Business Commons^™

Fund Flows, Performance, Managerial Career Concerns, And Risk Taking, Marco Pagani, P. Hu, J. Kale, A. Subramanian

Faculty Publications

We develop a unified model of the interactions among investors, fund companies, and fund managers.We show that the interplay between a manager's incentives from her compensation structure and career concerns leads to a nonmonotonic (approximately U-shaped) relation between her risk choices and prior performance relative to her peers. Significantly outperforming (underperforming) managers are less (more) likely to be fired in the future and are also more likely to increase relative risk. Ceteris paribus, relative risk declines with the level of employment risk faced by a manager. Using a large sample of mutual fund managers, we find strong support for the …

Firm And Industry Effects In Accounting Versus Economic Profit Data, Matthew J. Holian, Ali M. Reza

Faculty Publications

This article presents estimates of firm and industry fixed-effects on profit rates for large US corporations, using both Economic Value Added (EVA), the popular measure of profits produced by Stern Stewart and Company, as well as simple (unadjusted) accounting measures as the dependent variable. We find that the improvement in explanatory power of the fixed-effect model is substantially greater when using EVA than has been documented with alternative measures.

Basic Concepts In Forest Valuation And Investment Analysis: Edition 3.0, Steven H. Bullard, Thomas J. Straka

Faculty Publications

This book was originally intended to supplement lectures in forestry economics at the undergraduate level. It’s currently used for that purpose in ‘Forest Resource Economics’ courses at several universities. The book is also intended, however, to serve as a basic reference for foresters with experience in valuation and investment analysis concepts and methods. It has proven to be a valuable resource in forest valuation and investment analysis workshops for practicing foresters, landowners, and others interested in forestry investments.

A Contingency Theory Approach To Market Orientation And Related Marketing Strategy Concepts: Does Fit Relate To Profit Performance?, Richard A. Heiens, Larry P. Pleshko

Faculty Publications

With a focus on the financial services industry, the current study takes a contingency theory approach to the relationships between market orientation and a variety of marketing strategy concepts, including profitability, a firm’s Miles and Snow strategy type, market growth, service growth, service focus, market coverage, the Porter strategy group, and strategic marketing initiative. Data for the study were gathered from a survey of chief executives from credit unions in the U.S. The results of the study are mixed. In particular, the findings suggest that despite the perceptions of management, it is the less aggressive and less costly approaches to …

The More Things Change – Much Talk Of Reform, But Are Real Results Likely?, Erik M. Jensen

Faculty Publications

This article expresses skepticism that some of the proposals of the National Commission on Fiscal Responsibility and Reform (the so-called “debt commission”) are likely to go far as part of any tax reform associated with deficit reduction, and it describes one recent judicial decision that at least temporarily calls into question the codification of the economic substance doctrine.

Accounting For Lease Renewal Options: The Informational Effects Of Unit Of Account Choices, Jeffrey Hales, Shankar Venkataraman, T. Jeffrey Wilks

Faculty Publications

This study examines the informational effects of unit of account choices in the context of a proposed standard on lease accounting. Standard setters have tentatively decided that leases in excess of one year should be recognized on a lessee’s balance sheet, including optional lease periods, even though the lessee can choose not to renew the lease. We argue that this approach lacks representational faithfulness and creates an informational problem for users. Using an experiment, we show that the proposed treatment of renewal options has a negative effect on lenders’ willingness to lend to a firm with renewal options. However, we …

Identity Negotiating: Redefining Stigmatized Identities Through Adaptive Sports And Recreation Participation Among Individuals With A Disability, Neil R. Lundberg, Stacy Taniguchi, Bryan P. Mccormick, Catherine Tibbs

Faculty Publications

The purpose of this study was to investigate the meanings and outcomes of adaptive sport and recreation participation among individuals with disabilities. In-depth open-ended interviews were conducted with 17 individuals. Analysis of the data followed qualitative data analysis and classical grounded theory utilizing line by line coding, identification of emergent themes, and identification of a core category grounded in the data. Results indicated that participants felt stigmatized and stereotyped, but their adaptive sports and recreation participation provided them with opportunities to build social networks, experience freedom and success, positively compare themselves with others without disabilities, and feel a sense of …

Insurance Theory And Challenges Facing The Development Of Microinsurance Markets, James C. Brau, Craig B. Merrill, Kim B. Staking

Faculty Publications

Microinsurance institutions and instruments have developed rapidly over the last decade, with policies covering tens of millions at the base of the economic pyramid. Ranging from simple policies providing life or health insurance to complex policies covering catastrophic risks for small landholders, it is a market with proven potential that demands closer attention. This paper provides a review of the nascent academic literature and then suggests some critical elements of insurance theory that may help us understand the challenges facing microinsurance markets and how these markets can better serve the needs of their customers. Although the basic theory is well …

A Web Of Knowledge: A Conceptual-Modeling Perspective, David W. Embley, Stephen W. Liddle, Cui Tao

Faculty Publications

The current web is a web of linked pages. Frustrated users search for facts by guessing which keywords or keyword phrases might lead them to pages where they can find facts. Can we make it possible for users to search directly for facts? Equivalently, can we turn the web into a web of facts (instead of a web of pages containing facts)? Ultimately, can the web be a knowledgebase—a web of knowledge—that can provide direct answers to factual questions and also provide the confidence necessary to make those answers believable? We answer these questions by showing how to superimpose a …

Should Investors Follow The Prophets Or The Bears? Evidence On The Use Of Public Information By Analysts And Short Sellers, Michael S. Drake, Lynn Rees, Edward P. Swanson

Faculty Publications

We investigate whether short sellers and analysts differ in their use of information that is predictive of future returns. We find that open short interest is significantly associated in the expected direction with all eleven variables examined. In contrast, analysts tend to positively recommend stocks with high growth, high accruals, and low book-to-market ratios, despite these variables having a negative association with future returns. We then investigate the profitability of using short interest in trading. We find abnormal returns (1.11 percent per month) from a zero-investment strategy that (1) shorts firms with highly favorable analyst recommendations (buy signal) but high …

Behavioral Economics Perspectives On Public Sector Pension Plans, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee‘s work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers‘ need to save for retirement in other accounts. There is …

Managerial Ability And Earnings Quality, Peter Demerjian, Melissa F. Lewis-Western, Baruch Lev, Sarah Mcvay

Faculty Publications

We examine the relation between managerial ability and earnings quality. We find that earnings quality is positively associated with managerial ability. Specifically, more able managers are associated with fewer subsequent restatements, higher earnings and accruals persistence, lower errors in the bad debt provision, and higher quality accrual estimations. The results are consistent with the premise that managers can and do impact the quality of the judgments and estimates used to form earnings.

Portfolio Rebalancing In General Equilibrium, Miles S. Kimball, Matthew D. Shapiro, Tyler Shumway, Jing Zhang

Faculty Publications

Standard portfolio advice is that agents should hold a constant share of risky assets. All agents cannot, however, follow this advice because supply and demand of risky assets must be equal. To study equilibrium rebalancing, the paper develops an overlapping generations model in which agents differ both in age and risk tolerance. Equilibrium rebalancing is driven by a leverage effect that affects levered and unlevered agents in opposite directions, an aggregate risk tolerance effect which depends on the distribution of wealth, and an intertemporal hedging effect. Optimal equilibrium portfolio rebalancing departs significantly from the standard advice.

Firm Size Matters: An Empirical Investigation Of Organizational Size And Ownership On Sustainability- Related Behaviors, Peter Jack Gallo, Lisa Jones Christensen

Faculty Publications

The phrase “corporate sustainability” is increasingly prevalent in both the industry press and management journals (Engardio, 2007; Montiel, 2008). Corporate sustainability pledges and reports are also increasingly prevalent, yet empirical studies on how top managers define and enact the construct are lacking. To address this deficiency, we investigate how firms define, support, and report their sustainability efforts. In a large sample (N = 922) study of accounting executives at U.S.-based firms, we find evidence that organizational size, ownership, and industry are strongly related with support mechanisms and reporting of sustainability.

Reit Going Private Decisions, James C. Brau, J. Troy Carpenter, Mauricio Rodriguez, C. F. Sirmans

Faculty Publications

Over the recent decade there was a wave of REITs going private, from an average of about three per year to 40 between 2005 and 2007. Standard corporate finance theory posits that firms go private when there is no longer a positive tradeoff between the expected benefits and the costs of being public, and it provides empirical evidence that going private decisions are motivated by potential gains from leverage, tax benefits, and expected improvements in corporate governance. Given the unique institutional environment for the REIT industry, this paper sheds new light on the going-private decision. Specifically, we examine the determinants …

Forecasting Multivariate Realized Stock Market Volatility, Gregory H. Bauer, Keith Vorkink

Faculty Publications

We present a new matrix-logarithm model of the realized covariance matrix of stock returns. The model uses latent factors which are functions of lagged volatility, lagged returns and other forecasting variables. The model has several advantages: it is parsimonious; it does not require imposing parameter restrictions; and, it results in a positive-definite estimated covariance matrix. We apply the model to the covariance matrix of size-sorted stock returns and find that two factors are sufficient to capture most of the dynamics.

Why Did U.S. Banks Invest In Highly-Rated Securitization Tranches?, Isil Erel, Taylor Nadauld, René M. Stulz

Faculty Publications

We estimate holdings of highly-rated tranches of mortgage securitizations of American deposit-taking banks ahead of the credit crisis and evaluate hypotheses that have been advanced to explain these holdings. We find that holdings of highly-rated tranches were economically trivial for the typical bank, but banks with greater holdings performed more poorly during the crisis. Though univariate comparisons show that banks with large trading books had greater holdings, the holdings of highly-rated tranches are not higher for banks with large trading books in regressions that control for bank size. The ratio of highly-rated tranches holdings to assets increases with bank assets, …

Video Game Design In The Mba Curriculum: An Experiential Learning Approach For Teaching Design Thinking, James Gaskin, Nicholas Berente

Faculty Publications

In the spirit of design thinking, we have developed a ―hands-on‖ video game design workshop intended to be used for an MBA course on design thinking. This novel approach to teaching complex concepts and skills to business students has been received with enthusiasm, and it provides a unique and memorable experience for students to draw on as they encounter situations in which they will apply design thinking in the future. Additionally, student-produced games and student reflections on the workshops provide initial evidence of the value of teaching design thinking through this type of experiential method. In this article we review …

Model-Driven Software Development, Stephen W. Liddle

Faculty Publications

Software development is a complex and difficult task that requires the investment of significant resources and carries major risk of failure. For decades now, researchers have proposed “model-driven” approaches to improve the state of the art in software engineering. Software models are intended to improve communication among stakeholders and aid in the overall understanding both of a problem space and a proposed software solution that satisfies given requirements. As with architectural blueprints or miniature 3D models, software models make it possible to explore and test a design and its ramifications before investing in the actual build-out. The traditional approach to …

Multilingual Ontologies For Cross-Language Information Extraction And Semantic Search, David W. Embley, Stephen W. Liddle, Deryle W. Lonsdale, Yuri Tijerino

Faculty Publications

Valuable local information is often available on the web, but encoded in a foreign language that non-local users do not understand. Can we create a system to allow a user to query in language L1 for facts in a web page written in language L2? We propose a suite of multilingual extraction ontologies as a solution to this problem. We ground extraction ontologies in each language of interest, and we map both the data and the metadata among the language-specific extraction ontologies. The mappings are through a central, language-agnostic ontology that allows new languages to be added by only having …

Drilling For Micro-Foundations Of Human Capital Based Competitive Advantages, Russell Coff, David Kryscynski

Faculty Publications

From the origins of the Resource Based View, scholars have emphasized the importance of human capital as a source of sustained competitive advantage and recently there has been great interest in gaining a better understanding of the micro-foundations of strategic capabilities. Along these lines, there is little doubt that heterogeneous human capital is often a critical underlying mechanism for capabilities. Here, we explore how individual level phenomena underpin isolating mechanisms that sustain human capital-based advantages but also create management dilemmas that must be resolved in order to create value. The solutions to these challenges cannot be found purely in generic …

Accounting Doctoral Program Rankings Based On Research Productivity Of Program Graduates, Nathaniel M. Stephens, Scott L. Summers, Brady Williams, David A. Wood

Faculty Publications

This paper presents rankings of accounting doctoral programs based on the research productivity of each institution’s graduates in the years immediately following their graduation. We use two time periods for analysis: the first three years after graduation and the first six years after graduation. We extend previous doctoral program ranking literature by expanding rankings of accounting doctoral programs with specific rankings for topical areas (accounting information systems (AIS), audit, financial, managerial, and tax) and methodologies (analytical, archival, and experimental). We show that rankings for topical and methodological areas differ significantly from rankings produced using methodologies that create a singular doctoral …

Short Interest As A Signal Of Audit Risk, Cory A. Cassell, Michael S. Drake, Stephanie J. Rasmussen

Faculty Publications

Motivated by evidence from the empirical accounting and finance literatures suggesting that short sellers target firms with suspect financial reporting, we investigate whether short interest provides a signal of the degree of audit risk. We find a positive association between audit fees and short interest (total shares sold short scaled by total shares outstanding) after controlling for other determinants of audit fees. This finding suggests that short interest is an indicator of audit risk that reflects information not captured by traditional client risk measures. We also find an increase in the magnitude of the association between audit fees and short …

Do Earnings Reported Under Ifrs Tell Us More About Future Earnings And Cash Flows?, T.J. Atwood, Michael S. Drake, James N. Myers, Linda A. Myers

Faculty Publications

We contribute to the debate about the relative benefits and costs of International Financial Reporting Standards (IFRS) adoption by examining whether earnings persistence and the association between current accounting earnings and future cash flows differ for firms reporting under IFRS versus firms reporting under United States Generally Accepted Accounting Principles (U.S. GAAP) and firms reporting under non-U.S. domestic accounting standards (DAS). Using samples comprised of 58,832 firm-year observations drawn from 33 countries from 2002 through 2008, we find that positive earnings reported under IFRS are no more or less persistent than earnings reported under U.S. GAAP but losses reported under …

A Perspective On The Joint Iasb/Fasb Exposure Draft On Accounting For Leases, Yuri Biondi, Robert Bloomfield, Jonathan C. Glover, Karim Jamal, James A. Ohlson, Stephen H. Penman, Eiko Tsujiyama, T. Jeffrey Wilks

Faculty Publications

The International Accounting Standards Board (IASB) and The Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-to-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or …

Psychological Need Satisfaction Through Sports Participation Among International Athletes With Cerebral Palsy, Neil R. Lundberg, Diane G. Groff, Ramon Zabriskie

Faculty Publications

Research indicates that people with disabilities who participate in sports and are physically active rate themselves higher in psychological well-being. The primary purpose of this study was to observe differences in the satisfaction of psychological needs through sports participation based on one’s impairment level. Participants in the study included 50 English-speaking individuals with cerebral palsy who were 18 years of age or older and who were competing in the 2005 World Cerebral Palsy Championship in New Haven, Connecticut. Descriptive statistics were gathered and a simple one-way ANOVA was used to test the differences in psychological need fulfillment. Results indicated a …

Positive Youth Development Within A Family Leisure Context: Youth Perspectives Of Family Outcomes, Peter J. Ward, Ramon B. Zabriskie

Faculty Publications

Family leisure involvement may provide the first and most essential context for positive youth development in today's society.

Structured and organized programs and activities provide valuable settings for youth development. However, the primary setting of the home should be considered the fi rst, and perhaps the most essential, context for positive youth development. Within the home environment, the parents are often the most invested adults in the lives of youth. Parental involvement is one of the strongest protective factors an adolescent can have related to maximizing his or her potential. Evidence supports that strong, positive parental infl uence contributes to …

$100 Bills On The Sidewalk: Violations Of No-Arbitrage In 401(K) Accounts, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over age 59½ forgo arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are forgoing raised contribution rates by a statistically insignificant 0.67% of income among those completing the survey.

The Love Of Money Is The Root Of All Evil: Pay Satisfaction And Cpi As Moderators, Thomas Li Ping Tang, Toto Sutarso, Mahfooz A. Ansari, Vivien Kim Geok Lim, Thompson Sian Hin Teo, Fernando Arias-Galicia, Ilya Garber, Peter Vlerick, Jian Liang, Adebowale Akande, Michael W. Allen, Abdulgawi Salim Alzubaidi, Mark G. Borg, Brigitte Charles-Pauvers, Bor Shiuan Cheng, Randy K. Chiu, Linzhi Du, Consuelo Garcia De La Torre, Rosario Correia Higgs, Abdul Hamid Safwat Ibrahim, Chin Kang Jen, Ali Mahdi Kazem, Kilsun Kim, Roberto Luna-Arocas, Eva Malovics, Alice S. Moreira, Richard T. Mpoyi, Anthony Ugochukwu Obiajulu Nnedum, Johnsto E. Osagie, Aahad M. Osman-Gani, Mehmet Ferhat Özbek, Allen F. Stembridge

Faculty Publications

By incorporating pay satisfaction at Level 1 and Corruption Perceptions Index (CPI) at Level 2, we investigated the relationship between the love of money and self-reported corrupt intent among 6,382 managers in 31 geopolitical entities across six continents. Our significant cross-level three-way interaction effect showed that for managers with high pay satisfaction, the intensity (slope) of the love of money to corrupt intent relationship was almost identical in high or low CPI entities but the former had the lowest magnitude of corrupt intent, whereas the latter had the highest. For those with low pay satisfaction, the slope was the steepest …

Friends Or Foes? Target Selection Decisions Of Sovereign Wealth Funds And Their Consequences, Jason Kotter, Ugur Lel

Faculty Publications

This paper examines investment strategies of sovereign wealth funds (SWFs), their effect on target firm valuation, and how both of these are related to SWF transparency. We find that SWFs prefer large and poorly performing firms facing financial difficulties. Their investments have a positive effect on target firms’ stock prices around the announcement date but no substantial effect on firm performance and governance in the long run. We also find that transparent SWFs are more likely to invest in financially constrained firms and have a greater impact on target firm value than opaque SWFs. Overall, SWFs are similar to passive …