Budgeting—the Role of Trust and Participation: A Research Note

Prior studies have found a combination of an evaluative style with high budget emphasis and high participation to be associated with better behavioural outcomes (e.g., lower job-related tension) than all other combinations of budget emphasis and participation. Yet there has been little research to investigate the theory on why this particular combination of budget emphasis and participation is associated with better behavioural outcomes. A path analytical model, which investigates the intervening effects of trust and participation on the relationship between budget emphasis and job-related tension, was used. Senior Norwegian managers were selected as subjects for this study. The results indicate that budget emphasis has an insignificant direct effect on job-related tension but a strong indirect effect through trust and participation. Trust also has an intervening effect on the relationship between budgetary participation and job-related tension. It is therefore possible to conclude that high budget emphasis is associated with high budgetary participation and high trust. High trust, in turn, is associated with reduced subordinates' job-related tension.     

The effect of cost management knowledge on the relationship between budgetary participation and managerial performance

This study investigates the relationship between budget participation (BP), cost management knowledge and managerial performance. It draws on relevant previous research in the theory of work performance and accounting to formulate the research questions. Eighty-three managers from Finnish companies participated in the study. Data were collected from the managers using a mail questionnaire. The results indicate that managers’ cost management knowledge, and especially the balanced perspective of cost management knowledge, moderates the effect of BP on self-perception of managerial performance. It was specifically found that the effect of BP on perceived managerial performance becomes more positive when managers’ cost management knowledge increases. High perception of managerial performance is obtained when both the BP and managers’ cost management knowledge are high. Our results suggest that organizations should improve the cost management knowledge of managers who participate in the budgeting process.     

Impact of product market competition on real activity manipulation: Moderating role of managerial ability

In this study, we examine whether managerial ability moderates the association between product market competition and real earnings management. Prior literature largely supports the disciplinary effect of competition, suggesting that competition reduces real activity manipulation. We argue that this association is different depending on the level of managerial ability. Based on the reputation hypothesis, we argue that able managers negatively moderate the association between competition and real activity manipulation. Using a sample of US listed companies from 1997 to 2016, we find evidence to support our moderating assertion. A battery of robustness tests validates our original findings.     

Observability and Subjective Performance Measurement

Accounting research provides theory and evidence on the choice and use of subjective performance measures for evaluating managerial performance. However, accounting research does not focus on the subjective performance measurement of managerial behaviour once measures have been chosen. We extend accounting research by investigating the factors that influence the subjective performance measurement decision. We predict that the level of subjective performance measurement is influenced by the informativeness of financial performance measures and by the verifiability of the nonfinancial measures in a formula‐based incentive plan. We expect that the measures' informativeness and verifiability depends on the observability of both the managerial behaviour being subjectively measured and the reliability of the financial and nonfinancial performance measures. More specifically, we hypothesize that the influence of the levels of the financial performance measures on the level of subjective performance measurement is moderated by the observability of either the managerial behaviour being measured (for the financial measures) or the performance measures' reliability (for the nonfinancial measures). Data from a firm provide support for our hypotheses.     

Extent of managerial IT use,learning routines,and firm performance: A structural equation modeling of their relationship

Organizations increasingly rely on information technology (IT) to improve performance. Yet, there is debate about the pay-off of the IT revolution, and empirical evidence suggests that investments in IT do not guarantee enhanced performance. Drawing from accounting, marketing, management and information technology literature, this study uses structural equation modeling to assess the extent to which managerial use of IT is intertwined with control issues including learning routines (internal and external), product quality, cost improvement, customer satisfaction and firm profitability. The conceptual framework builds on knowledge- and resource-based views and return on quality perspectives. The results indicate support for the theoretical framework. Extent of managerial IT use influences internal and external learning routines that influence quality and cost improvement. Quality improvement significantly impacts customer satisfaction and cost improvement that significantly impact firm profitability. The non-hypothesized paths are not significant, indicating that learning routines, quality improvement, cost improvement and customer satisfaction are intervening variables between extent of managerial IT use and firm profitability. Further, the sample is split into two industry subgroups, durable and nondurable goods subgroups, and the two-group analysis reveals that industry moderates the relationship among the variables under study. The effects are in general more pronounced for durable goods firms.     

Role of corporate governance in moderating the risk-return paradox: Cross country evidence

This paper investigates the possible nexus between the 'risk-return paradox' and corporate-governance of firms in a cross-country cross-cultural setup. We use corporate governance as well as accounting risk and return data for a large dataset of 45,322 firm-years from 27 countries and show that the firm-level risk-return association may be a non-linear one, contingent on the firm performance. Firms which are below the industry median in terms of operating performance, exhibit an inverse relation in line with Bowman's (1980) ‘paradox' while those above-median exhibit a positive risk-return association. Further, we establish empirically that such risk-return association could be due to the rent-seeking actions of managers and that strong corporate-governance in a firm substantially moderates and reverses these effects. Our results are robust and hold strong through a number of robustness tests.     

合作创新如何更有效? ——基于专用性投资与战略信息共享的视角

互联网发展以及数字经济背景下,专用性投资如何影响组织间合作创新,至今结论仍不清晰。基于交易成本理论和社会交换理论,本文将战略信息共享纳入纵向合作研究框架,剖析不同类型专用性投资对组织间合作创新绩效影响的微观机理。研究结果显示：不同类型专用性投资的影响存在差异,其中,人力专用性投资对战略信息共享的正向影响最显著,而品牌专用性投资的影响强于流程专用性投资;战略信息共享显著促进合作创新绩效,且在专用性投资对合作创新绩效的影响过程中具有中介作用;关系信任在专用性投资与战略信息共享的关系中起正向调节作用,但在战略信息共享与合作创新绩效的关系中起负向调节作用;资源互补性正向调节战略信息共享与合作创新绩效的影响。     

Ownership structure and target returns

Contrary to past literature, ownership defined as “all officers and directors” of the target firm has no association with target returns. Rather, we find that inside (managerial) ownership has a positive relation with target returns, whereas active-outside (non-managing director) ownership has a negative relation with target returns. Using accounting-based versus market-based performance measures, we find that the relation between inside ownership and target returns is best explained by takeover anticipation. Using bidder and synergy returns we find that the relation between outside ownership and target returns is best explained by outsiders' willingness to share gains with the bidder. While the relations are more pronounced for non-tender deals, they also hold for tender offers when active-outside ownership is corporate rather than institutional.     

Synthesizing enterprise data to strategically align performance: The intentionality of strategy surrogation

Strategic performance measurement systems (SPMS) are employed by senior management as a means of translating strategy into performance measures. Recent research suggests that this translation can lead managers to focus on personal performance measures as opposed to overall organizational strategy—a phenomenon referred to as strategy surrogation. Emerging technologies are increasingly used to operationalize SPMS via smart phone/tablet/laptop formats that inherently promote the use of small subsets of performance measures and have the potential to exacerbate strategy surrogation effects. This study explores executive managers' motivations in deploying dashboards and the resulting effect on operational managers' focus on associated performance measures. An exploratory cross-sectional field study is conducted with 27 executive to mid-level managers to establish a theoretical model explaining how and why organizations deploy dashboards and why managers use dashboards to facilitate their activities and decisions. Despite concerns over the propensity of managers to focus on performance measures and lose sight of strategic objectives (i.e. strategy surrogation), the interview data indicate that executive management intentionally designs dashboards to achieve strategy surrogation. The impact of this intentional surrogation appears to arise through operational managers' beliefs that dashboard measures align with organizational strategy and lead to improved managerial and organizational performance. However, this relationship between perceived alignment of performance measures and managerial and organizational performance is mediated by dashboard quality and information quality. These findings have important implications as the effects of SPMS on strategy surrogation are further explored by researchers, and as system designers consider the side effects of emerging technologies on effective strategic performance measurement.     

Managerial Incentives and the Choice between Public and Bank Debt

I propose a simple model with complete and perfect information on the relation between managerial incentive compensation and choice between public and bank debt. The empirical analysis offers considerable support to the model's predictions. I find that managers whose compensation is tied to firm performance prefer bank to public debt. Further, I find a positive relation between cost of public debt and managerial incentive compensation and no relation between loan spreads and incentive compensation. Finally, I find that banks are more likely to include a collateral provision in the debt contract if the CEO's compensation is tied to firm performance.     

Portfolio Manager Ownership and Mutual Fund Performance

This paper examines the association between a mutual fund manager's personal fund investment and mutual fund performance. From a data set of newly released managerial ownership disclosures, I find that fund ownership levels are diverse and, in many instances, quite large. Mutual fund returns are increasing in the level of managerial investment, consistent with personal ownership realigning decision-maker and shareholder interests. Also consistent with the reduction of agency costs, I find that managerial ownership is inversely related to fund turnover. However, there is no evidence of an association between managerial ownership and a mutual fund's tax burden.     

CEO power and the structure of CEO pay

This paper fleshes out the rent extraction view of CEO compensation put forward by the managerial power theory (Bebchuk, Fried, & Walker, 2002), and tests its main implications on the relation between CEO power and the structure of CEO pay. For a measure of CEO power most relevant to managerial power theory, we use the CEO pay slice due to Bebchuk, Cremers, and Peyer (2011). Based on the sample of S&P 500 firms for the period of 1999–2008, we find that the implied relation between power and pay is largely supported. Our findings suggest that the managerial power theory has relevance in explaining the relation between power and pay when the focus is on managerial bargaining power. Given the multiple dimensions of CEO power, however, the scope of power may need to be broadened for a better understanding of how managerial power affects firm performance.     

Managerial ownership,board monitoring and firm performance in a family‐concentrated corporate environment

Using data from Hong Kong, a market that has family‐concentrated ownership structure, we examine the relation between managerial ownership, the board of directors and firm performance. We first conduct analysis on the managerial ownership and firm performance to derive the turning points where either ‘convergence of interest’ or ‘entrenchment’ effect of managerial ownership is dominant. Based on these estimated turning points, we find that at low and high level of ownership, effective board mitigates the entrenchment effect associated with managerial ownership; at medium level of ownership, board effectiveness is less demanded. These findings suggest that managerial ownership and board monitoring are substitutes in mitigating the agency problem between managers and shareholders. We also find that effective board curbs the excessive compensation by entrenched managers to themselves at low level of managerial ownership.     

The effect of comprehensive performance measurement systems on role clarity,psychological empowerment and managerial performance

This study examines how comprehensive performance measurement systems (PMS) affect managerial performance. It is proposed that the effect of comprehensive PMS on managerial performance is indirect through the mediating variables of role clarity and psychological empowerment. Data collected from a survey of 83 strategic business unit managers are used to test the model. Results from a structural model tested using Partial Least Squares regression indicate that comprehensive PMS is indirectly related to managerial performance through the intervening variables of role clarity and psychological empowerment. This result highlights the role of cognitive and motivational mechanisms in explaining the effect of management accounting systems on managerial performance. In particular, the results indicate that comprehensive PMS influences managers’ cognition and motivation, which, in turn, influence managerial performance.     

The use of performance measurement systems in the public sector: Effects on performance

We study the use of performance measurement systems in the public sector. We hypothesize that the way in which these systems are being used affects organizational performance, and that these performance effects depend on contractibility. Contractibility encompasses clarity of goals, the ability to select undistorted performance metrics, and the degree to which managers know and control the transformation process. We expect that public sector organizations that use their performance measurement systems in ways that match the characteristics of their activities outperform those that fail to achieve such fit. We test our hypotheses using survey data from 101 public sector organizations. Our findings indicate that contractibility moderates the relationship between the incentive-oriented use of the performance measurement system and performance. Using the performance measurement system for incentive purposes negatively influences organizational performance, but this effect is less severe when contractibility is high. We also find that an exploratory use of the performance measurement system tends to enhance performance; this positive effect is independent of the level of contractibility. The effectiveness of the introduction of performance measurement systems in public sector organizations thus depends both on contractibility and on how the system is being used by managers. These findings have important implications, both for practice and for public policy.     

Reexamining the managerial ownership effect on firm value

Whether equity-based compensation and equity ownership align the interests of managers with stockholders is an important question in finance. Early studies found an inverted U-shaped relation between managerial ownership and firm value, but later studies using firm fixed effects found no relation. Managerial ownership levels change very slowly over time which may mask an ownership effect on firm value when using a fixed effect model. This is due to a much smaller within firm variation than between firm variation. We demonstrate that using pay-performance semi-elasticity, rather than pay-performance sensitivity as a measure of managerial ownership incentives, results in meaningful variation within firm over time. The greater within firm variation increases the power to detect a relation between managerial ownership and firm value with fixed effect regressions. As in the early research on this issue, we find a significant inverted U-shaped relation between managerial ownership and Tobin's Q in fixed effects regressions and after controlling for endogeneity with both two-stage and three-stage least squares regressions. Our results are consistent with incentive alignment at low levels and risk aversion at high levels of managerial ownership.     

The performance effect of managerial ownership: Evidence from China

By examining a sample of non-listed Chinese firms, we provide the first evidence from China for the effect of managerial ownership on firm performance. In matching-sample comparisons, we find that firms of significant managerial ownership outperform firms whose managers do not own equity shares. Our further results indicate the relation between firm performance and managerial ownership is nonlinear, and the inflection point at which the relation turns negative occurs at ownership above 50%. Compared with previous studies, our results are less likely to suffer from an endogeneity problem due to the non-list nature of our sample and the unique institutional environment in China.     

The expectancy–valence theory revisited: Developing an extended model of managerial motivation

This empirical study examines the relationship between managerial perceptions of elements of the performance measurement, evaluation and reward system (PMERS) and motivation. An extended version of the traditional expectancy–valence (E–V) model is developed to conceptualise the process of motivation at the middle management level. Based on this model, the direct effect of and interplay between the value of rewards, the attainability of targets, the accuracy of measures used to gauge achievement, the transparency of the performance–rewards relationship and managerial motivation are examined. Using structural equation modelling (SEM), the perceptions of 200 plus middle managers in a large, successful company in the financial services sector are analysed. The observed data generally provide a good fit with the structural model. The findings indicate that both extrinsic and intrinsic rewards have a significant positive impact on managerial motivation. However, the value of extrinsic rewards is significantly affected by other elements of the PMERS design, namely the accuracy of the performance measures and the transparency of the performance measures–rewards link. This has important implications for the design of extrinsic reward schemes, and the utilisation of alternative motivational drivers potentially present in the middle manager's job environment.     

Corporate risk-taking,firm value and high levels of managerial earnings forecasts

We examine the impact of high levels of managerial earnings forecasts, an important form of voluntary disclosure, on corporate risk-taking and firm value. Theory and anecdotal evidence suggest that a policy of high disclosure may reduce managers' willingness to invest in higher-risk, higher-return projects. We first verify, as in prior research, that corporate risk-taking is associated with higher future firm value. We then document a negative relation between firms with high levels of forecasting and corporate risk-taking. Finally, we provide evidence suggesting that high levels of managerial earnings forecasts reduce the positive association between corporate risk-taking and future firm value. Our results are robust to alternative measures of corporate risk-taking and future firm value, and alternative definitions of high levels of managerial earnings forecasts. Our results may be of importance to varying interests as they highlight the potential for high levels of earnings forecasts to inhibit corporate risk-taking and lower firm value.     

CEOs' general managerial skills and corporate risk taking subject to the moderator of CEO tenure

In this study, we examine the relation between chief executive officers' (CEOs') general managerial skills and firms' risk-taking behaviour. We find that generalist CEOs are associated with significantly higher firm risk, with the association decreasing significantly with CEO tenure. We propose the following managerial skills transformation explanation: the longer a CEO stays with a firm, the less general and more firm specific the CEO's skills and knowledge become; therefore, any effect of the CEO's general managerial skills only appears in the early years of tenure.