Should managers refrain from and investors ignore noisy dividend surprises? Some experimental evidence

A series of experiments is conducted in an asset market that contains a high productivity firm and a low productivity firm. Managers' compensation is a positive function of the market determined value of the firm. Investment decisions are made endogenously and are private information to the managers. The results of the experiments indicate that managers signal earning's information via noisy dividend announcements that result in suboptimal investment decisions. A manager's overinvestment in the signal does not generate significant increases in managerial compensation. The noisy signal does not pay off and in fact would result in a tendency for the market to underpredict earnings. This implies that even in the presence of suboptimal contracts between the managers and the firms, managers are not overcompensated. Thus, in these experiments the signal does not “solve” the dividend puzzle.     

Management “flavours of the month”: their role in managers' lives

Existing analyses and critiques of the succession of management fads and fashions entering managerial discourse and activities are complemented and developed by drawing on participant observation research carried out in an organization utilizing a variety of “packaged innovations”. It is shown that what are sometimes mocked as “flavours of the month” (FOMs) play a role in the double-controlproblem faced by all managers: the problem of managing their personal identities, careers and understandings at the same time as contributing to the overall control of the organization in which they are managers. Managers in the organization studied are shown generally to be critical of the “flavour of the month effect” but there is nevertheless an equivocality about how such ideas and practices can function.     

Matching managers to strategies: Point and counterpoint

In recent years, an emerging and increasingly popular theme in the strategic management literature has been that the selection of general managers should be tied directly to the strategies of business units they will oversee. Because different strategies imply different priorities and the need for different skills, such a proposition has obvious intuitive appeal. Beyond intuitive appeal and supporting conceptual arguments, recent empirical research on whether matching general managers to strategies “pays off” in terms of more effective strategy implementation has also yielded positive results. Despite this evidence, several arguments exist for why it may not always be feasible, necessary, or desirable to match general managers to strategies. Thus, there is need for a point-counterpoint “debate” on the subject of matching general managers to strategies. Based on a review of the relvant literature, logical reasoning, as well as some case evidence, this paper is intended to be such a debate undertaken by the author with himself. It is hoped that such a dialectical analysis will open up new avenues for productive research and also enable corporate executives to make better “managerial selection” decisions.     

European Works Councils and the dark side of managing worker voice

Drawing from case study research, the article explores managerial strategies in a UK‐based European Works Council (EWC), but from the perspective of workers' representatives. This methodological approach offers an alternative set of lens through which to view managerial strategy from the standpoint of those it is meant to affect. The evidence suggests that employers' representatives in central management appear to be proactively fragmenting worker voice, arguably in order to convert the EWC into a business‐friendly instrument and to assert managerial control. However, there is no empirical basis for arguing that such tactics yield organisational benefits. The employers' perceived strategies reflect the traditional cultural antagonisms that are historically played out between workers and managers in the particular sector in which the firm is embedded. The article has practical implications for HR managers who are viewed, rightly or wrongly, with suspicion and distrust by employee representatives.     

Corporate diversification and innovation: Managerial myopia or inefficient internal capital markets?

Which is more innovative: the decentralized, diversified firm, or the centralized, more narrowly focused firm? The economics and finance literatures argue that diversified firms have innovation advantages as their operating units have access to an internal capital market. In contrast, the strategy and entrepreneurship literatures argue that managers of these firms suffer from “managerial myopia,” discouraging them from investing in projects with long-term, uncertain payoffs. We take a fresh look at the relationship between innovation and diversification using a comprehensive sample of diversified and nondiversified firms and a novel approach that teases out the mechanisms influencing the relationship between diversification and innovation. Consistent with conceptual and empirical work in strategy, we find a robust negative correlation between diversification and R&D intensity, suggesting that diversification reduces innovation by discouraging investment. However, our analysis suggests that internal capital market inefficiencies, rather than managerial myopia, is responsible for this observed negative relationship.     

Managerial delegation games and corporate social responsibility

In a duopoly in which firms universally engage in corporate social responsibility (CSR) activities, this paper shows that, in contrast to the main tenet of the received managerial delegation literature, if the CSR sensitivity is sufficiently high: (a) when both firms delegate output decisions to managers, at the equilibrium profit (resp. consumer welfare) is higher (resp. lower) than when firms are pure CSR; (b) in a managerial delegation game, asymmetric multiple subgame perfect Nash equilibria emerge in which one firm delegates and the rival does not. These results hold under both the “sales delegation” and “relative profits” manager's bonus schemes.     

Managers and Wage Policies

Do individual top managers matter for wages and wage policies? Are there general differences in “style” among managers with respect to worker compensation? To shed light on these questions, we exploit a large panel dataset from Portugal that allows us to match workers, firms, and managers, and follow the movements of the latter across different firms over time. While accounting for the effect of worker and firm heterogeneity, we estimate the role of top manager fixed effects in determining wages and wage policies. The estimates suggest that (i) top managers have a significant influence on wages and wage policies; (ii) there exists different managerial “styles”; and (iii) managers’ (observable) attributes matter for worker compensation.     

CEO compensation structure following succession: Evidence of optimal incentives with career concerns

To motivate managers to pursue shareholder interests, boards may design management compensation packages to reward managers for good firm performance. However, Gibbons and Murphy (1992) note that when CEOs are far from retirement, they have career concerns. In these cases, Gibbons and Murphy argue that it may not be optimal for their current compensation to be too dependent on firm performance. Testing this proposition, we find that abnormal returns are negatively related to the percentage of performance-based pay of newly hired CEOs when companies announce CEO successions. Since these newly hired CEOs are likely some distance from retirement, we interpret these results as being consistent with Gibbons and Murphy; it may be better to allow newly hired CEOs to be paid in human capital increases from the managerial labor market than to have their current pay too closely related to performance.     

Promise and peril in implementing pay‐for‐performance

Why would managers abandon pay‐for‐performance plans they initiated with great hopes? Why would employees celebrate this decision? This article explores why managers made their decisions in 12 of 13 pay‐for‐performance “experiments” at Hewlett‐Packard in the mid‐1990s. We find that managers thought the costs of these programs to be higher than the benefits. Alternative managerial practices such as effective leadership, clear objectives, coaching, or training were thought a better investment. Despite the undisputed instrumentality of pay‐for‐performance to motivate, little attention has been given to whether the benefits outweigh the costs or the “fit” of these programs with high‐commitment cultures like Hewlett‐Packard was at the time. © 2004 Wiley Periodicals, Inc.     

Promoting research access and informant rapport in corporate settings: Notes from research on a crisis company

Obtaining evidence on managerial action is inevitably difficult. Although it has been suggested that critical events such as corporate crises provide opportunities for research, there has been a lack of discussion on what aspects of management such conditions help to illuminate and how they could be exploited in obtaining both formal access and rapport with individual informants. Based on fieldwork experience this paper suggests that corporations in crisis should be taken seriously in research on managerial action because they may both facilitate access and liberate and motivate individual managers to reflect on both their own acts and intentions and on those of other individuals.     

Bargaining over Managerial Contracts in Delegation Games: The Generalized Oligopolistic Case

The main purpose of this paper is to disclose the properties of the equilibrium outcomes in the differentiated‐products model with two stages: (i) owner‐shareholders negotiate managerial compensation with their managers that comprises their profits and sales (sales delegation) and (ii) they engage in their market competition. The other purpose of this paper is to study the differentiated goods model in which an owner bargains the managerial compensation with her/his manager that comprises her/his profit and her/his rival's profit (relative performance delegation). We further investigate the situation wherein the firm with sales delegation and the firm with the relative performance delegation coexist. Copyright © 2012 John Wiley & Sons, Ltd.     

Moral hazard,debt overhang and capital structure

This paper investigates the impact of managerial moral hazard on the debt overhang of a firm by constructing a contingent claims model in which the manager faces costly effort. Using a calibrated capital structure model, we show that the costs of debt overhang become more serious in the presence of managerial moral hazard. Such costs even account for more than half of the total agency costs at a high level of cash flow. Moreover, in contrast to the results of Hackbarth and Mauer (2012), our model predicts a U-shaped relationship between the leverage ratio and investment opportunities of a firm, which is caused by managers’ moral hazard. Finally, by considering this moral hazard, we also show the coexistence of low leverage ratios and high credit spreads, which explains the phenomenon of “low debt levels and high credit spreads” observed in practice.     

Does doing “good” always translate into doing “well”? An eco‐efficiency perspective

Does doing “good” always translate into doing “well”? Debate over the “value” of corporate social responsibility is high on the agenda of corporate finance research. Deeper understanding is required on managers' incentives to pursue and implement corporate social responsibility related strategies, as is more thorough comprehension of the effect of these strategies to firms' performance levels as well as shareholder and wider stakeholder valuations of the firm. This paper provides a new lens by approaching the subject from a different methodological paradigm, grounded in the performance benchmarking methods more commonly applied in operational research. In so doing, we provide novel evidence of the effect of corporate choices on environmental, social, and governance (ESG) strategic investment compliance (i.e., doing good) to firms' eco‐efficiency levels (doing well). In brief, our empirical findings suggest that ESG and firm's eco‐performance are nonlinearly related. Specifically, advanced ESG policies and disclosure levels are associated with a positive affect to firms' eco‐efficiency levels, but only up to a point, after which the effect becomes “neutral,” that is, ESG demonstrates a visible pattern of diminishing marginal returns. Thus, we may humbly conclude that a firm may “do well” by doing good, but it is not clear they should ever expect to “do great” just by “doing good.” The threshold at which this “neutrality” appears varies systematically with the characteristics of the sector in which the firm is operating, as well as dimensions of board diversity. Finally, it is evident that ESG implementation choices can be a source of managerial agency problems.     

Accounting Discretion in Goodwill Impairments: UK Evidence

This study examines managers’ use of discretion in determining goodwill impairment losses following the mandatory adoption of IFRS 3 “Business Combinations,” and whether this discretion reflects opportunistic reporting by managers or the provision of their private information. Although IFRS 3 was issued to improve the accounting treatment for goodwill and provide users with more useful and value‐relevant information regarding the underlying economic value of goodwill, it has been criticized on the grounds of the managerial discretion inherent in impairment testing. Therefore, ex‐ante, it is unclear how the impairment‐only approach has affected the reporting of goodwill impairment losses. After controlling for economic factors, empirical results reveal that managers are exercising discretion in the reporting of goodwill impairments following the adoption of IFRS 3. Specifically, goodwill impairments are more likely to be associated with recent CEO changes, income smoothing and “big bath” reporting behaviors. However, the results also indicate that goodwill impairments are strongly associated with effective governance mechanisms suggesting that managers are more likely to be exercising their accounting discretion to convey their private information about the underlying performance of the firm rather than acting opportunistically. These inferences are robust to various modeling specifications and variable definitions, suggesting that IFRS 3 has provided managers with a framework to reliably convey their private information about future cash flows consistent with the IASB's objectives in developing the impairment standard.     

Reply to “Modeling Managerial Altruism,CSR, and Donations: A Comment”

We point out that the main concern of this comment is on the assumptions about “managerial compensation” and “who should make the donation decision for the firm”.     

‘… and politics?’

This article illuminates the relationship between the increased importance management has gained in public institutions, and political reality in everyday work lives. It attempts to gauge the rationalities behind the managerial and the political system and derives a heuristic structure from them. On the basis of this discussion, an analysis is conducted of the origins of new public management, using Switzerland as an example. It is concluded that NPM reforms started as managerial reforms of public institutions, but that they developed into de facto political reforms. Thus the managerial background of project managers, consultants and public management scholars is a necessary but not sufficient precondition for a successful implementation of NPM in the politico-administrative system. The contribution which public management is able to make to the governance debate must not be underestimated. Not least, it leads to a clarification of the sources of legitimacy of government action. The rationality model introduced in this article is designed to make systemic differences between management and politics visible – and to improve communication between politicians and public managers.     

Do Prior Experiences of Top Executives Enable or Hinder Product Market Entry?

How firms achieve entry into new‐to‐the‐firm product markets is an important but overlooked topic. Some aspiring entrants fail during product development, and they miss the opportunity to enter. In such contexts, firms often take action to de‐risk entry, for example, by drawing upon the experience of top executives with market‐specific expertise obtained in prior jobs. However, the empirical evidence from this study shows that beyond a narrow threshold, greater prior experience in the top executive team was associated with a greater likelihood of failed entry attempts among the firms that I tracked over two decades in the biotechnology industry. This result held across product markets with low and high degrees of dynamism. Based on the literature on dynamic managerial capabilities, where entry into new markets indicates managers’ ability to reconfigure organizational resources and adapt to a changing environment, this study’s main contribution is to illustrate how and why experience matters for entry.     

Uptake of organisational work–life balance opportunities: the context of support

This research examines the relationship between structural and cultural dimensions affecting managerial decision-making about work–life balance (WLB) opportunities. Through a top-down study of two contrasting Irish organisations, we identify how each of five dimensions of work–life culture: ‘managerial and organisational support’, ‘organisational time expectations’, ‘career consequences’, ‘gendered perception of policy use’ and ‘co-worker support’ are mediated through managers to affect availability and uptake of WLB opportunities and creating gaps between policy and practice. This study demonstrates how marked distinctions between the personal opportunities managers may wish to offer and the discretion available to them arise. Secondly, the concept of organisational work–life culture is advanced by elaborating the ‘context of support’, namely interdependencies between organisational culture and structure that affect the uptake of WLB opportunities. Implications for researchers and practitioners are also discussed.     

Firm-specific wage growth and changes in the labor market for managers

This paper analyzes recent changes in the employment relationships between managers and firms. In both Becker's and Lazear's models of firm-specific wage growth, compensation is deferred from early in an employee's tenure with a firm until later in the contract. The deferred compensation bonds the worker to the firm. Based on cross-sectional data from Current Population Surveys, rates of firm-specific wage growth are estimated for the managerial labor market. The findings show that the rate of wage growth that is firm-specific for managers in manufacturing industries declined significantly during the early 1980s. It is estimated, for example, that a manager with 12 years of tenure in a manufacturing firm enjoyed, on average, a 25% wage premium in 1979 over an otherwise similar manager who was a new hire in a firm. By 1983 the firm-specific wage premium for a manager with 12 years of tenure was only 5%. These changes represent a significant reduction in the strength of the employment bond between firms and managers, and a reduction in the incentive effects previously enjoyed by firms from the use of deferred-compensation schemes. This change is consistent with the significant increases in the displacement rates of managers that occurred during the 1980s.     

Going green,going clean: Lean‐green sustainability strategy and firm growth

Despite the widespread recognition of the paybacks of “going green” and “going clean,” limited research has focused on the impact of lean‐green strategy on firm growth. In this study, we contribute to strategy and environmental sustainability literatures by investigating the possibility that the influence on lean‐green strategy and firm growth is driven by different levels of industry competition, managerial power, and family ties. Using panel data from 732 firms in four major industrialized economies (the United States, Germany, France, and the United Kingdom), we found that lean‐green strategy positively relates to firm growth and this relationship is amplified at higher levels of competition, managerial power, and family ties. Theoretical and practical implications of the study are also discussed.