The impact of fairness on trustworthiness and trust in banking

Abstract

Theorists and empirical researchers in marketing and other fields suggest that fairness is important in underpinning trust, which, in turn, is integral to developing and maintaining buyer–seller relationships. However, empirical investigation of fairness in the domain of marketing has, to date, been limited. Consequently, the relationship between fairness and trust is not well understood. Thus, the purpose of this study is to provide a fully developed social exchange model examining the differential effects of various dimensions of fairness on trustworthiness and customers’ trust. Data were collected from customers of banks and were analysed using confirmatory factor analysis and structural equation modelling. Findings of the study show that perceptions of fair treatment on the part of customers are important in driving trustworthiness and engendering trust.     

Scale economies in manufacturing: Problems of robust estimation

The purpose of the paper is to develop a cost frontier model and its robust estimation for analyzing the impact of scale economies in the manufacturing sector. Indirectly our estimates provide a test of the new growth theory which emphasizes the role of increasing returns to scale as a major force in the sustained growth process. An illustrative application to the South Korean manufacturing sector finds strong supportive evidence for significant scale economies, though in recent years it may be declining for the Korean economy.     

Disclosure timing: Determinants of quarterly earnings release dates

Existing research on discretionary disclosures provides valuable insights on the potentials causes and consequences of alternative forms of disclosure. However, relatively little is known about how managers choose to time the release of financial information. This paper focuses on the quarterly earnings release dates and investigates why some choose to release earnings information relatively early, compared to others. The results indicate that the reporting lag (days between fiscal period end and quarterly earnings release date) is shorter for firms facing greater demand for information from investors and greater litigation costs. The reporting lag, however, is longer for firms with greater block ownership and those whose operations are somewhat more complex.     

OPTIMAL DISTRIBUTION OF POWERS IN A FEDERATION: A SIMPLE, UNIFIED FRAMEWORK

In a federation with n≥ 2 regions the relative optimality of five regimes – autarky, centralization, unregulated devolution, regulated devolution and direct democracy – is examined. Public policy consists of redistribution and regional public good provision. Regional incomes are uncertain and correlated. Estimates of the usefulness of regional public goods are uncertain and the federal government's estimates are noisier relative to those of regional governments. The optimality of each regime is influenced by four margins – regional insurance, coarseness of federal information, internalization of spillovers and raiding the commons. Regulated devolution is the only regime that is capable of producing the constrained first best level of public goods. Federal insurance under direct democracy can be inadequate relative to that under a utilitarian federal government. An increase in the number of regions allows better risk pooling but also greater opportunities for raiding the commons.     

Manufacturers’ reliance on channel intermediaries: Value drivers in the presence of a direct web channel

Channel intermediaries constitute a key marketing asset, enabling manufacturers to reach out to and serve end-users or customers. The manufacturer-intermediary relationship has to create value for and deliver it to the end-user. In this process manufacturers and intermediaries add value to each other. Drawing upon the Governance Value Analysis (GVA) framework, this paper focuses on the manufacturer's perspective of value contributed by themselves and their intermediaries. The research setting is a multi-channel context where the manufacturer employs a direct web site for marketing in addition to the intermediary channel. We find that relational investments in intangible assets such as training and operating procedures by manufacturers in intermediaries, and intermediary investments in their end-customer relationships, increase manufacturers’ reliance on intermediaries even when the manufacturer has its own direct web site. Further, regardless of having their own website, manufacturers’ reliance on intermediaries increases with the web competence of their intermediaries. In addition, we find that, to the extent that the manufacturer's direct web site can perform the same functions as the intermediaries, manufacturer reliance on its intermediaries decreases. Surprisingly, manufacturers whose web sites have e-commerce transaction facility, rely on intermediaries more than those manufacturers whose web sites do not have this facility. Finally, the study finds that manufacturers’ reliance on intermediaries has increased over time despite their direct web channels, probably due to market growth opportunities. Overall, our study findings showcase the complementary role played by manufacturers’ web sites and intermediaries in serving their end customers in growth markets.     

A hierarchical process industry production–distribution planning model

Global and multinational companies are subject to government regulations in addition to other international uncertainties due to operation in diverse geographic locations. Such government regulations often affect the cost of raw materials adversely which in turn creates adverse impact on product cost and forces the decision makers to re-evaluate current production–distribution plan. This paper presents an integrated supply chain model for simultaneous strategic and operational planning of a strategic business unit (SBU) in a global supply chain affected by government regulations. The model incorporates impact of changes in cost of inputs on expected product cost and solves for an optimal strategic and operational plan for the entire supply chain. In addition, the model includes exchange rates, border crossing costs and solves a multi-period model with due consideration of uncertainties in demand and transportation time.     

How do auditors view managers’ voluntary disclosure strategy? The effect of earnings guidance on audit fees

The objective of this study is to examine the relation between attributes of earnings forecasts issued by managers and audit fees. Although there is an extensive literature on managers’ disclosure of earnings forecasts, there is a paucity of research on how auditors incorporate information from these voluntary disclosures. We find that the issuance of an annual or quarterly management earnings forecast in the prior period is positively associated with the current period audit fees. Our results indicate that on average, audit fees are higher by about 7% for firm-years associated with an annual forecast. Among the firms that issue earnings forecasts, we find no association between audit fees and likelihood of updating a previously issued earnings forecast, indicating that auditors do not view such behavior negatively. Further, we find audit fees to be positively associated with the error and the bias (or optimism) in the forecasts for annual forecasts but not for quarterly forecasts. Overall, these results suggest that management’s forecast behavior captures higher business risk for the auditor via greater risk of earnings management or litigation risk.     

Subprime mortgage design

This paper offers evidence on the design of subprime mortgages as bridge-financing products. We show that the viability of subprime mortgages was uniquely predicated on the appreciation of house prices over short horizons. High rates of early prepayments on subprime mortgages suggest the use of prepayments as an exit option. This paper argues that high early defaults on post-2004 originations can be explained when one considers high early prepayment rates for pre-2004 originations.     

Tax evasion and intertemporal choice

It has often been argued that the misreporting of regular wage income is limited by third-party withholding and reporting requirements. However, income arising from savings investment is often not subject to such withholding requirements. This paper uses a simple dynamic model to examine the problem of tax evasion of investment income. Assuming that individuals can misreport investment income but not wage income, it is shown that alterations in the audit rate and penalty rates affect an individual's saving (or investment) decisions. This suggests that parameters traditionally used to control tax evasion impact the aggregate output of an economy and the rate of economic growth. This paper is based on the author's dissertation completed at Virginia Polytechnic Institute and State University. The author is indebted to the dissertation committee, Helmuth Cremer (co-chair), Firouz Gahvari (co-chair), Catherine Eckel, Djavad Salehi-Isfahani, and Richard Steinberg for their guidance and suggestions. All remaining errors are the author's responsibility.