovative self-regulation mechanism where companies set their own carbon prices on business operations to mitigate climate risk and achieve sustainable development. While internal carbon pricing has gained popularity among multinational enterprises, its firm-level impact is underexplored. This research provides novel theoretical and empirical evidence on how the internal carbon price as a cost component can contribute to profitability growth. We construct a panel dataset of 132 multinational enterprises across Europe, North America, and Asia by tracking their use of internal carbon pricing from 2013 to 2017 based on their records at the Carbon Disclosure Project. To address endogeneity bias, we employ propensity score matching method on a fixed-effects model. Results indicate that using internal carbon pricing can increase return on assets by 1.1%. Firms with internal carbon prices are more likely to reduce cost of goods sold to improve return on assets. Our study suggests that internal carbon pricing as environmental self-regulation can generate profitability gains through cost reduction. The research also points out the potential of voluntary internal carbon pricing to complement command-and-control carbon pricing regulations.     

Endogeneity in Management Accounting Research: A Comment

Abstract

Chenhall and Moers (European Accounting Review, this issue, pp. 173–195) provide an excellent overview of the econometrics of endogeneity. In response to their discussion I argue that researchers should be courageous enough to set aside endogeneity concerns when their research question is important. Theory does not admit a definite answer to the question whether endogeneity is present in a particular model and econometrics has few technical solutions to offer. Since we cannot be sure endogeneity exists, and if we were to be sure of its existence, there is little we can do about it, researchers are well advised to move on to more serious problems.     

Does organisational capital influence environmental strategies? Evidence from environmental innovation

As a result of increasing consumer awareness and stakeholder demands about environmental management, firms face stricter challenges surrounding the impact of business operations on the environment. In this regards, environmental innovation is one of the important ways of acting in harmony with the environment. Thus, the purpose of this study is to examine the impact of organisational capital on environmental innovation measured as the process innovation and product innovation. Using environmental innovation data from ASSET4 for the US listed firms between 2002 and 2018, our empirical results reveal a significant positive association between organisational capital and both the process innovation and product innovation. Furthermore, the relationship is stronger in high-profitability and sensitive industries subsamples. These results are robust to additional control variables and endogeneity tests. This study, while endorsing the resource-based view (RBV), provides important implications for the top management teams that organisational capital could be an important channel through which managers can boost environmental innovation.     

WHAT IS THE EFFECT OF HOUSEWORK ON THE MARKET WAGE,AND CAN IT EXPLAIN THE GENDER WAGE GAP?

Abstract Does housework reduce the market wage, and if so, does it have a similar impact for males and females? In this paper, we survey and evaluate the recent and growing empirical literature on the linkages between housework and the wage rate. The review is motivated by unexplained gender wage gaps across studies, which consider personal and market‐related factors. We focus on this less‐studied aspect of wage determination. We consider the required modelling framework, and provide standardized estimated effects of housework on the hourly wage across studies. We evaluate how this literature has addressed potential estimation problems, in particular, the endogeneity of housework, concavity of the housework–wage function, threshold effects and work effort effects. We conclude that the evidence across ordinary least squares, instrumental variable, fixed effects and two‐stage least squares results casts serious doubt on the idea that the negative female housework–wage relationship is only driven by endogeneity bias or individual‐specific characteristics. Yet, much more needs to be done to address modelling and data requirements, and we point out likely and promising future research directions.