Interorganizational cost management in the exchange process

This paper explores interorganizational cost management (IOCM) practices in the exchange process. IOCM can be defined as buyers’ and suppliers’ coordinated efforts to reduce costs. Past research has primarily argued that such practices depend on component characteristics, relationship characteristics, and characteristics of the transaction. Based on a study of three buyer–supplier relationships, this article also finds variations in IOCM practices between six main activities in the exchange process. In this process, the supplier's management accounting is found to be more important than recognized by prior research. The deepest collaboration around IOCM issues and the greatest joint use of suppliers’ management accounting in the three cases typically occurs in earlier activities in the exchange process, including supplier selection, joint product design and joint manufacturing process development. In later activities in the process, during full-speed production as well as in product and manufacturing process redesign, suppliers’ managerial accounting plays a lesser role in our study.     

Reporting the cost of capacity

A recent innovation in management accounting is the practice of reporting unused capacity costs. This experimental study examines factors that affect when this practice improves decisions and when it impairs decisions. Reporting unused capacity costs uniformly leads experimental participants to cut unused capacity resources. Such cuts improve overall profitability when demand exhibits a negative trend. However, the cost savings from capacity reduction are more than offset by the increased opportunity cost of foregone demand when demand exhibits a positive trend. As such, this study suggests that explicit capacity cost reporting can be detrimental to growing companies.     

Enacting a European supply chain: a case study on the role of management accounting

This study reports on an action research project carried out in two non-Japanese, U.K. manufacturing companies that were considering the establishment of a strategic supply partnership. In the assembler company, materials constituted 80% of manufacturing costs with the result that managing supply chain costs has become a most critical element in overall cost control. The company was seeking closer ties involving information sharing and R&D collaboration with suppliers of strategic components. On its part, the supplier wished to move towards the level of co-operation and trust that the two companies had realized in their U.S. operations. The participation of the researchers as neutral intermediaries between the two companies gave them an opportunity to analyse the role of management accounting in the construction of a strategic partnership. The constitutional role of accounting is highlighted together with the need to develop costing and performance measurement technologies that can be understood and respected by both senior managers and non-accountants involved in the procurement process.     

Inter-and intra-organizational stakeholder arrangements in carbon management accounting

This research investigates the role of inter-organizational arrangements and intra-organizational activities as sub-parts of carbon management accounting to reduce greenhouse gas (GHG) emissions. We apply the concept of stakeholder engagement, normally utilized in sustainability reporting, to carbon management accounting and performance. We also examine if carbon management projects that encompass many functional areas aid in GHG emissions performance. Using a sample of firms headquartered in the United States with data available from the CDP, we apply the three-stage least squares (3SLS) method to test for the endogeneity of GHG emissions reporting and performance. We find that both inter-organizational and intra-organizational arrangements improve GHG emissions performance through carbon management processes and procedures. Our research contributes to the literature by providing insight into how companies work externally with their stakeholders and internally with multiple functional areas to implement carbon management projects that reduce GHG emissions.     

保险企业质量成本管理实证分析

保险业的发展不仅带动了我国经济的进步以及基础建设的稳步前行,同时对稳定居民生活、保障国民的生命和财产安全起着不可替代的作用。在这种形势下,以顾客满意度为导向的质量成本管理对保险业的健康稳定发展意义重大,对保险业质量成本管理进行分析也就非常重要。本文在总结国内外研究基础上,引出了保险业的质量成本管理问题。针对保险业的特殊属性,本文建立了以顾客满意度为导向的质量成本管理模型,构建了保险业质量管理的项目设置及成本核算方式,并选取35家寿险公司作为样本,对保险业的质量成本管理模型进行了验证,并给出了加强保险业质量成本管理的建议。     

UNIVERSITY OF GEORGIA ROUNDTABLE ON: Enterprise‐Wide Risk Management

For many years, MBA students were taught that there was no good reason for companies that hedge large currency or commodity price exposures to have lower costs of capital, or trade at higher P/E multiples, than comparable companies that choose not to hedge such financial price risks. Corporate stockholders, just by holding well‐diversified portfolios, were said to neutralize any effects of currency and commodity price risks on corporate values. And corporate efforts to manage such risks were accordingly viewed as redundant, a waste of corporate resources on a function already performed by investors at far lower cost. But as this discussion makes clear, both the theory and the corporate practice of risk management have moved well beyond this perfect markets framework. The academics and practitioners in this roundtable begin by suggesting that the most important reason to hedge financial risks—and risk management's largest potential contribution to firm value—is to ensure a company's ability to carry out its strategic plan and investment policy. As one widely cited example, Merck's use of FX options to hedge the currency risk associated with its overseas revenues is viewed as limiting management's temptation to cut R&D in response to large currency‐related shortfalls in reported earnings. Nevertheless, one of the clear messages of the roundtable is that effective risk management has little to do with earnings management per se, and that companies that view risk management as primarily a tool for smoothing reported earnings have lost sight of its real economic function: maintaining access to low‐cost capital to fund long‐run investment. And a number of the panelists pointed out that a well‐executed risk management policy can be used to increase corporate debt capacity and, in so doing, reduce the cost of capital. Moreover, in making decisions whether to retain or transfer risks, companies should generally be guided by the principle of comparative advantage. If an outside firm or investor is willing to bear a particular risk at a lower price than the cost to the firm of managing that risk internally, then it makes sense to lay off that risk. Along with the greater efficiency and return on capital promised by such an approach, several panelists also pointed to one less tangible benefit of an enterprise‐wide risk management program—a significant improvement in the internal corporate dialogue, leading to a better understanding of all the company's risks and how they are affected by the interactions among its business units.     

Contingencies influencing the management accounting practices of Estonian manufacturing companies

Having regained independence in 1991, Estonia has undergone fundamental political and structural changes over the last decade, which have also affected the operation of its companies. This paper examines the management accounting practices of Estonian manufacturing companies, exploring the main impacts on them within a contingency theory framework. The methodology comprises an analysis of 62 responses to a postal questionnaire survey carried out among the largest Estonian manufacturing companies. It is comparatively infrequently that Estonian manufacturing companies have made improvements in their cost accounting methods, although the majority of respondents appear to acknowledge the importance of these practices in finding and lowering real product costs and modernizing the cost accounting systems. The effectiveness of an accounting systems’ design depends on its ability to adapt to changes both in external circumstances and internal factors. We have found some evidence that changes in cost and management accounting practices are associated with shifts in the business and accounting environment as external contingencies, and with those in technology and organizational aspects as internal contingencies. This research aims on the one hand to confirm earlier findings related to the ‘contingent factors’ that influence management accounting and on the other, to identify possible new factors, such as, for example, the legal accounting environment and shortage of properly qualified accountants.     

The adoption of total cost of ownership for sourcing decisions––a structural equations analysis

This study investigates the adoption of total cost of ownership (TCO) analysis to improve sourcing decisions. TCO can be seen as an application of activity based costing (ABC) that quantifies the costs that are involved in acquiring and using purchased goods or services. TCO supports purchasing decision-makers in focusing on total value received and not simply price, and it extends ABC concepts and tools to an inter-organizational context. Based on ABC-adoption literature and focus-group discussions with senior purchasing executives, a model is developed to explain relationships among eight constructs hypothesized to explain TCO adoption: competitive pressure in customer markets, strategic purchasing orientation, top management support, functional management commitment, value analysis experience, adequacy of TCO information, success of TCO initiatives, and use of TCO-based review and reward systems. We test this model using multi-sample structural equation modeling on survey data collected from purchasing managers and plant maintenance managers. We find support for most of our hypotheses and, further, that the posited relationships are largely invariant across purchasing manager and plant maintenance manager perspectives.     

Internal controls,risk management,and cash holdings

Exploiting a unique setting in China where internal controls are intended to manage risks, we investigate how internal controls shape the cash holding policies. Results show that firms with higher internal control quality (ICQ) are less likely to have abnormal cash holdings, either excess or deficit cash, and this effect is not driven by corporate governance quality. We also find that firms with higher ICQ are more likely to increase dividend payments and are less likely to increase M&A investments, especially when the firms have had a negative experience with prior M&A investments. Furthermore, our tests on the market valuation of cash holdings show that investors place a higher value on cash holdings of firms with higher ICQ. Collectively, our findings suggest that internal controls help companies shape reasonable cash policies that lead to value creation.     

Benefit cost management in the new millennium

The new millennium will bring new challenges to managing employee benefit plans. Costs are going up. The provider community is consolidating. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) have added cost and complexity to benefit plans. Employers expect strategic partnering and a high degree of flexibility while simultaneously reducing benefit managers' budgets and staff. This article provides specific strategies and tactics for managing benefit costs in this new era.     

The welfare cost of unpriced heterogeneity in insurance markets

We consider the welfare loss of unpriced heterogeneity in insurance markets, which results when private information or regulatory constraints prevent insurance companies to set premiums reflecting expected costs. We propose a methodology which uses survey data to measure this welfare loss. After identifying some “types” which determine expected risk and insurance demand, we derive the key factors defining the demand and cost functions in each market induced by these unobservable types. These are used to quantify the efficiency costs of unpriced heterogeneity. We apply our methods to the US Long‐Term Care and Medigap insurance markets, where we find that unpriced heterogeneity causes substantial inefficiency.     

供应链成本管理理论基础和方法研究

本文通过分析产品成本关系矩阵, 阐明供应链成本是跨企业的成本管理, 提出了供应链成本管理理论基础和两种主要的供应链成本管理方法, 指出以合作战略为基础的供应链目标成本是一种合适的供应链成本管理方法。最后得出结论并对将来的研究方向提出了建议。     

The association of departures from spending rate equilibrium to municipal borrowing cost

The U.S. municipal bond market has grown dramatically in recent decades. Debt financing has become a more important source of capital for municipalities, yet research into the association of fiscal management and borrowing cost has not been directly addressed since before GASB's formation in 1984. We attempt to fill this void and contribute to the dialog concerning municipal managerial competence and its association with borrowing cost by studying a sample of 3285 county general obligation bonds over a 13-year period. We resolve conflicting and counterintuitive results in prior work and demonstrate that the lowest borrowing cost is achieved where general fund revenues equal general fund expenditures (i.e., equilibrium spending rate). Further, we find that the association between spending rate and borrowing cost is nonmonotonic, nonlinear, and asymmetric. We demonstrate that maintenance of a spending rate equilibrium point may be a way of achieving minimum borrowing cost. In the context of fiscal constraints and the increased reliance on credit markets by municipalities, managing to the spending rate equilibrium may reduce the borrowing costs of providing municipal services.     

Where do firms incorporate? Deregulation and the cost of entry

We study how deregulation of corporate law affects the decision of entrepreneurs of where to incorporate. Recent rulings by the European Court of Justice (ECJ) have enabled entrepreneurs to select their country of incorporation independently of their real seat. We analyze foreign incorporations in the U.K., where incorporations of limited liability companies can be arranged at low cost. Using data for over 2 million companies from around the world incorporating in the U.K., we find a large increase in cross-country incorporations from E.U. Member States following the ECJ rulings. In line with regulatory cost theories, incorporations are primarily driven by minimum capital requirements and setup costs in home countries. We record widespread use of special incorporation agents to facilitate legal mobility across countries.     

The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry

We test the hypothesis that practicing enterprise risk management (ERM) reduces firms’ cost of reducing risk. Adoption of ERM represents a radical paradigm shift from the traditional method of managing risks individually to managing risks collectively allowing ERM-adopting firms to better recognize natural hedges, prioritize hedging activities towards the risks that contribute most to the total risk of the firm, and optimize the evaluation and selection of available hedging instruments. We hypothesize that these advantages allow ERM-adopting firms to produce greater risk reduction per dollar spent. Our hypothesis further predicts that, after implementing ERM, firms experience profit maximizing incentives to lower risk. Consistent with this hypothesis, we find that firms adopting ERM experience a reduction in stock return volatility. We also find that the reduction in return volatility for ERM-adopting firms becomes stronger over time. Further, we find that operating profits per unit of risk (ROA/return volatility) increase post ERM adoption.     

Agency cost,top executives' overconfidence,and investment-cash flow sensitivity — Evidence from listed companies in China

We examine the effect of agency cost on the relation between top executives' overconfidence and investment-cash flow sensitivity using the data from Chinese listed companies. We find that on average top executives' overconfidence leads to increased investment-cash flow sensitivity. However, this relation holds only for companies with state-owned entities as controlling shareholders. In contrast, the relation is not significant for non-state controlled firms. We construct proxy for agency cost and find that state-controlled companies have significantly greater agency cost than non-state controlled companies. Results on sub-samples sorted by agency cost again show that the positive effect of top executives' overconfidence on investment-cash flow sensitivity holds only for companies that exhibit high agency cost. Our results therefore suggest that agency cost has a significant impact on the relation between top executives' overconfidence and investment-cash flow sensitivity, and the investment distortion due to top executives' overconfidence behavior may be alleviated by reducing agency cost through elevated supervision.     

UNIVERSITY OF GEORGIA ROUNDTABLE ON ENTERPRISE-WIDE RISK MANAGEMENT

For many years, MBA. students were taught that there was no good reason for a company that hedged a large currency exposure to trade at a higher P/E than an otherwise identical company that chose not to hedge. Corporate stockholders, simply by holding well‐diversified portfolios, were said to neutralize any effects of interest rate and currency risk on corporate values. And thus corporate efforts to manage risk were thought to be “redundant,” a waste of corporate resources on a function that was already accomplished by investors at far lower cost. But the theory underlying this “perfect markets” framework has changed in recent years to focus on ways that corporate risk management can add value. The academics and practitioners who participated in this roundtable began by discussing in general terms how risk management can be used to support a company's strategic plan and investment policy. At Merck, for example, where R&D spending was determined as a percentage of earnings, a policy of hedging foreign currency exposure to reduce earnings volatility was viewed as adding value by “protecting” the firm's R&D. The panelists also agreed that a well executed risk management policy can increase corporate debt capacity and, in so doing, reduce the cost of capital by lowering the likelihood of financial distress. For example, companies with debt covenants might undertake a risk management program to lower earnings volatility and ensure a minimum level of earnings for debt compliance purposes. But one of the clear messages of the roundtable is that risk management and earnings management are not the same thing, and that companies that view risk management as primarily a tool for smoothing reported earnings have lost sight of its real economic functions. Moreover, in making decisions to retain or transfer risks, companies should generally be guided by the principle of comparative advantage. That is, if there is an outside firm or investor willing to bear a particular risk at a lower price than the cost to the firm of managing that risk internally, then it makes sense to lay off that risk. In addition to the cost savings and higher return on capital promised by such an approach, a number of the panelists also pointed to a less tangible benefit of an enterprise‐wide risk management program—namely, a marked improvement of the internal corporate dialogue, leading to a better understanding of all the firm's risks and how they are affected by the interactions among the firm's business units.     

Interactive control in target cost management

This paper discusses target cost management (TCM) from the viewpoint of simultaneous engineering. Firstly, it shows empirically how simultaneous engineering is implemented in Japanese companies. Secondly, it formulates and then tests hypotheses on the influential power of managers involved in the process of target costing. Thirdly, it describes processes of interactive control directed at information and value sharing among managers that help explain why simultaneous engineering is working effectively in Japanese companies. It also formulates and tests hypotheses on information and value sharing among managers. Fourthly, it concludes that interactive control in TCM helps generate unique ideas for product development and cost reduction, and that Target Cost Management is a key subsystem of strategic cost management.     

Sticky cost behaviour: evidence from small and medium sized companies

This paper investigates whether cost stickiness occurs in small and medium sized companies using a sample of Italian nonlisted and listed firms during the period 1999–2008. Our findings show that cost stickiness emerges only for the total cost of labour and not for selling, general and administrative (SG&A) costs, cost of goods sold and operating costs. Stickiness of operating costs is only detected in a sample of listed companies. We further contribute to the literature on sticky cost behaviour by discussing critical issues associated with the extant approach of empirical analysis and interpretation of sticky cost behaviour.