Business Commons^™

Learning By Trading, Amit Seru, Tyler Shumway, Noah Stoffman

Faculty Publications

Using a large sample of individual investor records over a nine-year period, we analyze survival rates, the disposition effect and trading performance at the individual level to determine whether and how investors learn from their trading experience. We find evidence of two types of learning: some investors become better at trading with experience, while others stop trading after realizing that their ability is poor. A substantial part of overall learning by trading is explained by the second type. By ignoring investor attrition, the existing literature significantly overestimates how quickly investors become better at trading.

Mental Accounting In Portfolio Choice: Evidence From A Flypaper Effect, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees simultaneously selected both accounts’ allocations, leading them to mentally integrate the two. Own-contribution allocations before the rule change equal the combined own- and match-contribution allocations afterwards, whereas combined allocations differ sharply …

Optimal Defaults And Active Decisions, Gabriel D. Carroll, James J. Choi, David Laibson, Brigitte C. Madrian, Andrew Metrick

Faculty Publications

Defaults often have a large influence on consumer decisions. We identify an overlooked but practical alternative to defaults: requiring individuals to make an explicit choice for themselves. We study such “active decisions” in the context of 401(k) saving. We and that compelling new hires to make active decisions about 401(k) enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt-in enrollment procedure, producing a savings distribution three months after hire that would take 30 months to achieve under standard enrollment. We also present a model of 401(k) enrollment and derive conditions under which the …

Earnings Management In Ipos: Post-Engagement Third-Party Mitigation Or Issuer Signaling?, James C. Brau, Peter M. Johnson

Faculty Publications

Initial public offering (IPO) firms typically hire auditors, underwriters, and attorneys to assist in the IPO process. Many firms that take the IPO route are also backed by venture capitalists. In the extant literature, these four specialists (auditors, underwriters, attorneys, and venture capitalists) are termed third-party certifiers. In this study, we examine 3900 IPOs from 1985 to 2005 and document a significant negative and robust correlation between IPO firm earnings management and the presence of prestigious third-party certifiers. Next, we test if this correlation is driven by (1) IPO firms attempting to signal firm quality or (2) third-party certifiers mitigating …

Creating Automated Plans For Semantic Web Applications Through Planning As Model Checking, Bonnie Brinton Anderson, James V. Hansen, Paul Benjamin Lowry

Faculty Publications

The uncertainties of planning engendered by nondeterminism and partial observability have led to a melding of model checking and artificial intelligence. The result is planning as model checking. Because planning as model checking tests sets of states and sets of transitions at once, rather than single states, the method remains robust and viable in domains of large state spaces and varying levels of uncertainty.

We develop a test bench for Semantic Web agents and use model-based planning to derive strong plans, strong cyclic plans, and weak plans. Our results suggest potential robustness and efficacy in devising plans for agent actions …

Investor Flows And Stock Market Returns, Brian H. Boyer, Lu Zheng

Faculty Publications

This study simultaneously analyzes the relation between aggregate stock market returns and cash flows (net purchases of equity) from a broad array of investor groups in the United States over a long period of time from 1952 to 2004.We find strong evidence that quarterly flows are autocorrelated for each of the different investor groups.We further document a significant and positive contemporaneous relation between stock market returns and flows of Mutual Funds and Foreign Investors.

Hdtv Division Of Global Electronics, Inc., Alan J. Kirkpatrick, Leonard K. Gashugi

Faculty Publications

CASE DESCRIPTION: The primary objective of this case is to describe realistic capital budgeting issues within a large organization. The case illustrates ways that staff inside a corporate finance department (and in related departments) position themselves in the capital planning process. The case also stresses steps that a large firm can take to leverage its size to gain the maximum benefit of investment projects. Further,, the case demonstrates sensitivity analyses in the capital budgeting process, and the resulting internal rates of return. We suggest the case be used to follow the related case “HDTV Systems”, which shows the firm as …

The Balanced Scorecard As A Strategy-Evaluation Tool: The Effects Of Implementation Involvement And A Causal-Chain Focus, William B. Tayler

Faculty Publications

This paper uses an experiment to examine whether involvement in scorecard implementation can mitigate the effects of motivated reasoning that occur when the scorecard is framed as a causal chain rather than merely as a balanced set of measures. Psychological research on motivated reasoning suggests that managers will evaluate and interpret data in ways consistent with their preferences, increasing their tendency to arrive at conclusions that are consistent with their desired conclusions (Kunda 1990). Consistent with that research, results of my study show that managers who are involved in selecting strategic initiatives perceive those initiatives as having been more successful …

Internal Audit Quality And Earnings Management, Douglas F. Prawitt, Jason L. Smith, David A. Wood

Faculty Publications

Internal auditors often perform work that is relevant to their host entities’ financial reporting processes, yet little research attention has focused on the effects of internal auditing on companies’ external financial reporting. Using a unique and previously unavailable data set, we investigate the relation between internal audit function (IAF) quality and earnings management. We measure IAF quality using a composite measure comprising six individual components of IAF quality based on SAS No. 65, which guides external auditors in assessing the quality of an IAF with respect to its role in financial reporting. Earnings management is measured using two separate proxies, …

Exploring Accounting Fraud In The Subsidiary Environment, Carmelita J. Troy, Madeline Ann Domino, Steven P. Landry

Faculty Publications

This research explores accounting fraud in the subsidiary environment. Utilizing institutional theory, we propose that the subsidiary environment provides an opportune setting and vehicle for individuals to commit accounting fraud. While a growing body of literature exists on accounting fraud, minimal work has focused on the role of the subsidiary in accounting fraud, as reported by the Securities and Exchange Commission (SEC). We sample companies for which the SEC has documented accounting fraud in their enforcement releases. We then analyze the related SEC documents to determine to what extent, if any, a subsidiary is involved in the accounting fraud. Our …

Growing Through Copying: The Negative Consequences Of Innovation On Franchise Network Growth, Robert J. Jensen, Gabriel Szulanski

Faculty Publications

We explore how copying more exactly a blueprint for establishing a franchise network in a new country influences franchising network growth. We test opposing hypotheses using panel data involving the transfer of franchising knowledge to 23 different countries, measuring the degree to which master licensees "copy exactly" knowledge concerning how to grow a network in their country and the effect that their approach has on subsequent network growth. We conclude that a strategy of copying more exactly seems to enhance growth and that the benefits of more exactly replicating knowledge in the first year of a local network's existence persist …

Component Materiality For Group Audits, Steven M. Glover, Jonathan T. Liljegren, Douglas F. Prawitt, William F. Messier

Faculty Publications

Determining overall group materiality and materiality levels for individual components is becoming more of a hot-button issue as the number and complexity of large and international group audits increases. Auditing standards and other professional materials offer little practical guidance on the topic. Internal and peer reviews and regulatory inspections have revealed a variety of approaches in this area. In some instances, reviews have discovered potentially troubling practices. Our conversations with regulators and practitioners indicate an intense and growing interest in the development of conceptually sound guidance. This article outlines a practical approach that group engagement partners can consider in establishing …

Maximizing Warfighter Capability Using Surveyed Necessity Measurement: Application To The Usaf F-15c Fleet, John M. Colombi, David R. Jacques, Dennis D. Strouble

Faculty Publications

Within the Department of Defense, with changing missions to counter dynamic and asymmetrical threats, the acquisition workforce strives to maximize capability for joint warfighting. How acquisition professionals measure and select capability improvements for the nation’s weapon systems is a perpetual challenge, made even more complex with constrained defense budgets. This study identifies a method for determining which upgrades should be purchased (production) for which aircraft in the F- 15C fleet by optimizing a capability proxy measure. Each upgrade’s “necessity” for a given mission area was obtained by conducting a survey of over 250 experienced F-15C pilots. The solution presented in …

Reducing Theft Through Meaningful Recognition, David J. Cherrington

Faculty Publications

A fact that is seldom appreciated when dealing with employee theft is that most antisocial behavior at work is closely associated with employee attitudes. Research has frequently found that job dissatisfaction and feelings of unfairness are correlated with undesirable behaviors, such as tardiness, turnover, theft, and wasting time on the job.

The (Not So) Puzzling Behavior Of Angel Investors, Darian M. Ibrahim

Faculty Publications

No abstract provided.

Individual Taxation Report, Annette M. Nellen, E. Cook, D. Neuschwander, S. Q. Covington, J. Horn, M. Musacchio, J. Walloch

Faculty Publications

Recent developments affecting taxation of individuals, including legislation, regulations, and IRS guidance, are presented in Code section order.

Intro To The Digital World -- For Nlu Academic Cabinet, August 2008, Kathleen A. Walsh

Faculty Publications

Designed as a "beginner's intro" to online life and online learning; themed around 3 questions: what's going on in the digital world?, what's wrong with these kids today (Gen M)?, and what could all of this mean for online teaching and learning at NLU?

Rationalizing Dishonesty, David J. Cherrington

Faculty Publications

A recent BusinessWeek article (28 July 2008: 17) reported some interesting data regarding the percent of people who say they cheat on their taxes. When a smiling devil cartoon character asked them, “How Bad are U?” over 50 percent of the survey respondents admitted to cheating on their taxes. However, only 25 percent said they cheated when the questions were asked on a website containing an official insignia with privacy assurances.

An Educational Module For Enhancing Business Strategies For Web Sites Of Small Rural Firms: An Experience Economy Approach, Miyoung Jeong Ph.D., Ann Marie Fiore, Linda Niehm

Faculty Publications

The project described here introduces an educational module for use by Extension professionals and business owners/operators. The module is designed to help small rural firms build a unique and experiential Web site consistent with their physical stores by implementing 4E strategies. The module presents strategies to enhance the Web site experience and includes an introduction to Pine and GiImore's (1999) experience economy (4E) concepts and their application to Web site design for small rural retail and hospitality businesses. The module supports a step-by-step approach to assessing firms' experiential offerings and designing experience-rich Web sites. Copyright © by Extension Journal, Inc.

Entrepreneurs On Horseback: Reflections On The Organization Of Law, Darian M. Ibrahim, D. Gordon Smith

Faculty Publications

“Law and entrepreneurship” is an emerging field of study. Skeptics might wonder whether law and entrepreneurship is a variant of that old canard, the Law of the Horse. In this Essay, we defend law and entrepreneurship against that charge and urge legal scholars to become even more engaged in the wide-ranging scholarly discourse regarding entrepreneurship. In making our case, we argue that research at the intersection of entrepreneurship and law is distinctive. In some instances, legal rules and practices are tailored to the entrepreneurial context, and in other instances, general rules of law find novel expression in the entrepreneurial context. …

Human Resources Challenges And Opportunities In China: A Case From The Hospitality Industry, Ilan Alon, Tatiana Ferreira

Faculty Publications

The purpose of this study is to underline some of the distinctive practices of the hospitality industry in China. Particularly, we have interviewed several industry experts in luxury hotel properties in China and the USA and have compared their human resources practices. We found that luxury hotels which want to achieve international levels of service must invest more time in hiring and training their Chinese employees. Chinese employees are hired based on personality, and are found to be lacking a service mentality. Cultural and institutional differences in human resources account for the differences that exist between Chinese employees in the …

Exploring Travel Agency Relationship Quality And Relationship Outcomes In China, Yinghua Huang

Faculty Publications

This study investigates the determinants and outcomes of relationship quality in the context of the China travel industry. A conceptual model was developed and tested to identify the determinants of relationship quality and the relationships between relationship quality and key relationship outcomes. Stepwise regression analyses on the survey data show that five of six proposed predictors have significant influences on relationship quality. Further investigation of structural equation modeling demonstrates that higher relationship quality resulted in higher reputation and customer loyalty. The findings will provide travel agency managers with a guideline to develop and implement effective marketing strategies in Chinese tourism …

Recent Developments In Individual Taxation, Annette M. Nellen, E. Cook, J. Horn, M. Musacchio

Faculty Publications

The article focuses on developments affecting individual taxation in the U.S. It says that the Small Business and Work Opportunity Tax Act of 2007 raised the age requirements for Sec. 1(g) effective for tax years after May 2007. It notes that final regulations on the child and dependent care credit clarify that expenses for a child in kindergarten or higher grades do not qualify for the credit. Recommendations in the report "Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance" are cited, such as enhancement of taxpayer service.

Attitude And Divergence In Business Students: An Examination Of Personality Differences In, Todd A. Brown

Faculty Publications

Many studies have reported that economics and business students have been more apt to act in self-interested ways when compared to their counterparts in other academic fields. It is our contention that past studies have not shed light on the underlying psychological differences which might be leading to this difference in behavior. We put forth evidence that certain business majors are correlated with a marked increase in levels of narcissism and decreased levels of empathy, as measured by psychological personality tests.

An Examination Of Accounting Majors' Ethical Decisions Before And After An Ethics Course Requirement, Violet Rogers, Aileen Smith

Faculty Publications

The increased focus on ethical decision making in the accounting profession has resulted in greater attention being paid to the education of future accountants. Texas is one of the states that requires a State Board approved university course in Accounting Ethics to be on the transcript of prospective CPA candidates. This study reports on research using senior/graduate level accounting majors at a Texas state university before the university course requirement and after the requirement. The survey presented four vignettes for the students to consider (i.e., 2 describe an ethical decision and 2 describe an unethical decision). Students were requested to …

Student Cheating Habits: A Predictor Of Workplace Deviance, Sharron M. Graves

Faculty Publications

Unethical behavior seems to be increasing exponentially in every facet of today's business environment. Property and production deviance are just two of the unethical behaviors exhibited by employees. According to a study conducted by S. Nonis and C. Swift (2001), students who engage in dishonest acts in college classes are more likely to engage in dishonest acts in the workplace. Research conducted during the three year period 2002 - 2005 by Don McCabe in conjunction with The Center for Academic Integrity at Duke University reveals that 70 percent of the 50,000 undergraduate students surveyed admit to some cheating (McCabe 2005). …

Intentions To Use Information Technologies: An Integrative Model, Ron Thompson, Deborah Compeau, Chris Higgins, Nathaniel C. Lupton

Faculty Publications

An integrative model explaining intentions to use an information technology is proposed. The primary objective is to obtain a clearer picture of how intentions are formed, and draws on previous research such as the technology acceptance model (Davis, Bagozzi, & Warshaw, 1989) and the decomposed theory of planned behavior (Taylor & Todd, 1995a). The conceptual model was tested using questionnaire responses from 189 subjects, measured at two time periods approximately two months apart. The results generally supported the hypothesized relationships, and revealed strong influences of both personal innovativeness and computer self-efficacy.

Earnings Quality And Corporate Governance In Ipo Firms, Mary F. Calegari, M. A. Harjoto

Faculty Publications

No abstract provided.

Window Dressing In Reported Earnings, L. Guan, Steven D. He, J. Mceldowney

Faculty Publications

The article discusses the use of the term "window dressing," a wide range of techniques for auditing, by audit clients to enhance the financial position of an entity through manipulated disclosures. The term refers to the reporting practices adopted by firms to distort earnings by changing the way stakeholders perceived the financial figures. A research suggests that firms must engage in the type of manipulative behavior for the purpose of economic incentives.

Implementation Of Effective Experiential Learning Environments, Dan Cormany, Andrew Hale Feinstein

Faculty Publications

This paper applies the experiential learning theory of Kolb (1984), the sequential case study learning theory of Knoop (1984), the techniques of effective class role play (Gross Davis, 1993; Pike, 1994) and Rausch's (1999) recommendations for debriefing to a class exercise of graduate Hotel Administration students in teaching the necessity of crisis planning for hotel properties. Starting with the concept of four learning modalities presented by Kolb, we suggest introducing four instructional elements when developing effective experiential learning environments. As judged through qualitative assessment of student participation and the final product produced by the group as a result of its …