Risk-based forecasting and planning and management earnings forecasts

This study examines the association between a firm’s internal information environment and the accuracy of its externally disclosed management earnings forecasts. Internally, firms use forecasts to plan for uncertain futures. The risk management literature argues that integrating risk-related information into forecasts and plans can improve a firm’s ability to forecast financial outcomes. We investigate whether this internal information manifests itself in the accuracy of external earnings guidance. Using detailed survey data and publicly disclosed management earnings forecasts from a sample of publicly traded U.S. companies, we find that more sophisticated risk-based forecasting and planning processes are associated with smaller earnings forecast errors and narrower forecast widths. These associations hold across a variety of different planning horizons (ranging from annual budgeting to long-term strategic planning), providing empirical support for the theoretical link between internal information quality and the quality of external disclosures.     

Option Implied Dividends Predict Dividend Cuts: Evidence from the Financial Crisis

We employ the forward‐looking implied dividend information contained in option prices to predict dividend cuts and omissions during the recent financial crisis. The large number of dividend cuts and omissions during the 2008–09 financial crisis period provides the opportunity to study the predictability of dividend cuts in a controlled environment. Implied dividends and implied volatility, based on put–call parity and computed from put and call option prices, prove to be effective in predicting those cuts, especially compared to only using the equity market and accounting variables conventionally used for this purpose. Options‐derived variables (implied dividends and implied volatility) enhance the ability to identify firms more likely to reduce or omit dividend payments.     

Private equity leveraged buyouts in European telecoms: The case of Eircom

Highly leveraged buyouts (LBOs) of former state owned telecoms operators by private equity groups have occurred in a number of countries in recent years. This paper examines the case of Eircom in Ireland which has experienced five changes in ownership since full privatisation in 1999, two of which were LBOs. Enormous increases in Eircom’s debt levels as a result of the LBOs resulted in the company’s bankruptcy in 2012. This paper argues that this outcome was largely attributable to the short-termist strategies adopted by the private equity groups that assumed ownership of the enterprise. These strategies included high leverage, cash extraction and underinvestment in the fixed-line network which contributed to the demise of the enterprise and had wider economic and social effects. The Eircom case demonstrates the risks attendant to ownership of important network infrastructure by private equity groups and the need for regulatory safeguards to protect the public interest.     

Reaffirming the CEO effect is significant and much larger than chance: A comment on Fitza (2014)

A recent study by Fitza argued that the prior estimates of the Chief Executive Officer (CEO) effect are conflated with events outside the CEO's control, are largely the result of random chance, and that the true CEO effect is smaller than has been previously estimated. We suggest that the empirical methodology employed by Fitza to support these claims substantially overstates the “random chance” element of the CEO effect. We replicate Fitza's findings, highlight methodological issues, offer alternative conclusions, and using multilevel modeling (MLM), suggest that his analyses mischaracterize the CEO effect. Copyright © 2016 John Wiley & Sons, Ltd.     

Top management team incentive heterogeneity,strategic investment behavior,and performance: A contingency theory of incentive alignment

Research summary : We develop and test a contingency theory of the influence of top management team (TMT) performance‐contingent incentives on manager–shareholder interest alignment. Our results support our theory by showing that although TMTs engage in significantly higher levels of acquisition investment when their average incentive levels increase, investors' responses to those large investments are generally negative. More importantly, however, we further find that within‐TMT incentive heterogeneity conditions that effect, such that investors evaluate TMTs' large acquisition investments more positively as the variance in those top managers' incentive values increases. Thus, within‐TMT incentive heterogeneity appears to increase manager–shareholder interest alignment, in the context of large acquisition investments. Managerial summary : We find that as the average value of TMTs' incentives increase, relative to their total pay, they invest more in acquisitions and investors' respond negatively to the announcement of those deals. However, we further show that investors respond more positively to acquisitions announced by TMTs whose members' incentive values vary (some TMT members hold higher incentives and others hold lower). Results imply that when TMT members hold differing incentives levels, they approach investments from divergent perspectives, scrutinize those investments more heavily, and make better decisions, relative to TMTs with similar incentives. They also suggest that boards seeking tighter manager–shareholder interest alignment may benefit from introducing variance into TMT members' incentive structures, as doing so appears to create divergent preferences that can improve team decision making. Copyright © 2016 John Wiley & Sons, Ltd.     

Choose to Fight or Choose to Flee? A Network Embeddedness Perspective of Executive Ship Jumping in Declining Firms

Research summary: Executives in declining firms may engage in ship‐jumping behavior (i.e., voluntarily move to new employers before the failure occurs) to avoid the stigma of failure. However, it is unclear how executives decide whether or not to jump ship. Building on a network embeddedness perspective, we highlight how three network‐based indicators (i.e., executive social capital, the social capital of other peers in the declining firm, and the declining firm's alliance network) influence the executive‐level ship‐jumping decision by shaping its benefits and opportunity costs. Using data from executives at failing firms in China, we find support for our hypothesized relationships. Our research provides important insight into the network mechanisms driving the ship‐jumping decision. Managerial summary: Executives at failing firms have a choice: stay and attempt to rescue the firm from failure or exit and avoid the stigma of the failure (i.e., jump ship). Yet, little is known about what factors affect this choice. We propose that social capital plays an important role in the decision. Our evidence from specially treated (*ST) public firms in China finds that ship jumping is lowest at low and high values of social capital, and highest at moderate levels of social capital (an inverted U‐shaped relationship). In addition, higher levels of peer social capital (in the declining firm) as well as a well‐established firm‐level alliance network discourage the ship‐jumping choice. Copyright © 2017 John Wiley & Sons, Ltd.     

Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal

Research summary: Investing a firm's resources in corporate social responsibility (CSR) initiatives remains a contentious issue. While research suggests firm financial performance is the primary driver of CEO dismissal, we propose that CSR will provide important additional context when interpreting a firm's financial performance. Consistent with this prediction, our results suggest that past CSR decisions amplify the negative relationship between financial performance and CEO dismissal. Specifically, we find that greater prior investments in CSR appear to expose CEOs of firms with poor financial performance to a greater risk of dismissal. In contrast, greater past investments in CSR appear to help shield CEOs of firms with good financial performance from dismissal. These findings provide novel insight into how CEOs' career outcomes may be affected by earlier CSR decisions. Managerial summary: In this study, we examined a potential personal consequence for CEOs related to corporate social responsibility (CSR). We explored the role prior investments in CSR play when a board evaluates the firm's financial performance and considers whether or not to fire the CEO. Our results suggest that while financial performance sets the overall tone of a CEO's evaluation, CSR amplifies that baseline evaluation. Specifically, our results suggest that greater past investments in CSR appear to (a) greatly increase the likelihood of CEO dismissal when financial performance is poor, and (b) somewhat reduce the likelihood of CEO dismissal when financial performance is good. Thus, striving to deliver profits in a socially responsible manner may have both positive and negative personal consequences. Copyright © 2017 John Wiley & Sons, Ltd.     

Business models and their relationship with marketing: A systematic literature review

The purpose of this paper is to identify the degree to which the marketing discipline has hitherto engaged with business model literature. The results of a systematic review of business model literature are presented and utilise both the citation counts and the h-index to objectively demonstrate the limited engagement that the marketing discipline has had with business model literature, and the limited degree that the discipline has influenced that literature. The key findings reveal a growing, but formative body of literature that, hitherto, has been dominated by non-marketing disciplines and which has only just begun to be addressed by present day marketing scholars. Using the most influential articles identified in the analysis, the paper concludes with a case for the empirical development of the business model concept with industrial marketing scholarship. Such development is argued to be grounded in the potential of open business models, co-created with multiple stakeholders in a supply chain and the end users of a value proposition.     

Examining CEO succession and the role of heuristics in early‐stage CEO evaluation

This study develops and tests predictions regarding factors that influence early‐stage CEO evaluation. We suggest that contextual elements of the CEO succession process will influence the heuristics that directors employ to aid in their early evaluation of a CEO because traditional performance metrics, such as firm performance, are less diagnostic of CEO quality in the first years of their tenure. Broad empirical support for our theoretical arguments is shown in a sample of Fortune 1000 firms. Copyright © 2012 John Wiley & Sons, Ltd.