When does defection pay?

The present paper investigates cluster adjustment to changing economic environments by focussing on the role and stability of institutional arrangements in their local culture. It postulates two idealtypical local cultures where firms act in the common (collective) or in their own interest (egoistic). By comparing adjustment performance and stability for both types, the model finds that clusters in very volatile environments are unlikely to exhibit collective local cultures as these are unstable and provide only limited benefits for adjustment performance. Clusters facing more stable environments are more likely to show collective local cultures as these increase adjustment performance and are more stable against individual defection. Both findings suggest that collective local cultures in clusters can be relatively stable for limited environment volatility.     

International borrowing without commitment and informational lags: Choice under uncertainty

A series of recent studies in economic growth theory have considered a class of models of international borrowing where, in the absence of a perfect investment commitment, the borrowing constraint depends on the historical performances of the country. Thus, a better level of past economic activity gives a higher reputation, thereby increasing the possibility of accessing the international credit market. This note considers this problem in a stochastic setting based on the volatility of the internal net capital. We study how the optimal consumption level and the maximal expected welfare depend on the combined influence of the trajectory of past economic variables and the volatile environment. In particular, we show how the strength of the history effect and the relative weight of the historical performance depend on the degree of risk.     

An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness

This paper examines the effect of memory loss on the continuity of behavior. We consider a player (individual or firm) who remembers previous actions but not underlying rationales. In a stable environment, relative to a full-recall scenario, memory loss increases the probability of following old policies (inertia). In a volatile environment, memory loss can decrease this probability (impulsiveness). The model provides a memory-loss explanation for some documented psychological biases, implies that inertia and organizational routines should be more important in stable environments than in volatile ones, and provides empirical implications relating memory and environmental variables to economic decisions.     

Financial forecasting and risky decisions: an experimental study grounded in Prospect theory

This study employed prospect theory to examine relationships between effort invested in developing financial forecasts and risk taking. Results of an experimental study indicated that the more effort subjects invested in developing forecasts, the more likely they were to use those forecasts as their reference points when evaluating venture performance. Results also indicated that subjects who used forecasts as their reference points and exerted greater effort developing those forecasts were more likely to take risky actions when performance fell below their reference points. This study is the first to link effort to the type of reference point used and the first to link effort and the use of financial forecasts to risky decisions. In addition, it is one of only a few studies to employ prospect theory to examine risk taking decisions subsequent to start-up. Its results enhance our understanding of risk taking, prospect theory and reference points.

     

Tournament Winner Proportion and its Effect on Effort: An Investigation of the Underlying Psychological Mechanisms

This study investigates the effects of the psychological mechanisms activated by different proportions of tournament winners on effort. Using a real-effort experiment that allows the evolution of social comparison, which is central to our theory, we show that firms can increase employee effort (and performance) by increasing the proportion of winners. Based on a causal model, we generate evidence for our theory that this effect is driven by relative performance concerns and bonus concerns, both of which depend on the proportion of tournament winners. In addition, we find that, over time, the change in effort is more negative the lower the proportion of winners. This effect is driven by the different behaviors of winners and losers in a previous tournament.     

Credibility and Monitoring: Outsourcing as a Commitment Device

We analyze an environment plagued by double moral hazard where the agent’s effort level and the principal’s precision in monitoring are not contractible. In such an environment, the principal tends to over‐monitor thereby inducing low effort. To ease the latter problem, the principal may choose to increase monitoring costs by outsourcing the activity. As a result equilibrium monitoring is reduced and incentives become more powerful. This choice is particularly likely when the worker’s effort is an important factor in determining output.     

When is Effort Contagious in New Venture Management Teams? Understanding the Contingencies of Social Motivation Theory

Consistent with social motivation theory, prior research on managerial motivation suggests that effort is contagious across management team members. In this study, we draw on belongingness theory to develop a model on important boundary conditions to social motivation theory in the management team context. The model predicts that new venture managers react to their teammates’ higher effort levels by investing higher effort levels themselves primarily when they are confronted with a threat – namely, low venture performance and high environmental hostility – but that effort is less contagious when managers face little threat. We test our model with a sample of 103 new venture managers nested in 51 management teams in a longitudinal setting capturing managerial effort over 26 weeks. While we do not find a direct relationship between teammates’ effort and a new venture manager’s subsequent effort, we find support for the crucial role of threat in triggering the contagion of managerial effort. We discuss the contributions of our study for research on management teams, performance feedback, and entrepreneurial effort in new ventures.     

Performance measure properties and efficacy of incentive contracts: perceptions of U. S. employees

This paper examines how employees perceive the impact of performance measure properties (noise and distortion) on the efficacy of incentive contracts in the United States. It surveys 98 employees at middle and lower levels of U. S. firms across different industries. The survey results show that employees perceive noise and distortion in performance measures to significantly influence the overall efficacy of incentive plans. Specifically, employees perceive that incentive plans with less noisy or distorted measures attract better employees to their firms. However, employees do not perceive lower noise or distortion in performance measures to motivate more effort in their work after controlling for the selection effect of incentive plans. These results illustrate the importance of performance measure properties in the U. S. incentive contracts and provide evidence regarding cross-national differences in management practices.     

国有企业绩效沟通障碍及对策研究

绩效沟通是绩效管理的核心环节。在我国的国有企业中,绩效沟通双方受环境因素的影响,沟通效果不理想。因此,本文从管理者、员工和企业环境3个方面寻找对策,对于改善国有企业的绩效沟通状况具有重要意义。     

The revision frequency of earnings forecasts and firm characteristics

This study investigates how the revision frequency of earnings forecasts affects firm characteristics. Previous studies generally focus on the number of analysts following a firm to measure a firm's information environment. The frequency with which news is updated is often defined as an analyst's effort. Analysts provide more information to investors if they update news more frequently. This study examines whether the frequency of information updating for a particular firm affects the firm's performance. We apply three proxies for firm performance: stock liquidity, the cost of equity capital, and firm value. Our findings indicate that the analysts’ effort as measured by the frequency of news updating is effective in providing additional power beyond the number of analysts to represent the information environment of a firm. Therefore, this study suggests that combining both the number of analysts following a firm and the frequency of news updating can be a better proxy for assessing a firm's information environment.     

A multistage method to measure efficiency and its application to Japanese banking industry

When measuring technical efficiency with existing data envelopment analysis (DEA) techniques, mean efficiency scores generally exhibit volatile patterns over time. This appears to be at odds with the general perception of learning-by-doing management, due to Arrow [The economic implications of learning by doing. Review of Economic Studies 1964; 154–73]. Further, this phenomenon is largely attributable to the fundamental assumption of deterministic data maintained in DEA models, and to the difficulty such models have in incorporating environmental influences. This paper proposes a three-stage method to measure DEA efficiency while controlling for the impacts of both statistical noise and environmental factors. Using panel data on Japanese banking over the period 1997–2001, we demonstrate that the proposed approach greatly mitigates these weaknesses of DEA models. We find a stable upward trend in mean measured efficiency, indicating that, on average, the bankers were learning over the sample period. Therefore, we conclude that this new method is a significant improvement relative to those DEA models currently used by researchers, corporate management, and industrial regulatory bodies to evaluate performance of their respective interests.     

Optimal financial contracts with hidden effort,unobservable profits and endogenous costs of effort

This paper studies financial contracting in a two-period financing model with double moral hazard, as entrepreneurial effort choices and profits are unobservable and non-verifiable. The optimal financial contract must induce both the high effort level and truthful revelation of profits. The paper further analyses the structure of the optimal contract where the entrepreneur's payoff takes a general functional form that allows for endogenously determined costs of effort. The entrepreneur's performance is influenced by not only extrinsic work motivation factors but also intrinsic factors so that the degree of control imposed by the investor, in the form of end-of-period transfers, affects the entrepreneur's costs of effort. The finding shows that under well-defined conditions, the optimal contract that solves a model with non-verifiable profits also elicits effort, and generally resembles a simple debt contract. The structure of the optimal contract is robust in the general case where the entrepreneur's payoff function is non-linear in transfers.     

The moderating role of contextual factors on quality management practices

This study investigates how contextual factors influence the relationship between Quality Management (QM) practices and manufacturing performance. It contributes to the contingency theory of QM effectiveness. Drawing on the management literature, we differentiate two different groups of QM practices: Quality Exploitation and Quality Exploration. The analysis empirically investigates the internal fit with organizational structure and the external fit with environmental uncertainty on the relationship between Quality Exploration, Quality Exploitation, and operational performance. The data comes from a survey of 238 manufacturing plants in three industries across eight countries. Regression analyses show that both internal fit with the organizational structure and external fit with the environment affect performance. The findings also provide insights for managers on how to customize QM programs to achieve optimal performance benefits. In stable environments Quality Exploitation practices provide the best performance outcomes, while in a dynamic environment Quality Exploration practices with an organic organizational structure give the best results.     

Principles of controlling traffic noise : Solving a multi-objective decision problem

The main objectives for a government to control traffic noise are such as economic efficiency, a reasonable welfare distribution and acceptable noise standards. The instruments available for arriving at these objectives are traffic control, emission regulation and environment protection. This paper analyzes how to make trade-offs between such objectives and how to choose a combination of noise control instruments. Special attention is then made to one welfare distribution objective, namely the ‘polluters-pay-principle’. That principle demands using the vehicle tax to finance investments to protect environment. And in order to stimulate the development of less noisy vehicles such a tax has to be progressively increased for noisy cars. The analysis is demonstrated on the situation of Sweden where a differentiation of norms as well as of vehicle taxes is proposed.     

Nonparametric stochastic frontiers: A local maximum likelihood approach

This paper proposes a new approach to handle nonparametric stochastic frontier (SF) models. It is based on local maximum likelihood techniques. The model is presented as encompassing some anchorage parametric model in a nonparametric way. First, we derive asymptotic properties of the estimator for the general case (local linear approximations). Then the results are tailored to a SF model where the convoluted error term (efficiency plus noise) is the sum of a half normal and a normal random variable. The parametric anchorage model is a linear production function with a homoscedastic error term. The local approximation is linear for both the production function and the parameters of the error terms. The performance of our estimator is then established in finite samples using simulated data sets as well as with a cross-sectional data on US commercial banks. The methods appear to be robust, numerically stable and particularly useful for investigating a production process and the derived efficiency scores.     

From chaos to order: health care quality in context

Quality underlies diverse efforts to repair the troubled health care system, yet the many abstract definitions offered are not particularly useful. A better approach is to evaluate quality in an applied or situational context. This article offers six propositions that establish such a context and explain why the current health care environment is so volatile. Some parallels between health care and the emerging field of science called chaos theory are drawn as a possible future basis for recognizing order in the health care system.     

Incentive Pay and Firm Performance: Moderating Roles of Procedural Justice Climate and Environmental Turbulence

In connection with the literature on strategic reward and agency theory, this study investigates the effects of incentive pay on employee outcomes and firm performance. We identify employee outcomes, such as commitment and competence, as mediating processes that explain the effects of incentive pay on firm performance. We further propose procedural justice climate and environmental turbulence as boundary conditions that determine the strength of the effects of incentive pay on employee outcomes. The research model is tested using multisource data collected at three time points over a five‐year period from 227 Korean companies. Our analysis confirmed that incentive pay enhanced employee commitment and competence, which, in turn, improved the operational and financial performances of firms. The effect of incentive pay on employee commitment was negative for firms with a low procedural justice climate, but positive for firms operated under a highly turbulent environment. By contrast, the effect of incentive pay on employee competence was positive only for firms operated under a stable environment. This study enriches the literature by presenting and validating plausible underlying mechanisms and boundary conditions under which strategic performance–contingent incentive pay affects firm performance. © 2015 Wiley Periodicals, Inc.     

Estimating the shirking model with variable effort

We show in a theoretical efficiency wage model where firms differ in monitoring intensity that the impact of monitoring intensity on wages is ambiguous, a result that mirrors evidence from the empirical literature. We argue that to correctly specify the impact of monitoring on wages, the interaction between monitoring and effort needs to be modelled. Results using a worker, firm panel from Ghana which contains reasonable effort and monitoring proxies show that the return to effort is higher in poorly monitored sectors as the theory suggests.     

Strategic compensation in South Korea's publicly traded firms

This strategic compensation model based on contingency theory of organizations proposes that a fit between the organization's business environment and compensation system will affect the firm's performance (Rockmore, 1991; Rockmore and Scarpello, 1994). This proposition was tested with a set of Korean sample data of seventy-five publicly traded companies within thirty-four three-digit Standard Industrial Classification codes.

The cluster analysis applied to the 7-item task environment uncertainty components resulted in two group classifications that face relatively ‘more certain’ and ‘more uncertain’ environments. Principal component factor analysis of the 8-item compensation system components resulted in three compensation system factors and subsequent cluster analysis classified firm pay plans into two clusters, which we labelled ‘more traditional’ and ‘more innovative’. Discriminant analysis confirmed the resulting classifications of both task environment and compensation system types. With both ROA and EPS measures, significantly more ‘fits’ (firms in stable environment that use traditional compensation system or firms in uncertain environment that use innovative compensation system) showed financial gains compared with ‘nonfits’. This financial impact of the contingency was more salient for those firms that face uncertain environment. The same results were obtained when ANOVA was performed.     

国际环境变化对纺织品企业出口的影响

面对复杂多变的国际环境,如何保持纺织品出口平稳较快增长成为热点问题。本文分析了企业存在的成本上升,自主生产性不强,信息渠道不畅,对贸易摩擦缺乏防范等问题;提出了应对策略——维护原有出口市场,努力开拓多元出口市场,大力实施品牌战略,加强纺织品协会的作用,重视出口信用保险,大力推进走出去战略等措施。