Business Commons^™

Enhancing Auditor Professional Skepticism: The Professional Skepticism Continuum, Steven M. Glover, Douglas F. Prawitt

Faculty Publications

The Standards Working Group (SWG) of the Global Public Policy Committee of the six largest global accounting networks is committed to improving the quality of financial statement audits and as such has a keen interest in advancing the understanding and application of professional skepticism. The SWG accordingly commissioned leading academics to produce this thought leadership paper. The purpose of the paper is to facilitate an ongoing discussion between the profession, standard setters, regulators, investors, audit committees, and other interested stakeholders. While the SWG believes this paper accomplishes that objective, not all of the views expressed in this paper necessarily represent …

Perils And Profits: A Reexamination Of The Link Between Profitability And Safety In U.S. Aviation, Peter M. Madsen

Faculty Publications

In many industries, for-profit business organizations make decisions that critically impact the safety of their employees and the public. Managers in such organizations often argue that there is no trade-off between profitability and safety because “safety is good business.” However, prior studies examining the profitability–safety relationship report inconsistent and conflicting results. In the present study, the author reexamines this issue, building on insights into managerial risk taking from the behavioral theory of the firm and hypothesizing that the slope of the profitability–safety relationship reaches an inflection point at the organizational profitability aspiration. Using data from the U.S. airline industry, the …

Should My Spouse Be My Partner? Preliminary Evidence From The Panel Study Of Income Dynamics, W. Gibb Dyer, W. Justin Dyer, Richard G. Gardner

Faculty Publications

This study examines how firm performance and family income are affected when an “owner-managed” firm transitions to a “copreneurial” business. Data from the Panel Study of Income Dynamics were used to track changes in firm performance and family income from 1996 to 2006 during which time an owner-manager decided to partner with his spouse. The findings suggest that (a) involvement of one’s spouse in the business had no significant impact on firm profits and (b) working with one’s spouse had a significant impact on family income. The authors hypothesize that the lack of spousal influence on firm performance is because …

How To Spot A Careerist Early On: Psychopathy And Exchange Ideology As Predictors Of Careerism, Dan S. Chiaburu, Gonzalo J. Munoz, Richard G. Gardner

Faculty Publications

Careerism refers to an individual’s propensity to achieve their personal and career goals through nonperformance- based activities (Feldman, The Indus Org Psychol 39–44, 1985). We investigated the role of several dispositional predictors of careerism, including Five-factor model (FFM) personality traits, primary psychopathy, and exchange ideology. Based on data from 131 respondents, as expected, we observed that emotional stability was negatively correlated with careerism. Primary psychopathy and exchange ideology explained additional variance in careerism after accounting for FFM traits. Relative importance analyses indicated that psychopathy (relative weight percentage of explained variance = 42.1 %) and exchange ideology (relative weight percentage = …

Fair Value Of Liabilities: The Financial Economics Perspective, David F. Babbel, Jeremy Gold, Craig B. Merrill

Faculty Publications

In this paper we present the fundamental approaches of financial economics to valuation. Three methods are demonstrated by which financial economists account for risk. We illustrate how these methods relate to one another and how they can be applied in the valuation of risky corporate bonds, guaranteed investment contracts (GICs) with and without interest rate contingencies, and whole life insurance. Next, we discuss how these models treat orthogonal risks, such as the kind often covered by insurance contracts. Demand side and supply side diversification are treated, and liquidity risk is then considered. We conclude with a summary of the benefits …

Sb Ipos And Ipo Anomalies: An Empirical Analysis Of The Small Firm Uniqueness Hypothesis, James C. Brau, J. Troy Carpenter

Faculty Publications

The purpose of this paper is to provide a direct test of the small-firm uniqueness hypothesis advanced by Ang (1991). We do this by using the SB-IPO program of the SEC as our instrument to define a small firm. Having identified small firms, we test the three IPO anomalies to see if small firms differ from large firms along these dimensions. We find that SB IPOs experience the three anomalies; however, they do so in disparate ways than mainline IPOs do. In sum, we provide support for the small firm uniqueness hypothesis.

A Structural Model Of Human Capital And Leverage, Ryan Pratt

Faculty Publications

I study the effect of human capital on firms' leverage decisions in a structural dynamic model. Firms produce using physical capital and labor. They pay a cost per employee they hire, thus investing in human capital. In default a portion of this human capital investment is lost. The loss of human capital constitutes a significant cost of financial distress. Labor intensive firms are more heavily exposed to this cost and respond by using less leverage. Thus the model predicts a decreasing relationship between leverage and labor intensity. Consistent with this prediction, I show in the data that high labor intensity …

Is Your Susceptibility To Phishing Dependent On Your Memory?, Bonnie Brinton Anderson, Anthony Vance, David Eargle

Faculty Publications

Phishing has become a major attack vector for hackers and cost victims $687 million in the first half of 2012 alone. Additionally, despite technical solutions to defend against this threat, reports show that phishing attacks are increasing. There is therefore a pressing need to understand why users continue to fall victim to phishing, and how such attacks can be prevented. In this researchin- progress paper, we argue that the cognitive neuroscience of memory provides a useful lens through which to study the problem of phishing. A commonly reported finding from the field of memory is the eye movement-based memory effect, …

Evaluating Journal Quality And The Association For Information Systems (Ais) Senior Scholars’ Journal Basket Via Bibliometric Measures: Do Expert Journal Assessments Add Value?, Paul Benjamin Lowry, Gregory D. Moody, James Gaskin, Dennis F. Galletta, Sean L. Humpherys, Jordan B. Barlow, David W. Wilson

Faculty Publications

Information systems (IS) journal rankings and ratings help scholars focus their publishing efforts and are widely used surrogates for judging the quality of research. Over the years, numerous approaches have been used to rank IS journals, approaches such as citation metrics, school lists, acceptance rates, and expert assessments. However, the results of these approaches often conflict due to a host of validity concerns. In the current scientometric study, we make significant strides toward correcting for these limitations in the ranking of mainstream IS journals. We compare expert rankings to bibliometric measures such as the ISI Impact Factor™, the h-index, and …

Detecting Deceptive Chat-Based Communication Using Typing Behavior And Message Cues, Douglas C. Derrick, Thomas O. Meservy, Jeffrey L. Jenkins, Judee K. Burgoon, Jay F. Nunamaker Jr.

Faculty Publications

Computer-mediated deception is prevalent and may have serious consequences for individuals, organizations, and society. This article investigates several metrics as predictors of deception in synchronous chatbased environments, where participants must often spontaneously formulate deceptive responses. Based on cognitive load theory, we hypothesize that deception influences response time, word count, lexical diversity, and the number of times a chat message is edited. Using a custom chatbot to conduct interviews in an experiment, we collected 1,572 deceitful and 1,590 truthful chat-based responses. The results of the experiment confirm that deception is positively correlated with response time and the number of edits and …

Factors Associated With Price Reactions And Analysts’ Forecast Revisions Around Sec Filings, Theodore E. Christensen, William G. Heninger, Earl K. Stice

Faculty Publications

We investigate the extent to which rapid accessibility of financial reports filed electronically through the Securities and Exchange Commission’s EDGAR system has affected the ability of investors and security analysts to use accounting data in pricing decisions and forecasting. Consistent with prior research, we find evidence confirming that stock price reactions to SEC filings are significant in the EDGAR period but not the pre-EDGAR period. We also find significant revisions in analysts’ one-quarter-ahead earnings forecasts around SEC filings dates in both the pre-EDGAR and EDGAR periods. The price and forecast revision evidence indicates that financial analysts have used SEC filings …

Managers’ Discretionary Adjustments: The Influence Of Uncontrollable Events And Compensation Interdependence, Jasmijn C. Bol, Gary Hecht, Steven D. Smith

Faculty Publications

Discretionary bonus adjustments allow managers to restore the alignment of employee effort and compensation when bonus amounts are based on noisy objective performance measures. The implications of discretionary adjustments for employees' future efforts and fairness perceptions present important trade-offs for managers to consider. Adjustments may be used to motivate different types of effort in future periods, but may also create perceptions of unfairness among employees who are not affected by negative events. This study examines the joint influence of the likelihood of future negative uncontrollable events and compensation interdependence (i.e., the extent to which one employee's compensation influences others' compensation) …

Financial Literacy, Financial Education And Economic Outcomes, Justine S. Hastings, Brigitte C. Madrian, William L. Skimmyhorn

Faculty Publications

In this article we review the literature on financial literacy, financial education, and consumer financial outcomes. We consider how financial literacy is measured in the current literature, and examine how well the existing literature addresses whether financial education improves financial literacy or personal financial outcomes. We discuss the extent to which a competitive market provides incentives for firms to educate consumers or offer products that facilitate informed choice. We review the literature on alternative policies to improve financial outcomes, and compare the evidence to evidence on the efficacy and cost of financial education. Finally, we discuss directions for future research.

What Goes Up Must Come Down? Experimental Evidence On Intuitive Forecasting, John Beshears, James J. Choi, Andreas Fuster, David Laibson, Brigitte C. Madrian

Faculty Publications

Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10 periods (‘fast’), while the other subjects see a version with dynamics that unfold over 50 periods (‘slow’). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.

Can Short Restrictions Actually Increase Informed Short Selling?, Adam C. Kolasinski, Adam Reed, Jacob Thornock

Faculty Publications

We use the 2008 short selling regulations to test whether short sale restrictions can increase informed short selling. For the preborrow requirement, we find more negative price reactions to short interest announcements though no reliable increase in the price impact of short sales volume. For the stocks with banned short sales, we find an increase in the price impact of short sale volume though no reliable change in the price reaction to short interest announcements. Both restrictions, however, are associated with increased informed trading. Our results suggest that short restrictions will not reduce informed short selling and may actually result …

Exploring The Role Delaware Plays As A Domestic Tax Haven, Scott D. Dyreng, Bradley P. Lindsey, Jacob Thornock

Faculty Publications

We examine whether Delaware is a domestic tax haven. We find that taxes play an economically important role in determining whether U.S. firms locate subsidiaries in Delaware and that a Delaware-based state tax avoidance strategy lowers state effective tax rates by between 0.7 and 1.1 percentage points, on average. The tax savings represent a 15–24% decrease in the state income tax burden and translate to an increase in net income of 1.04–1.47%. However, we find that the tax benefits of Delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance.

The Effects Of Dividend Taxation On Short Selling And Market Quality, Jacob Thornock

Faculty Publications

This study examines the effects of dividend taxation on the primary parties involved in a short sale: the lender of the stock and the short seller. For stock lenders, dividend taxation is associated with a decrease in the supply of shortable shares and an increase in equity lending fees around the dividend record date. For short sellers, potential reimbursement costs are associated with a significant decrease in short volume before the ex-dividend date followed by a significant increase after the ex-date. Prior research shows that short selling improves price efficiency and formation. Hence, because of the negative effects of taxation …

The Impact Of Parental Involvement On A Structured Youth Program Experience: A Qualitative Inquiry, Mat D. Duerden, Peter A. Witt, Christopher J. Harrist

Faculty Publications

Parental involvement is an often proposed, but rarely researched, key element of youth programs. Questions remain regarding the impact of parental involvement on program processes and outcomes. Qualitative data were collected over a one-year period with youth participants (n=46), parents (n=26), and teachers (n=5) associated with an international immersion/service learning program for adolescents. Three main research questions guided the data analysis: (1) what role does parental involvement play in the youths’ experience in the program; (2) how does parental involvement in the program influence the parent/child relationship; and (3) what role does parental involvement play in terms of the program’s …

A Descriptive Study Of Factors Associated With The Internal Audit Function Having An Impact: Comparisons Between Organizations In A Developed And An Emerging Economy, Audrey A. Gramling, Irem Nuhoglu, David A. Wood

Faculty Publications

An internal audit function (IAF) should positively impact financial reporting and governance, and add value to its organization. We provide evidence on IAF factors (i.e., characteristics, activities, work areas) associated with these types of impact and whether these factors, and their influence on various impacts, differ between a developed and an emerging economy (i.e., US, Turkey). Factors positively associated with financial reporting in the US are assurance activities, control work, and competence; in Turkey, significant factors are governance work and competence. For governance, we find that the factors positively associated with it in the US include assurance activities, governance work, …

Simplification And Saving, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

The daunting complexity of important financial decisions can lead to procrastination. Weevaluate a low-cost intervention that substantially simplifies the retirement savings planparticipation decision. Individuals received an opportunity to enroll in a retirement savingsplan at a pre-selected contribution rate and asset allocation, allowing them to collapsea multidimensional problem into a binary choice between the status quo and the pre-selected alternative. The intervention increases plan enrollment rates by 10–20 percentagepoints. We find that a similar intervention can be used to increase contribution rates amongemployees who are already participating in a savings plan.

Consumers’ Misunderstanding Of Health Insurance, George Loewenstein, Joelle Y. Friedman, Barbara Mcgill, Sarah Ahmad, Suzanne Linck, Stacey Sinkula, John Beshears, James J. Choi, Jonathan Kolstad, David Laibson, Brigitte C. Madrian, John A. List, Kevin G. Volpp

Faculty Publications

We report results from two surveys of representative samples of Americans with private health insur-ance. The first examines how well Americans understand, and believe they understand, traditional healthinsurance coverage. The second examines whether those insured under a simplified all-copay insuranceplan will be more likely to engage in cost-reducing behaviors relative to those insured under a traditionalplan with deductibles and coinsurance, and measures consumer preferences between the two plans. Thesurveys provide strong evidence that consumers do not understand traditional plans and would betterunderstand a simplified plan, but weaker evidence that a simplified plan would have strong appeal toconsumers or change their …

History Of Accreditation: Coaprt Model, Marcia Jean Carter, Ramon Zabriskie, Lynn Anderson, Maridith Janssen

Faculty Publications

Accreditation in therapeutic recreation began with undergraduate competencies identified in 1975 through the Council on Accreditation ( COA) sponsorship by the National Recreation and Park Association. This article chronicles the adjustments in these original standards. Accreditation criteria are at the heart of defining entry-level professional competencies in the profession of therapeutic recreation while also being used as quality indicators of academic programs. Therapeutic recreation was the first specialization recognized by the Council on Accreditation of Parks, Recreation, Tourism and Related Professions [(COAPRT) formerly COA] during the 1970s. In the 1980s and 1990s, while undergoing enhancements and expansion, controversy arose over …

Working For A Higher Purpose: A Theoretical Framework For Commitment To Organization-Sponsored Causes, John B. Bingham, Bret W. Mitchell, Derron G. Bishop, Natalie J. Allen

Faculty Publications

We explicate the theoretical foundations of employee commitment to organization-sponsored causes—voluntary, socially responsible practices or programs espoused by an organization—as targets of employee commitment. Although scholarly interest in organization-sponsored causes is increasing, little is understood about the mechanisms for employee involvement in organization-sponsored causes, since the motives and context for participation may differ significantly from participation in such causes outside of work. We propose that commitment to organization-sponsored causes can be conceptualized in terms of affective and normative mindsets and suggest that these mindsets, both separately and in combination, influence employees' behavioral support for the cause. We also draw upon …

Testimonials Do Not Convert Patients From Brand To Generic Medication, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Gwendolyn Reynolds

Faculty Publications

Objectives—To assess whether the addition of a peer testimonial to an informational mailing increases conversion rates from brand-name prescription medications to lower-cost therapeutic equivalents, and whether the testimonial’s efficacy increases when information is added about an affiliation the quoted individual shares with the recipient.

Research Design and Methods—5,498 union members were randomly assigned to receive one of three different informational letters: one without a testimonial (No Testimonial Group), one with a testimonial from a person whose shared union affiliation with the recipient was not disclosed (Unaffiliated Testimonial Group), and one with a testimonial from a person whose shared union affiliation …

Matching Contributions And Saving Outcomes: A Behavioral Economics Perspective, Brigitte C. Madrian

Faculty Publications

Including a matching contribution increases savings plan participation and contributions, although the impact is less significant than the impact of nonfinancial approaches. Conditional on participation, a higher match rate has only a small effect on savings plan contributions. In contrast, the match threshold has a substantial impact, probably because it serves as a natural reference point when individuals are deciding how much to save and may be viewed as advice from the savings program sponsor on how much to save. Other behavioral approaches to changing savings plan outcomes—including automatic enrollment, simplification, planning aids, reminders, and commitment features—potentially have a much …

Looking Good By Doing Good: The Antecendents And Consequences Of Stakeholder Attention To Corporate Social Performance, Peter M. Madsen, Zachariah J. Rodgers

Faculty Publications

Stakeholder theory suggests a relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) because certain stakeholders reward certain types of CSR. This argument assumes that stakeholders attend to firms’ CSR activities—an assumption that has yet to be examined. We fill this gap by extending stakeholder theory to the context of stakeholder attention to firm CSR and exploring the antecedents and consequences of stakeholder attention to corporate disaster relief CSR. We test the resulting hypotheses on a sample of public companies that engaged in natural disaster relief efforts, finding that stakeholder attention partially mediated the relationship between disaster relief …

Acquirer Valuation And Acquisition Decisions: Identifying Mispricing Using Short Interest, Itzhak Ben-David, Michael S. Drake, Darren T. Roulstone

Faculty Publications

We use short interest as an investor-based measure of over/undervaluation that distinguishes between the misvaluation and Q-theories of mergers. Using this measure, we find that misvaluation is a strong determinant of merger decision making. Firms in the top quintile of short interest are 54% more likely to engage in stock acquisitions and 22% less likely to engage in cash acquisitions. Stock (but not cash) acquirers have higher short interest than their targets. Overall, our results suggest that the previously documented underperformance of stock acquirers and the overperformance of cash acquirers can be explained by misvaluation, as captured by short interest.

Breaking Out Of The Design Science Box: High-Value Impact Through Multidisciplinary Design Science Programs Of Research, Jay F. Nunamaker Jr., Nathan W. Twyman, Justin Scott Giboney

Faculty Publications

Conducting research that will make an impact is a difficult challenge for any research discipline. Information Systems is no exception, and there is much discussion on how to increase the level of real-world impact of our research. This paper details a framework for generating high-impact research through a DSR-driven program of research. The framework rests on the propositions that as opposed to individual or ad-hoc team-driven approaches, increased impact is more likely to be realized by 1) sustained collaborative research programs that 2) employ multiple research methods to 3) shepherd concepts from the ideation stage all the way to realized, …

Revenge Of The Steamroller: Abcp As A Window On Risk Choices, Carlos Arteta, Mark Carey, Ricardo Correa, Jason Kotter

Faculty Publications

We empirically examine financial institutions’ motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in causing and propagating the liquidity crisis that began in the summer of 2007. We find evidence consistent with important roles for both ownermanager agency problems and government-induced distortions, especially government control or ownership of banks.

What, I Shouldn’T Have Done That?: The Influence Of Training And Just-In-Time Reminders On Secure Behavior, Jeffrey L. Jenkins, Alexandra Durcikova

Faculty Publications

Organizations often implement Security Education, Training, and Awareness (SETA) programs to help improve secure behavior. SETA programs can be multifaceted; however, organizations often take a “one-size-fits-all” approach to improve security, without understanding how different SETA components influence behavior. In this research, we explain how two common SETA program components—online training and reminders—influence behavior through discrete theoretical mechanisms. First, we hypothesize that online training influences behavior through improving beliefs and intentions. However, because of dual-task interference, the relationship between beliefs and intentions may be hindered. We then explain how just-in-time reminders can help overcome dual-task interference and influence behavior directly. We …