Islamic Religiosity and Auditors’ Judgements: Evidence from Pakistan

Journal of Business Ethics - We extend the literature by providing evidence that a cultural variable, intrinsic Islamic religiosity is important in understanding auditors’ judgement in the...     

Financial Constraints and Small and Medium-Sized Firms’ Export Propensity: Evidence from Portuguese Manufacturing Firms

The internationalization of firms through exports is often crucial to their survival and growth in this era of globalization. This is particularly the case for small and medium-sized enterprises (SMEs) operating in small and saturated markets, as is the case in Portugal. However, firms face several barriers to exporting, and this study aims to verify whether financial constraints influence a firm’s export propensity. The empirical analysis is based on a sample of 12,732 Portuguese manufacturing SMEs during the period 2008–2012, and tests two different proxies of financial constraints: the liquidity and leverage ratios. The results indicate that the SMEs in less healthy financial positions are less likely to export than the others are, although the impact of financial constraints on these Portuguese firms appears to be relatively small.     

Commercial Insurance of Financial Disclosure: Auditors’ Independence, and Investors’ Protection

In this paper the authors propose, for preliminary consideration and discussion, a system of commercial insurance of financial disclosures (CIFD), under which users of financial information (owners and potential owners of business enterprises) and providers of financial information (managers of business enterprises) would be able to purchase insurance policies from private insurers (commercial insurance companies). These insurance policies would be designed to protect users of financial statements from specific, well-defined losses directly attributable to their use of financial disclosures that failed to conform to contractually defined standards. To reduce their own risks insurance companies will likely purchase from assurance experts (certified public accountants, financial analysts, and management consultants) services assuring adherence to standards. The paper discusses the dynamics of the decisions and negotiations within and among groups of investors, managers, insurers, assurors, and government regulators. The advantages of CIFD over current US regulation of financial disclosure are analyzed. Those advantages, which include increases in the independence of external auditors, improvements in the quality of their audits, and better protection for investors, are assessed. It is argued that CIFD may be capable of evolving into a very flexible system that would accommodate alternative regulatory structures.     

Cooperation in Stakeholder Networks: Firms’ ‘Tertius Iungens’ Role

In stakeholder theory, most research on cooperation has been focused on inter-organizational collaboration field centered at the dyadic level, excluding the relational or network data. Relational or network data are important as the firms do not simply respond to each stakeholder individually but to an interaction of influences from the entire stakeholder set. The purpose of this article is to analyze the cooperation process among the firm and its stakeholders by considering the relational data and to describe the role of the firm in such cooperation processes. The empirical evidence is provided by an inductive in-depth case study on the company ‘Gas-Nat’ and its stakeholders cooperating on the ‘natural gas pipeline program’ in Argentina. To do so, I combined both quantitative sociometric data and qualitative data from grounded theory and ethnographic observations. This research suggests a stakeholder cooperation model based on structural (stakeholder’s position) and relational factors (framing process). The results indicate that stakeholder cooperation is not just determined by stakeholder position, but they can vary depending on the political opportunity structure in the network and on the framing process. It was found that network structure may create a context for selective cooperation but doesn’t explicitly determine it which is different from the previous research in stakeholder network literature. The role of the firm in the cooperation process was found as a tertius iungens role which implies to join, unite, or connect, and it is different from the existing prominent network literature of tertius gaudens.     

Women’s Leadership and Firm Performance: Family Versus Nonfamily Firms

We evaluate the relationship between the appointment of women to CEO or Chair positions and firm performance, and shed light on the differences between family and nonfamily firms. By using a propensity score matching approach on a sample of 394 French firms over the period 2001–2010, we find major discordances between women’s leadership style and family business expectations relative to firm performance, as measured by return on assets and Tobin’s q. Notably, our results support the conjecture that family firms, which are more conducive to transformational leadership, offer women a more appropriate climate for exercising the function of Chair than that of CEO. In contrast, women CEOs perform better in nonfamily firms. Our findings move away from the predominant focus on barriers and stereotypes images about the female leadership and support the contingency theory of leadership, which states that the effectiveness of a leadership style depends on the organization and culture in which leaders operate, and on task-related positions     

An Exploratory Study of Chinese Accounting Students’ and Auditors’ Audit-specific Ethical Reasoning

This study uses three audit-specific ethical dilemmas to assess the level of ethical reasoning between Chinese accounting students (as proxies for new entrants to the auditing profession) and experienced auditors. A sample of U.S. accounting students is used as a base for comparison. Consistent with expectations based on particularly salient aspects of Chinese national culture, we find the Chinese students’ levels of ethical reasoning to be significantly lower than those of their U.S. counterparts in the two cases that invoked these cultural attributes. In contrast, the Chinese students’ level of ethical reasoning is slightly higher than that of the U.S. students in the third, control case. We further find that the Chinese auditors’ levels of ethical reasoning are even lower than those of the Chinese students in two cases, while not being significantly different in the third. Together, these findings suggest that cross-national differences in auditors’ ethical reasoning depend on the nature of the ethical dilemma and caution against wholesale inferences about ethical reasoning levels in China.     

‘No Arbitrary Discretion’: Specialisation in Short-Term Commercial Lending by Banks in Late Nineteenth-Century New England

In the late nineteenth century banks in New England embraced an increasingly specialised role in the economy, focusing on the provision of short-term loans to commercial borrowers and eschewing long-term relations with industrial enterprises. This drive to specialise resulted from a particular combination of circumstances: a tremendous expansion in the number of banks, and an equally dramatic rise in deposits as a source of lendable funds. The latter development incresed the interdependence of the banking system, making each institution vulnerable to runs provoked by the unsound practices of its competitors. The former made it difficult to regulate the lending practices of individual banks. By promoting strict standards for short-term commercial loans, bank reformers sought to increase the ablity of directors and stockholders to monitor the decisions of their banks' managers and, at the same time, to limit the damage to the system that unscrupulous bankers could inflict. Similar problems of control arose in the British banking system in the last few decades of the century, and may explain the simultaneous shift toward short-term commercial loans that occurred in that nation. By contrast, large German banks were able to limit the independence of their smaller competitors and hence the threat to the security of the banking system that they posed.     

An Empirical Investigation on Firms’ Proactive and Passive Motivation for Bribery in China

This research investigates firms’ bribery motivations in China. Based on resource dependence theory and anomie theory, we identify resource conditions as firms’ proactive motivation to bribe and firms’ perceived institutional environment as their passive motivation to bribe. We use the data from 2002 World Business Environment Survey, collected by the World Bank, to investigate firms’ bribery in the world’s largest emerging market, China. We employ a multi-level logistic model to test our hypotheses. The results show that unsatisfactory general and task environmental conditions may trigger firms to bribe in order to compete for better resources and opportunities; institutional conditions such as the security expenditure and anomie climate may make firms perceive bribery as a common phenomenon and thus induce firms to bribe. This research provides some insights to understand business bribery behaviors in emerging market. It also discusses some managerial implications and guidelines for policy-making from the findings.     

Maximum-Revenue and Optimum-Welfare Tariffs in International Mixed Duopoly: Does the Order of Firms’ Move Matter?

This paper examines the effect of privatization on the priority of the maximum-revenue tariff and the optimum-welfare tariff in a mixed oligopoly with partial privatization and foreign competition. Major findings of this paper are that: firstly, in a mixed duopoly with partial privatization and asymmetric marginal costs, when the marginal cost of the privatized firm is higher than a critical value, the optimum-welfare tariff will be lower than the maximum-revenue tariff regardless of the order of firms?? move; secondly, if the degree of privatization is sufficiently high and cost is symmetric, the optimum-welfare tariff will be higher than the maximum-revenue tariff; thirdly, if the degree of privatization is sufficiently high and the domestic firm is highly ineffective in production, under Stackelberg public leadership, the optimum-welfare tariff is low and then it is more possible that the optimum-welfare tariff is lower than the maximum-revenue one.     

The Influence from the Past: Organizational Imprinting and Firms’ Compliance with Social Insurance Policies in China

Using a nationwide survey of randomly selected manufacturing firms in representative Chinese cities, we examine how firms’ compliance with social insurance policies is shaped by their historical imprinting, by their founding ownership structures, as well as by massive institutional changes. Our empirical results suggest that firms founded in the state socialist era and firms founded as Chinese state-owned enterprises (SOEs) were infused with socialist institutional logics of labor relations, and they tended to comply with social insurance policies even in the present market socialist era. Chinese SOEs restructured into private and joint-ventured firms attenuated the lingering effect of organizational imprinting and provide social insurances for fewer workers. This research is among the first to probe the historical influence on labor protection in contemporary society. Through studying the stability and changes of socialist institutional logic of labor relations, our research leads to a better understanding of the situation of labor relations in contemporary China.     

Intellectual Capital: Firms’ Hidden Source of Service Quality in the Microfinance Industry in Uganda

The author examines the relative contribution of individual intellectual capital elements on service quality in Uganda's microfinance industry (MFI), adopting analysis of moment structures, a form of structural equation modeling. Other than relational capital, intellectual capital elements are strong predictors of service quality with predictive power of 34%. To boost the wealth of MFIs, managers should use a suitable intellectual capital blend that increases firm value. Since the results of this study clearly show that human capital is the most important intellectual resource, MFIs should source for competent people who play key roles in the industry.     

Exploring Urban Consumers’ Attitudes and Intentions to Purchase Local Food in Chile

Although local food consumption is growing in importance, there remains a lack of research addressing local food consumption preferences in less developed countries. This article aims to examine the drivers of local food purchase intentions for Chilean consumers. A model of local food behavioral intention was developed from consumer behavior theory. The model was tested using structural equation modeling with data from Chilean shoppers located in Santiago (n = 283). The analysis revealed that Chilean consumers are willing to purchase local food based on their positive attitude toward buying local food and their feelings of connectedness with the environment, but not because they have a desire to support local businesses. These findings have implications for retailers, marketers, and food producers.     

Strategic Formulation and Communication of Corporate Environmental Policy Statements: UK Firms’ Perspective

This paper suggests that most of the FTSE-listed firms in the United Kingdom use corporate environmental policy statements (CEPS) to communicate their strategic intent of what environmental and social targets to attain, and broad guidelines of how they will progressively achieve all the required changes and new developments. In this paper, we link the contents of CEPS of a sample of FTSE-listed firms (from the chemical, pharmaceutical and food industry that are committed to develop business excellence) to the voluntary participation in the environmental benchmarking exercise and the various levels of environmental performance therein. The findings suggest that in contrast to their non-participating counterparts, the strategic focus of the participating firms transcends from simply mitigating any potential damages that their operations might have on the environment to business process reengineering and building new implementation capabilities. However, not all of the participating firms achieved excellence in their environmental performance, the high performing firms outweighed their counterparts on their emphasis on technological competence and competitiveness, and interestingly, the average-performing firms would use the strategic emphasis on social responsibility to compensate for their mediocre technological competence.     

Multinational Firms’ Leadership Role in Corporate Social Responsibility in Latin America

This paper explores the commitment to corporate citizenship on the part of the largest U.S.-based multinationals in the emerging market region of Latin America. The websites of the largest U.S.-based firms – according to the 2007 Fortune 500 list – are reviewed and their CSR efforts in Latin America are noted. The firms’ positions on corporate citizenship in Latin America are mapped onto a three-by-three matrix in which firms’ commitment to corporate citizenship ranges from profit-making motivations to a more holistic approach where support for non-profit causes is embraced by the entire firm and implemented at all levels (Marsden, Business and Society Review 105(1), 9–26, 2000). The largest U.S.-based multinationals were selected for this study because of their leadership role and the fact that other firms within their respective industries may seek to emulate the firms’ level of commitment to corporate citizenship. While the matrix can be used to evaluate corporate citizenship efforts in any market – or globally – the emphasis in this study is on Latin America, a region of interest for two reasons: because of the paucity of research on this particular emerging market region as it relates to CSR, and because there is some evidence to suggest that philanthropic initiatives by the region’s wealthy individuals lag behind individual philanthropic efforts in other world regions (Oppenheimer, Latin America’s Rich Should Donate More. McClatchey-Tribune Regional News, 2007). If this is the case, this study aims to identify whether companies are picking up the slack.

“You make a living by what you get; but you make a life by what you give.” Winston Churchill

     

Innovating for Good in Opportunistic Contexts: The Case for Firms’ Environmental Divergence

Journal of Business Ethics - Opportunistic behaviors are considered ethically and strategically troublesome since they disrupt otherwise mutually beneficial relationships. Previous literature has...     

Ties that Bind? A Mediation Analysis Exploring Contract Use in Family versus Nonfamily Firms

Based on the assumptions of agency theory, family business researchers have often argued that family firms are less likely to use formal methods of monitoring and control than nonfamily firms. We explore the relationship between family firm status and presence of a written agreement among the owners, a formal measure of control. We hypothesize economic goals and perceived level of risk taking and management efficacy will mediate the relationship between family firm status and presence of a written agreement. Results indicate that the primary goal of the firm serves as a partial mediator of this relationship.     

Out of Africa: The role of institutional distance and host-home colonial tie in South African Firms’ post-acquisition performance in developed economies

The colonial ties and institutional distance affect the cross-border acquisition performance of internationalizing South African firms who acquire targets in developed economies. Along with these main effects, this paper examines the moderating effect of the colonial tie on the effects of institutional distance on post-acquisition long-term operating performance. Using data on South African acquisitions in developed economies, this study finds that the colonial tie has a negative impact on the long-term operating performance of South African acquirers. Yet, the colonial tie also moderates the effects of institutional distance. This work contributes to the discussion on host-home country institutional distance and its impact on post-acquisition long-term operating performance and how colonial past can influence the performance of acquirers from South Africa and other such countries with colonial history.     

The Persistence of Profits,Sectoral Heterogeneity and Firms’ Characteristics

The analysis of the persistence of profits has long been a controversial issue within empirical industrial organisation literature. The aim of our paper is to provide new empirical findings that may account for patterns of both sectoral and firm profit persistence. The distinctive feature of our study is that we analyse a number of firms’ ergodic distribution in each sector according to their profit level; we then calculate the difference between such a distribution and that prevailing in manufacturing as a whole. Finally, we break down this distribution; the resulting breakdown highlights the impact of each transition probability on inter‐sectoral differences clearly, and it also emphasises the role of intra‐sectoral dynamics in determining different persistence patterns. We then apply this methodology to both innovating and non‐innovating firms, and conclude that among surviving firms innovation is indeed crucial to the persistence of profits. In addition, we set up an econometric test which enables us to estimate the impact of firm and sectoral characteristics on a firm’s profit condition.     

China’s WTO Accession and Long-Term Profitability of Chinese Firms

As emerging economies integrate their markets with the rest of the world, competition-driven changes in profitability are increasingly affected by shocks of various types from the business environment. We examine the dynamics of profitability distributions under such conditions using China’s WTO accession as a natural experiment to carry out before and after comparisons. Our results suggest that after WTO accession, the long-run (ergodic) distribution of conditional profitability rates of Chinese firms has become more dispersed. Due to the large proportion of firms at the poor performance end, this suggests that the financial stability of the Chinese economy will be endangered if the business environment were to deteriorate. There is an urgent need to reduce the widening span of the distribution of profitability at the lower end by accelerating the restructuring of Chinese companies.     

The Strength of an Accounting Firm’s Ethical Environment and the Quality of Auditors’ Judgments

This study examines the impact of the strength of an accounting firm’s ethical environment (presence and reinforcement vis-à-vis the presence of a code of conduct) on the quality of auditor judgment, across different levels of audit expertise. Using a 2 × 2 full factorial ‹between subjects’ experimental design, with audit managers and audit seniors, the impact of different levels of strength of the ethical environment on auditor judgments was assessed with a realistic audit scenario, requiring participants to make judgments in respect of an inventory writedown. Based on prior research, and as hypothesized, participants possessing greater auditing experience made higher quality technical judgments. While there were no significant differences between the quality of audit judgments made by participants in the stronger ethical environment, over-all results indicate that managers are more sensitive to differences in the strength of the ethical environment than seniors. This is consistent with the hypothesis, and with prior research which suggests that the impact of the code will only be significant if it has been bilaterally internalized by individuals. This has important implications for accounting firms and regulators, given that the International Standard on Quality Control 1, requires the communication and reinforcement of ethical principles as part of firms' quality control processes. It suggests that firms will need to carefully consider the means by which they communicate and reinforce ethical principles, as it is possible to differentially impact auditors of different rank.