Components of CEO Remuneration and Non‐GAAP Disclosure

This paper provides evidence of the effect of chief executive officer (CEO) remuneration on decisions to disclose voluntary non‐generally accepted accounting principles (non‐GAAP) financial measures. We investigate profit announcements that focus on the most emphasised part, which includes mandatorily identified information (results for the announcement to the market) and the least emphasised part, which incorporates other sections. By reading the profit announcements and manually collecting non‐GAAP financial measures (NGFM) data, there is no reliance on keyword search strings and as such we uncover the pervasiveness of the use of NGFM. Results show that the base component of CEOs’ remuneration plays a significant role in reporting NGFM in the most emphasised part of the profit announcement. Conversely, all three (base, short‐term and long‐term incentives) components of the remuneration package have a significant relationship with the reporting decisions in the least emphasised part of the statement. We find that, depending on the regulatory imposition and the emphasis assigned to the section of the profit announcement, the motive for voluntary disclosure of NGFM can be explained as altruistic (informative) or opportunistic (misleading). We contribute evidence on ‘pay–action’ rather than ‘pay–performance’ by incorporating all three components simultaneously into the framework to maintain the assumption of correspondence and internal consistency among those components.     

Predictors of glycemic control and diabetes-related costs among type 2 diabetes patients initiating therapy with liraglutide in the United States

Objective:

Liraglutide has been shown to significantly improve glycemic control and reduce body weight while minimizing the risk of hypoglycemia in adult patients with type 2 diabetes (T2D). This study aimed to identify characteristics that predict clinical and economic outcomes associated with liraglutide therapy in clinical practice in the US.

Methods:

Using the Truven Health MarketScan Laboratory Database, glycemic control (A1C <7%) and diabetes-related costs were evaluated in T2D patients initiating liraglutide between January 1, 2010 and June 30, 2012. Patients were required to have ≥1 post-index claim for liraglutide and A1C values at baseline and 6 months follow-up. All valid values of baseline A1C were included. Patients previously treated with GLP-1 receptor agonist(s) or insulin, or with evidence of type 1 diabetes, pregnancy, or gestational diabetes during the study period were excluded. Multivariable regression models were used to identify predictors of glycemic control and diabetes-related costs.

Results:

Of 417 patients newly treated with liraglutide, 54.0% achieved glycemic control (A1C <7%) during follow-up. Factors associated with increased odds of glycemic control during follow-up were: being female, POS/EPO health plan type, baseline A1C, early liraglutide initiation (0–1 prior oral anti diabetics [OADs] vs ≥2), adherence to liraglutide (defined as the proportion of days covered [PDC]), and diabetic retinopathy. Being female, earlier liraglutide initiation (0–1 prior OADs), and higher patient share of liraglutide costs were associated with significantly lower diabetes-related costs during follow-up. Factors associated with significantly higher post-index diabetes-related costs were: higher baseline A1C, baseline use of sulfonylureas, and diabetic retinopathy.

Conclusions:

Within this commercially-insured population of T2D patients treated with liraglutide, gender, baseline A1C, early liraglutide initiation (0–1 prior OADs), diabetic retinopathy, better adherence, and patient share of liraglutide costs were associated with increased odds of achieving glycemic control and the odds of having higher or lower diabetes-related costs.     

Government and managerial influence on auditor switching under partial privatization

We investigate how auditor switching is affected by government influence, misalignment between type of auditor (government vs. private) and type of controlling shareholder (government vs. private), and misalignment between an incumbent auditor and imputed preferences of managers in a market characterized by continued substantial government ownership in listed entities. We exploit a natural policy and regulatory experiment in Iran that allows us to investigate what happens when previously government-owned entities are partially privatized as listed entities where, in many cases, the government retains significant ownership interests. At the same time, there were significant changes in the audit market, resulting in large increases in the number of private sector auditors competing for previously state-administered audits. We find the likelihood of auditor switches is strongly associated with measures of misalignment between type of auditor and type of controlling shareholder and auditor–managerial misalignment, but these associations are constrained by significant government influence. Exposing the constraining effect of significant government influence on auditor switching is an important contribution to our understanding of privatizations, government shareholder influence and auditor choice. These results have implications for policy development in other emerging and transition economies where privatization remains largely partial, and competition among private sector auditors is still emergent.     

Creativity Business Discipline = Higher Profits Faster from New Product Development

A study was conducted of 69 analysts evaluating 267 early-stage new product development (NPD) projects in a major global chemical company over a 10-year time span. Positive correlations were found between profits resulting from NPD project analyses and the degree of creativity of the analysts evaluating those projects. Creativity can be reliably measured with standard psychological instruments, such as the MBTI® Creativity Index. Analysts with MBTI Creativity Indices above the median for the group studied identified opportunities providing 12 to 13 times more profit than those with MBTI Creativity Indices below the median, when both groups were rigorously trained and coached in stage-gate business analysis methods.
NPD requires breakthrough creativity because the first ideas for commercialization are almost never commercial until they have been substantially revised through a thought process involving branching. It is therefore most productive to preselect innovative, creative people for the early stages of NPD, and then teach this group the business discipline required in stage-gate NPD processes.
The results show that by utilizing these principles, both the overall speed and productivity of typical NPD processes can be increased approximately nine-fold, or nearly an order of magnitude when compared to today's typical linear stage-gate processes.     

Private Equity: Accomplishments and Challenges

The authors provide an overview of the main accomplishments of private equity since the emergence of leveraged buyouts in the 1980s, and of the challenges now facing the industry—challenges that have been encountered before during three major growth waves and two full boom‐and‐bust cycles. In so doing, the authors review a large and growing body of academic studies responding to questions like these:

• (1) How have PE buyout companies performed relative to their public counterparts? And to the extent there have been improvements in operating performance and productivity gains, how have such gains been achieved? What role have PE firms played in this process?
• (2) Especially in light of the large fees and profit shares paid to the PE firms, or GPs, and the significant “control” premiums over market paid to the selling companies, how have the returns to the LPs that provide the bulk of the funding for PE funds compared to the returns earned by the shareholders of comparable public companies?
• (3) Apart from the high fees earned by its GPs, why is PE so controversial? Beyond their effects on productivity and benefits for investors, what are the employment and other social effects of buyouts and PE?
• (4) What are the prospects for future PE returns to their LPs, especially in light of the volume of capital commitments and high purchase multiples that were being paid, at least until the onset of the COVID pandemic? And what role, if any, should PE activity be expected to play in the recovery from the pandemic?

     

SOX and the regulated firm

We investigate the initial and long-term market reactions in three regulated industries to the debate and ultimate passage of Sarbanes–Oxley (SOX) legislation. We argue that market reactions may differ for regulated industries relative to the broad market based on perceived differences in the costs and benefits from the legislation. Our results indicate that the initial reaction to the passage was more positive for regulated firms compared with non-regulated firms. These results are generally consistent with a compliance cost based explanation, although the underlying motivation for the results differs across industries. However, over longer post-SOX holding periods, the regulated samples outperformed the S&P 500 but underperformed their matched samples. Lower longer-term accounting profits in terms of ROA argue against significantly lower compliance costs associated with SOX.     

Adjusting Choice Models to Better Predict Market Behavior

The emergence of Bayesian methodology has facilitated respondent-level conjoint models, and deriving utilities from choice experiments has become very popular among those modeling product line decisions or new product introductions. This review begins with a paradox of why experimental choices should mirror market behavior despite clear differences in content, structure and motivation. It then addresses ways to design the choice tasks so that they are more likely to reflect market choices. Finally, it examines ways to model the results of the choice experiments to better mirror both underlying decision processes and potential market choices. Co-chairs. Author order is alphabetical.     

Exclusionary discounts

We consider a two-period model with two sellers and one buyer. Although we assume it is efficient for the buyer to purchase from both sellers in each period, we show that when the buyer's valuations are inter-temporally linked and at least one seller is financially constrained, exclusion can sometimes arise in equilibrium (i.e., the buyer purchases all of its requirements from the same seller in each period). The exclusionary equilibria are supported by contract offers in which the excluding seller's incremental price to supply the contestable part of demand is below its marginal cost and sometimes negative. Our findings contribute to the literatures on market-share contracts, bundling, all-units discounts, and loyalty discounts.     

Organizational structuring and project team structuring in integrated product development project

For a superior project result, integrated product development (IPD) project need to have stage-specific management approaches where the front-end structuring supports and strengthens the management of the project and the team during the execution stages. In the current study we focus on relationships on the organizational level variable during the front-end stage of the project, organizational structuring, with a project execution level variable, project team structuring to study the impact on product design glitches and project performance in the concurrent project environment. We hypothesize that managing the overall product development projects with integrated organizational structuring at the front stage and project team structuring during the development and project implementation stages can lead to reduced product glitches which can enhance the overall IPD project performance. We test our hypothetical model using data collected from the US automotive industry. Our data supports all the three proposed hypotheses. Discussion and implication of the empirical results, limitations of the current study, and recommendations for future studies are also provided.     

A comparison of business ethics commitment in private and public sector organizations in Sweden

This paper reports the results of a study of the top 500 private sector organizations and the top 100 public sector organizations in Sweden. It is a replication of the study by Svensson et al. (2004) . The aim of the study was to describe and compare the business ethics commitment of organizations across the two sectors. The empirical findings indicate that the processes involved in business ethics commitment have begun to be recognized and acted upon at an organizational level in Sweden. Some support is provided to show that codes of ethics are developing in some of Sweden's largest private and public sector organizations – although this is happening to a lesser extent in the public sector. It is noted that an effect of a code of ethics on the bottom line of the business was acknowledged by respondents in both private and public sector organizations. We believe that the supporting measures of business ethics commitment appear to be underutilized in both private and public sector organizations in Sweden (among those that possess codes of ethics), thus indicating that the commitment to business ethics in Swedish organizations has potential for future development.