Anticipating the Impact of IFRS on the Management of German Manufacturing Companies: Some Observations from a British Perspective

The introduction of International Financial Reporting Standards (IFRS) in 2005 marked a significant departure from Germany's traditional financial accounting practices. This paper questions whether this change may have consequential effects on the distinctive traditional management accounting practices in the field of Controlling. We examine the possible impact on manufacturing companies drawing upon perceptions and expectations of managers in three Bavarian companies and two management consultancy firms. We consider whether financial accounting will assume an increased importance within firms, and whether this may lead to abandonment of some traditional management accounting practices and the adoption of different techniques in internal reporting compatible with the new IFRS regime for external reporting. This prompts consideration of whether such changes would lead to financial accounting domination of management accounting in Germany analogous to that argued by Johnson and Kaplan in 1987 in their ‘Relevance Lost’ thesis. We conclude that, at this juncture in the development of their information systems, German managers face an important choice between integrating external and internal reporting in ways that might fundamentally change established Controlling practices, or of continuing to operate dual accounting systems in much the same way as in the past so that adoption of IFRS is restricted to external reporting.     

Ending the CEO succession crisis

The CEO succession process is broken. Many companies have no meaningful succession plans, and few of the ones that do are happy with them. CEO tenure is shrinking; in fact, two out of five CEOs fail in their first 18 months. It isn't just that more CEOs are being replaced; it's that they're being replaced badly. The problems extend to every aspect of CEO succession: internal development programs, board supervision, and outside recruitment. While many organizations do a decent job of nurturing middle managers, few have set up the comprehensive programs needed to find the half-dozen true CEO candidates out of the thousands of leaders in their midst. Even more damaging is the failure of boards to devote enough attention to succession. Search committee members often have no experience hiring CEOs; lacking guidance, they supply either the narrowest or the most general of requirements and then fail to vet eitherthe candidates or the recruiters. The result is that too often new CEOs are plucked from the well-worn Rolodexes of a remarkably small number of recruiters. These candidates may be strong in charisma but may lack critical skills or otherwise be a bad fit with the company. The resulting high turnover is particularly damaging, since outside CEOs often bring in their own teams, can cause the company to lose focus, and are especially costly to be rid of. Drawing on over 35 years of experience with CEO succession, the author explains how companies can create a deep pool of internal candidates, how boards can consistently align strategy and leadership development, and how directors can get their money's worth from recruiters. Choosing a CEO should be not one decision but an amalgam ofthousands of decisions made by many people every day over years.     

Make your company a talent factory

Despite the great sums of money companies dedicate to talent management systems, many still struggle to fill key positions - limiting their potential for growth in the process. Virtually all the human resource executives in the authors' 2005 survey of 40 companies around the world said that their pipeline of high-potential employees was insufficient to fill strategic management roles. The survey revealed two primary reasons for this. First, the formal procedures for identifying and developing next-generation leaders have fallen out of sync with what companies need to grow or expand into new markets. To save money, for example, some firms have eliminated positions that would expose high-potential employees to a broad range of problems, thus sacrificing future development opportunities that would far outweigh any initial savings from the job cuts. Second, HR executives often have trouble keeping top leaders' attention on talent issues, despite those leaders' vigorous assertions that obtaining and keeping the best people is a major priority. If passion for that objective doesn't start at the top and infuse the culture, say the authors, talent management can easily deteriorate into the management of bureaucratic routines. Yet there are companies that can face the future with confidence. These firms don't just manage talent, they build talent factories. The authors describe the experiences of two such corporations - consumer products icon Procter & Gamble and financial services giant HSBC Group -that figured out how to develop and retain key employees and fill positions quickly to meet evolving business needs. Though each company approached talent management from a different direction, they both maintained a twin focus on functionality (rigorous talent processes that support strategic and cultural objectives) and vitality (management's emotional commitment, which is reflected in daily actions).     

How Corporate Diversity and Size Influence Spinoffs and Other Breakups

In recent months, the list of large diversified companies that have decided they would be worth more as several smaller, focused companies has grown sharply. In many of these cases, it has been outside pressure from activist investors that has motivated these actions by management—and with some pretty favorable results. But what is driving these strategic actions and what is most important in determining whether breakups create value? To answer this fundamental questions, it is critical to decide whether large, diversified companies have a value recognition problem or a value creation problem. In this article, the authors present and try to integrate the findings of two separate but related research studies on business diversity and size with the aim of identifying their implications for corporate strategy and helping company executives create more value for their investors. The specific reasons for underperformance by large diverse companies vary greatly, but there are a number of potential problems discussed in this article, including organizational “distance,” capital allocation, human capital allocation, cross subsidies, and ineffective governance. Instead of waiting for activist investors to demand a breakup, executives of large diverse companies should be proactive in addressing the potential weaknesses of their organizations. Private equity firms understand how to make diversification work and many of today's executives could learn some valuable lessons from these firms. Large diverse businesses should embrace “Internal Capitalism,” a corporate culture and set of practices that emphasizes the importance of strategic decision‐making that is linked through continuous performance assessment to the corporate goals of boosting efficiency and sustainable growth.     

Managerial talent and managerial practices: Are they complements?

We examine the role of managerial talent and its interaction with managerial practices in determining firm performance. We build a matched firm-director panel dataset for the universe of limited liability companies in Italy, tracking directors across different firms over time. We define managerial talent as the individual contribution to the variation of the firms’ total factor productivity, estimated using a two-way fixed effects model. Combining the data with survey information on a representative sample of firms, we then document that our measure of talent correlates with ex-ante and ex-post indicators of ability, i.e. managers’ educational attainment and their forecast precision with respect to the firm’s future performance. Most important, we leverage information on the adoption of managerial practices within the firm to examine potential synergies between managerial talent and structured managerial practices, thus bridging two separate strands of the literature. While talent and structured practices are positively associated with firm productivity on their own, there is evidence of complementarities between the two. These findings hold both in a cross-sectional setting and in a panel analysis that accounts for time-invariant firm heterogeneity. Overall, our results indicate that the effectiveness of managerial practices varies with managers’ ability to implement them.     

地方人才引进政策与公司人力资本北大核心

本文以地方人才引进政策的颁布为准自然实验,考察人才引进政策对当地公司人力资本的影响,以检验人才引进政策在微观层面的经济后果。结果发现,地方人才引进政策显著改善了当地公司的人力资本水平;在小城市、竞争性行业、大规模和声誉好的公司中,地方人才引进政策对提高公司人力资本水平的作用更强。效率检验表明,地方人才引进政策显著提高了公司的全要素生产率。但同时也发现,地方人才引进政策降低了公司的薪酬激励和高管流动率,揭示了公司为顺利执行人才引进政策,可能通过弱化激励机制来安抚老员工,导致公司在薪酬治理方面存在局部的效率损失。本文验证了地方人才引进政策的实施效果,揭示了该政策影响公司行为的作用机制,为政策后续执行提供了一定参考。     

Examination of U.S.-based Japanese subsidiaries: Evidence of the transfer of the Japanese strategic cost management

As a result of global competition, many Japanese companies are now operating in the United States. This article presents a survey of the management accounting methods employed by U.S.-based Japanese manufacturers and documents evidence about the current direction of accounting practices that are being transferred from Japan to the U.S. work environment. The results of the study show that most of the U.S.-based Japanese firms are similar to Japanese domestic firms in their use of management accounting methods of target costing and value engineering, variable costing, and strategic adaptation of traditional methods such as standard costing and budgeting. It is also evident that U.S.-based Japanese affiliates may be influenced by U.S. practices, as shown by significant usage of activity-based costing and internal rate of return for evaluating capital investment projects. This article is an important part of a continuing effort to study the development of management accounting among foreign-owned subsidiaries in the U.S., helping them to meet the challenges of global competition. Additionally, expanding this line of research on foreign subsidiaries that apply world class management accounting practices in other countries may assist U.S. multinational firms in their overseas subsidiaries' operations. Two limitations of this study and, thus, suggestions for future research are identified. First, the data on U.S.-based Japanese affiliates were collected for one point in time. Second, this study did not match each U.S.-based Japanese affiliate with its parent in Japan.     

Building a leadership brand

How do some firms produce a pipeline of consistently excellent managers? Instead of concentrating merely on strengthening the skills of individuals, these companies focus on building a broad organizational leadership capability. It's what Ulrich and Smallwood--cofounders of the RBL Group, a leadership development consultancy--call a leadership brand. Organizations with leadership brands take an "outside-in" approach to executive development. They begin with a clear statement of what they want to be known for by customers and then link it with a required set of management skills. The Lexus division of Toyota, for instance, translates its tagline--"The pursuit of perfection"--into an expectation that its leaders excel at managing quality processes. The slogan of Bon Secours Health System is "Good help to those in need." It demands that its managers balance business skills with compassion and caring. The outside-in approach helps firms build a reputation for high-quality leaders whom customers trust to deliver on the company's promises. In examining 150 companies with strong leadership capabilities, the authors found that the organizations follow five strategies. First, make sure managers master the basics of leadership--for example, setting strategy and grooming talent. Second, ensure that leaders internalize customers' high expectations. Third, incorporate customer feedback into evaluations of executives. Fourth, invest in programs that help managers hone the right skills, by tapping customers to participate in such programs. Finally, track the success of efforts to build leadership bench strength over the long-term. The result is outstanding management that persists even when individual executives leave. In fact, companies with the strongest leadership brands often become "leader feeders"--firms that regularly graduate leaders who go on to head other companies.     

RISK MANAGEMENT FOR MIDDLE MARKET COMPANIES

This article reinforces the message of the one immediately preceding by showing that small to medium‐sized firms have even stronger (non‐tax) motives for hedging risks than their large corporate counterparts. Although middle market companies have traditionally been viewed as less sophisticated than their larger corporate counterparts in the risk management arena, the authors suggest that such companies have become increasingly receptive to new hedging strategies using derivative products. When used appropriately, such products allow companies to stabilize their periodic operating cash flow by eliminating specific sources of volatility such as fluctuations in interest rates, exchange rates, and commodity prices. Smaller companies recognize that a single swing in a budgeted cost can have a catastrophic effect on an entire budget, whereas a larger company can more easily absorb such a cost. Moreover, because the principal owners of mid‐sized firms often have a substantial part of their net worth tied up in the business, they are likely to have a far stronger interest than typical outside shareholders in using risk management to reduce the volatility of corporate profits and firm value. Perhaps most important to owners whose firms rely on debt financing, the greater cash flow stability resulting from active risk management significantly reduces the possibility of financial distress or bankruptcy. In this article, three representatives of Bank of America's risk management practice discuss three different exposures faced by middle market companies—those arising from changes in interest rates, foreign exchange rates, and commodity prices—and show how these risks can be managed with derivatives. Besides shielding companies from financial trouble, risk management is also likely to improve their access to the money and capital markets. By protecting the firm's access to capital, risk management increases the odds that the firm will not be forced to pass up good investment opportunities because of capital constraints or fear of getting into financial difficulty.     

消费金融资产证券化与系统性风险管理研究

在强大的市场需求和金融科技支持下,消费金融公司自正式试点以来呈现良好的发展态势,其中资产证券化成为消费金融公司的重要融资方式。资产证券化在助力消费金融公司增资扩容、改善流动性和提高运营稳健性的同时,也促使消费金融行业风险高并导致诉讼案件的增加。本文基于捷赢个人消费贷款资产支持证券的经验证据,明确了消费金融创新、消费金融风险与金融市场系统性风险管理之间的内在联系,揭示可以通过大数据精准获客、规范催收行为和智能风险防控等措施为消费金融市场发展保驾护航。因此,针对消费金融资产证券化,政府应制定专门的政策法规以强化风险管理,不断完善消费金融资产的监管机制,借助系统性风险管理来规避套利和资金风险,进而促进消费金融资产证券化的稳健有序发展。     

管理控制工具的整合模式:理论分析与中国企业的创新——基于中国国有企业的多案例研究

引入和应用西方管理会计(控制)工具是近年来我国企业的一个热门话题,纵观相关文献就会发现每一个管理控制工具(包括预算管理、平衡记分卡、EVA、作业管理等)都试图被定位于一个"全能"的管理控制系统,有意无意地忽略了与其他工具之间的相互补充与整合。由于种种原因,这一问题尚未得到国内学术界足够的重视,而且对西方管理会计工具的介绍性文献远远多于以我国企业为背景的应用研究文献。有鉴于此,本文首先通过对相关理论的归纳、剖析,并依据我们对中国华润集团、中化集团和五矿集团这三个大型国企管理控制工具运用的实地调查,力图对这一问题进行深入的理论分析和实践总结,以期丰富我国企业管理控制的理论,并予以引导实践。     

Do heterogeneous oil price shocks really have different effects on earnings management?

Under the modern corporate governance structure, there is a knowledge gap in how companies' financial reporting practices respond to oil price shocks in China. To fill this gap, we employ China's A-share listed companies and follow Kilian (2009) study to investigate how the three types of classical oil shocks affect corporate earnings management heterogeneously. We also consider the role of oil implied volatility in this relationship and further examine the possible heterogeneity between energy-related and non-energy-related subsamples. The empirical results show that there are variant effects among the heterogeneous oil price shocks on earnings management. Specifically, oil supply shocks stimulate firms to manipulate more accrual and real earnings, and firms are more likely to carry out accrual earnings management downward. Oil aggregate demand shocks weaken the degree of accrual earnings manipulation and mainly reduce the negative accrual earnings manipulation. Oil-specific demand shocks constrain the earnings management behavior of companies and improve their accounting quality. Besides, the increased uncertainty of oil price weakens the promotion effect of oil supply shocks on earnings manipulation, and the moderating effect occurs mainly in downward earnings management. Furthermore, the subsample estimated results reveal that oil price shocks do not affect the degree of accrual earnings management of energy-related companies. Instead, they impact the non-energy-related companies. Overall, our findings provide a series of targeted policy recommendations to mitigate the principal-agent problems and cope with energy price volatility risks.     

OVERHEAD COST ALLOCATION IN AUSTRALIAN MANUFACTURING COMPANIES

Cost and management accounting practices are being criticised for their deficiencies in providing firms with high-quality information for decisionmaking. While empirical data exist for overseas countries, little information, if any, is available for Australian companies. This paper reports the results of a survey addressed in November 1989 to the 2,000 largest Australian manufacturing companies. A contingency approach (using firm size, diversification, decentralisation, international exposure and industry as contingent variables) is suggested to explain various cost-allocation practices. Responses from 430 firms provided the information used in this study.     

The Value of Management Letters to Unlisted Companies

This paper reports the results of research on the value of management letters to unlisted companies. The aims of the research were: (1) to identify the issues raised in management letters; (2) to assess the value of management letters to unlisted companies; and (3) to assess the value of management letters to auditors. Within these aims we investigated whether the size of the audit firm (Big 5, Top 20, or other) or the length of audit tenure had any effect on the contents of management letters or their value to unlisted companies. We conclude that the issues most frequently raised in management letters related to internal control and accounting systems but that other issues, such as taxation and general business advice, are often included. There was little difference in the contents of management letters issued by Big 5 audit firms and other firms. Unlisted companies generally considered that the advice given in management letters was valuable. Again, there was little difference between clients of Big 5 audit firms and other firms. Similarly, the length of audit tenure had no statistically significant effect. Finally, auditors considered that the most important benefit of the management letter to themselves was its potential for enhancing clients’ perceptions of the auditor. The potential for reducing costs was relatively unimportant. These results were similar both for Top 20 and non-Top 20 audit firms.     

Audit effort and fees under concentrated client ownership: Evidence from four international audit firms

Using proprietary audit hour and fee data from the internal records of four Big Six firms in Finland, this study examines the influence of audit client ownership type on audit effort and fees. The primary argument is that there are differential effects of ownership concentration depending on the particular nature of concentrated ownership (i.e., firms in which the majority of shares are manager-owned versus foreign-owned versus state-owned). Consistent with this, the paper documents that audit hours and fees are lower for companies majority-owned by their management and higher for subsidiaries of foreign companies than for other firms. However, no difference between companies owned by the state or municipalities and companies with a more diverse ownership structure can be found. This suggests that governmental ownership is actually closer to a dispersed than a concentrated ownership structure in terms of audit quality.The results show that replacing the variable indicating majority-ownership with the variables capturing the type of a controlling owner increases the explanatory power of the models significantly, which demonstrates the importance of ownership type in the production and pricing of an audit. The findings have important implications for those examining audit markets with client firms owned by different types of controlling shareholders.     

商业银行人力资源供给与需求的均衡分析

我国商业银行的人力资源供给与需求行为还远没有达到最优化.为此,必须适应时代发展要求,不断完善人力资源管理制度:既注意克服数量盲目扩张、人才囤积的倾向,又要注意克服无视人才需求,放任人才流失的倾向;要建立有利于员工敬业精神、开拓精神形成以及智慧发挥的制度;要以有效制度抑制机会主义行为的发生;努力优化市场结构,培育市场竞争主体,从商业银行外部注入新的制度需求,并形成新的制度供给的推动力.通过以上努力,力求达到人力资源供给与需求的行为博弈均衡、数量均衡、结构均衡和制度均衡,为我国商业银行的发展壮大准备人力资源条件.     

Liquidity,the Value of the Firm,and Corporate Finance

The theory of corporate finance has been based on the idea that a company's market value is determined mainly by just two variables: the company's expected after‐tax operating cash flows or earnings, and the risk associated with producing them. The authors argue that there is another important factor affecting a company's value: the liquidity of its own securities, debt as well as equity. The paper supports this argument by reviewing the large and growing body of evidence showing that differences—and changes—in liquidity can have major effects on the pricing of corporate stocks and bonds or, equivalently, on investors' required returns for holding them. The authors also suggest that the liquidity of a company's securities can be managed by corporate policies and actions. For those companies whose value is likely to be increased by having more liquid securities—which is by no means true of all companies (mature firms that don't need outside capital may well benefit from having more concentrated ownership and hence less liquidity)—management should consider actions such as reducing leverage and substituting dividends for stock repurchases as well as measures designed to increase the effectiveness of their disclosure and investor relations program and the size of their investor base.     

Information asymmetry around operational risk announcements

Operational risk incidences are likely to increase the degree of information asymmetry between firms and investors. We analyze operational risk disclosures by US financial firms during 1995–2009 and their impact on different measures of information asymmetry in the firms’ equity markets. Effective spreads and the price impact of trades are shown to increase around the first announcements of such events and to revert after the announcement of their settlement. This is especially pronounced for internal fraud and business practices related events. Market makers respond to higher information risk around the first press cutting date by increasing the quoted depth to accommodate an increase in trading volumes.The degree of information asymmetry around operational risk events may be influenced by the bank’s risk management function and the bank’s governance structure. We indeed find that information asymmetry increases more strongly after events’ first announcements when firms have weaker governance structures—lower board independence ratios, lower equity incentives of executive directors, and lower levels of institutional ownership. In contrast, the firms’ risk management function has little to no impact on information asymmetry. We interpret this as evidence that the risk management function is primarily driven by regulatory compliance needs. The results of this study contribute to our understanding of information asymmetry around operational risk announcements. They help to shed light on the role that regulation and corporate governance can play in order to establish effective disclosure practices and to promote a liquid and transparent securities market.     

Managing Operational Flexibility in Investment Decisions: The Case of Intel

Significant attention has been paid to how real options analysis can help in valuing operating flexibility when making major capital investment decisions. But there has been far less study of how to manage such flexibility, particularly in cases where a decision to defer, contract, or expand any one investment program affects a range of other programs, including those outside the firm. Such interrelated investments are increasingly common in a "connected" economy where products and technologies are designed across firms and industries.
Based on a field study at Intel, this paper describes and analyzes one set of practices for coordinating such diverse systems of investments. It shows how information about interrelated investments is communicated within and between companies so that coherent changes can be made at the level of an overall system. The authors argue that studies of investment appraisal need to move beyond the predominant focus on valuation to encompass the wider organizational processes by which operational flexibility is exercised in the modern economy.     

Organization Capital and the Cross‐Section of Expected Returns

Organization capital is a production factor that is embodied in the firm's key talent and has an efficiency that is firm specific. Hence, both shareholders and key talent have a claim to its cash flows. We develop a model in which the outside option of the key talent determines the share of firm cash flows that accrue to shareholders. This outside option varies systematically and renders firms with high organization capital riskier from shareholders' perspective. We find that firms with more organization capital have average returns that are 4.6% higher than firms with less organization capital.