Short term real earnings management prior to stock repurchases

This study examines whether firms engage in income-decreasing real earnings management before open market stock repurchases to reduce the cost of stock buybacks. In the short run, managers have the ability to underproduce inventory and increase discretionary expenditures, thus decreasing current period earnings. We find that managers engage in both of these activities before repurchasing their firms’ shares, especially the latter. Also, companies increase their discretionary spending before making repurchases to a greater extent following the passage of the Sarbanes–Oxley Act of 2002 as well as when they are financially healthy and have high marginal tax rates. Finally, we document that firms with the most income-decreasing real earnings management experience the largest positive abnormal returns during the subsequent period. Our findings highlight the importance of considering firms’ use of real operating decisions, as opposed to just opportunistic disclosure practices, around significant corporate events, such as the repurchase of their own stock.     

Relevance of culture in studies of leadership: ignored or dismissed?

Asia Pacific Journal of Management - Until recently, conclusions drawn about leadership have been made from a decidedly Western perspective, primarily based on theory developed in the U.S. using...     

A Study of Codes of Ethics for Mexican Microfinance Institutions

Most scholarly interest in codes of ethics or conduct has focused on traditional companies. Little is known about the codes of social enterprises or hybrid organizations such as microfinance institutions (MFIs). Our paper provides a comparative case study of the codes of a Mexican microfinance network and seven MFIs. Using the corporate integrity model, we analyze the content of MFIs’ codes compared to those of traditional organizations. We then examine to what extent some specific features of MFIs such as their mission, target group, and applied credit methodologies, are factors that determine the content of their code. We find that MFIs’ codes, like those of traditional companies, include traditional stakeholder principles. Nevertheless, they put greater emphasis on ‘socially-oriented’ principles or on terms such as ‘people’ and ‘common good’. MFIs’ codes differ with respect to the items they include and exclude and the size of the covered sections. We also find that these codes attempt to address prevailing concerns in microfinance but rarely tackle two critical debates, namely levels of interest rates and of profitability. We finally argue that it is difficult to move toward a global code, owing to regional disparities and the variety of organizational models and missions.     

Consumer Power: Evolution in the Digital Age

The predictions of growing consumer power in the digital age that predated the turn of the century were fueled by the rise of the Internet, then reignited by social media. This article explores the intersection of consumer behavior and digital media by clearly defining consumer power and empowerment in Internet and social media contexts and by presenting a theoretical framework of four distinct consumer power sources: demand-, information-, network-, and crowd-based power. Furthermore, we highlight technology's evolutionary role in the development of these power sources and discuss the nature of shifts in power from marketers to consumers in terms of each source. The framework organizes prior marketing literature on Internet-enabled consumer empowerment and highlights gaps in current research. Specific research questions are elaborated for each source of power outlining the agenda for future research areas.     

Auditing Goodwill in the Post‐Amortization Era: Challenges for Auditors

The elimination of goodwill amortization in 2001 brought about significant change in how companies are required to account for goodwill. This change in accounting also brought with it new challenges for auditors, namely evaluating the reasonableness of management's assumptions related to goodwill valuation. In addition to introducing technical challenges, this task is particularly difficult given the misalignment in incentives it creates between managers who likely prefer to avoid recording an impairment and auditors who seek to minimize the bias in management's impairment testing. This study focuses on the consequences of the misaligned incentives that auditors face under the current goodwill assessment process. We find that the decision to record a goodwill impairment is associated with an increase in the probability of auditor dismissal. Consistent with the presence of significant friction with clients, our results also indicate that the likelihood of auditor dismissals is negatively related to the favorability of the impairment decision. Furthermore, we find that companies impairing goodwill prior to dismissing auditors subsequently employ auditors that are, on average, more favorable to clients in their impairment decisions.     

Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom

While substantial revisions to auditor reporting requirements are being implemented internationally, the impact of these reforms on financial reporting quality is unknown. We exploit the United Kingdom's recent auditor reporting changes and find that the United Kingdom's new reporting regime is associated with an improvement in financial reporting quality as proxied by significant decreases in absolute abnormal accruals and the propensity to just meet or beat analyst forecasts, and a significant increase in earnings response coefficients. As for audit costs, we do not find a significant change in audit fees or audit delay surrounding the implementation of the new reporting regime. Taken together, the results of this study suggest that new auditor reporting requirements are associated with a significant improvement in financial reporting quality without detecting a significant increase in audit costs.     

The Assimilative and Contrastive Effects of Word-of-Mouth Volume: An Experimental Examination of Online Consumer Ratings

The popularity of online rate-and-review websites has increased the importance of word-of-mouth (WOM) volume (number of ratings) yet the retail literature has not paid adequate attention to understanding its impact. This paper highlights WOM volume as a high-scope, decision-making cue upon which the influence of other WOM-relevant characteristics on a WOM message's persuability depends. We begin, via a pretest, by demonstrating the intuitive expectation that high volume, relative to low volume, accentuates or assimilates perceptions of positivity or negativity of WOM targets. Then, through two experimental studies, we show that depending upon how high volume interacts with WOM consensus and consumer decision precommitment, it can contrast preference away from the valence of a target also. In our third and final experimental study, we demonstrate that consumers differ in their susceptibility to the influence of high volume. Those with a higher desire to be different from others, compared to those with a higher desire to be similar, are resistant to high volume's assimilative sway and do not show the valence-accentuating effects demonstrated in the pretest. Retail managers and researchers should find these insights about the different roles of WOM volume beneficial.     

Why do employees keep choosing the high-premium health care plan? An investigation of the financial consequences and logic of employee health care plan selections

In 1991, Dannon employees had the choice to stay with their current health care plan or switch to a new plan which offered a lower premium and less hospital cost coverage that better fit the needs of most employees. Both plans were the same in all other respects. Only 25% of employees chose the new lower-premium plan over the old plan. This article reports a collaborative effort between The Dannon Company and Cornell University's Center for Advanced HR Studies to identify the patterns of employee choices, and the effects of those choices on the actual costs that employees incurred. The actual decisions of 287 Dannon employees were examined, and the out-of-pocket costs that they actually incurred in the two years after the plan was introduced were calculated. © 1996 by John Wiley & Sons, Inc.     

Environmental factors of food literacy in Australian high schools: views of home economics teachers

This study set out to examine environmental factors impacting on the food literacy of adolescents. It utilized data from a nation‐wide survey of home economics teachers regarding their experience of food literacy education in Australian high schools. Content analysis and the ANGELO framework were applied to analyse free‐text comments from 78 of the respondents that were collected as part of a more extensive data set. The analysis of environmental factors revealed three enablers and ten barriers that could influence food literacy education delivered by high schools in Australia. High schools are well positioned to improve adolescents’ food literacy through a comprehensive, hands‐on approach in home economics. However, many environmental barriers were reported that could influence food literacy education in Australian high schools such as: lack of teaching materials and facilities, and human resources; the perceived inadequacy of the Australian school curriculum; non‐supportive school canteens; and negative role modelling. This study points to the need to eliminate or reduce these environmental barriers impacting on the capacity for effective food literacy education in high schools to help adolescents increase their food literacy and thereby support them in making informed food choices.