Yearly Archives: 2011

Accounting

Why Shareholders and Debt-Holders Value Internationally Diversified Firms: Evidence from the United States

Kingsley Olibe, Robert Strawser and
William Strawser
Journal of Accounting and Finance, Vol. 11, Issue 2, pages 26-52.

This paper empirically tests whether international diversification is associated with market value and debt. Specifically, we relate the levels of equity and debt to firms’ foreign assets and foreign sales. We find that market value is positively related to international diversification, indicating significant gains to share-holders of these firms. Alternatively, the level of debt is positively (negatively) associated with the level of foreign assets (foreign sales. We also consider whether debt levels alter the valuation of foreign assets and foreign sales, finding that the association between market value and foreign assets is stronger for highly-leveraged firms.

Risk Management

Mergers & acquisitions, diversification and performance in the US property-liability insurance industry

Jeungbo Shim
Journal of Financial Services Research,Vol. 39, Issue 3, Pages: 119-144.

This paper examines the relationship between mergers & acquisitions (M & As), diversification and financial performance in the US property-liability insurance industry over the period 1989-2004. The risk-adjusted return on assets (ROA), return on equity (ROE), Z-score and total risk measured by earnings volatility are considered as a relevant indicator of performance. We find that acquirers’ financial performance decreases and earnings volatility increases during the gestation period after the M & As perhaps due to increased frictional …
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Finance

Liquidity Biases and the Pricing of Cross-sectional Idiosyncratic Volatility

Yufeng Han and David Lesmond
Review of Financial Studies Vol. 24, Issue 5 Pp. 1590-1629

We model a microstructure effect on daily security returns, embodied by zero returns and the bid-ask spread, and derive a closed-form solution for the resulting bias in the estimated idiosyncratic volatility. Our empirical tests show that controlling for the bias eliminates the ability of idiosyncratic volatility estimates to predict future returns. We also find a significant reduction in the pricing ability of idiosyncratic volatility after exogenous shocks to liquidity evidenced in the 1997 reduction in the quotes to sixteenths and the 2001 decimalization. Finally, minimizing liquidity’s influence on the estimated idiosyncratic volatility, by orthogonalizing the percentage of zero-return and spread effects on the estimated idiosyncratic volatility, demonstrates that the resulting idiosyncratic volatility estimate has little pricing ability.

Business Analytics, Management

Artifacts, identification and support for change after an acquisition

Sarah Kovoor-Misra, and Marlene A. Smith
Leadership & Organization Development Journal, Vol. 32 Iss: 6, pp.584 – 604

Purpose – This paper aims to investigate the extent to which individuals’ identification with a changed organizational artifact is associated with their cognitive, behavioral, and affective support for change in the later stages of a change effort, and the role of contextual variables in mediating these relationships.

Design/methodology/approach – Primarily quantitative with some qualitative data from an online organization that had acquired the non-personnel assets of its competitor.

Findings – The paper finds that: artifacts can be an important part of employees’ perceptions of their organizations; artifact identification is associated with cognitive and behavioral support in the later stages of a change effort; a positive perception of the change mediates between identification and cognitive and behavioral support, and also facilitates affective support; emotional exhaustion is a marginal mediator; and trust towards top managers does not play a mediating role.

Research limitations/implications – Future research could study the factors that influence artifact identification. Studies of support for change must address its various dimensions to more accurately assess support.

Practical implications – During the later stages of change, managers can foster artifact identification, highlight the positives, and reduce emotional exhaustion to ensure support.

Originality/value – This study is one of the first to examine the relationship between artifact identification and support for change in the later stages of a change effort, and the mediating role of contextual factors. In addition, it investigates the multi-dimensional aspects of support for change, an area that has received limited empirical research attention.

Management

A meta-analysis of self-regulated learning in work-related training and educational attainment: What we know and where we need to go.

Sitzmann, Traci and Ely, Katherine
Psychological Bulletin, Vol 137, Issue 3, pages 421-442

Researchers have been applying their knowledge of goal-oriented behavior to the self-regulated learning domain for more than 30 years. This review examines the current state of research on self-regulated learning and gaps in the field’s understanding of how adults regulate their learning of work-related knowledge and skills. Self-regulation theory was used as a conceptual lens for deriving a heuristic framework of 16 fundamental constructs that constitute self-regulated learning. Meta-analytic findings ( k = 430, N = 90,380) support theoretical propositions that self-regulation constructs are interrelated—30% of the corrected correlations among constructs were .50 or greater. Goal level, persistence, effort, and self-efficacy were the self-regulation constructs with the strongest effects on learning. Together these constructs accounted for 17% of the variance in learning, after controlling for cognitive ability and pretraining knowledge. However, 4 self-regulatory processes—planning, monitoring, help seeking, and emotion control—did not exhibit significant relationships with learning. Thus, a parsimonious framework of the self-regulated learning domain is presented that focuses on a subset of self-regulatory processes that have both limited overlap with other core processes and meaningful effects on learning. Research is needed to advance the field’s understanding of how adults regulate their learning in an increasingly complex and knowledge-centric work environment. Such investigations should capture the dynamic nature of self-regulated learning, address the role of self-regulation in informal learning, and investigate how trainees regulate their transfer of training.

Finance, International Business

China’s Sovereign Wealth Funds: origins, development, and future roles

Stephen Thomas and Ji Chen
Journal of Contemporary China, Volume 20, Issue 70, Pp. 467-478

China has established two of the world’s newer large sovereign wealth funds (SWFs): the official China Investment Corporation (CIC), and the non-official and less transparent State Administration of Foreign Exchange (SAFE) Investment Company (SIC). Both provide alternative investment opportunities for China’s exploding foreign exchange reserves, at US$2.4 trillion at the end of 2009, the largest in world history. This paper will address how China has accumulated its huge and growing foreign exchange reserves, and what roles these reserves, until 2007 managed only by the State Administration of Foreign Exchange (SAFE), have played in the establishment and development of China’s two new SWFs. We will look specifically at why China’s foreign exchange reserves have developed, and how the new SWFs are a part of broader efforts to provide investment alternatives for China’s ballooning foreign exchange surpluses, particularly in light of the inflow of ‘hot’ foreign speculative funds. We will then point out some of the difficulties for China’s financial officials of SWFs as they try to pursue multiple and sometimes competing goals, set by boards of directors representing different bureaucratic and economic interests, all within the context of a general lack of transparency and a rapidly growing economy. Finally, we will present our conclusions about the future roles of the two SWFs as well as of the policies being developed to decentralize foreign exchange reserve holdings while at the same time not slowing the growth of China’s foreign trade surpluses, nor its foreign direct investments, nor its overall economic growth. We will also examine the effects of US-promoted Chinese currency appreciation on the future of China’s foreign exchange reserves and its sovereign wealth funds.

Management

Mass media and massive failures: Determining organizational efforts to defend field legitimacy following crises

Vinit M. Desai
Academy of Management Journal, Volume 54, Issue 2, pp. 263-278

Although much is known regarding how individual organizations respond to accidents, scandals, and other disruptions that directly affect their own operations, scrutiny following disruptions can spread to impact other organizations in the same field. Yet existing research provides little guidance regarding how these other organizations respond when an entire field’s legitimacy is threatened. Drawing on institutional theory, I examine how organizations may undertake efforts to minimize disruptions and defend activities within their field. Findings suggest that defensive efforts depend on similarities between stricken firms and potential responders and on how constituents attend to related issues across the field.

Entrepreneurship, Sustainability

A Simple Path to Sustainability: Green Business Strategies for Small and Medium-Sized Businesses

Fred M. Andreas, Elizabeth S. Cooperman, Blair Gifford, and Graham Russell
ABC-CLIO, Praeger Publications, 2011
A Simple Path to Sustainability: Green Business Strategies for Small and Medium-Sized Businesses is designed specifically to help smaller enterprises share in the benefits that flow from sustainability. Built around case histories showcasing 12 small to medium-size enterprises (SMEs) that have outstanding records of sustainability, this unique, hands-on guide will help readers choose and develop sustainability strategies and undertake the marketing and management initiatives necessary for success.

The studies collected here detail each company’s journey from initial idea through building a new culture, engaging stakeholders, gaining competitive advantage, and planning for the future. Each study also covers the challenges encountered, successes and failures, and lessons learned. Cases are centered around distinct themes, including a marketing/public relations perspective, a risk management perspective, an organizational culture perspective, and a new product development perspective. Taken as a whole, these stories do more than inform. They will inspire managers to become green entrepreneurs, undertaking sustainable strategies that can reap surprising benefits.

Accounting

Client stock market reaction to PCAOB sanctions against a Big 4 auditor

Carol Calloway Dee, Ayalew Lulseged, and Tianming Zhang
Contemporary Accounting, Volume 28, Issue 1, Pp 263–291

We examine the stock market effects of news of the Public Company Accounting Oversight Board’s (PCAOB) sanctions imposed upon Deloitte and Touche, LLP (Deloitte) on December 10, 2007 for actions related to its 2003 audit of Ligand Pharmaceuticals Incorporated (Ligand). Deloitte was censured and fined one million dollars. In addition, the firm agreed to create an internal “Leadership Oversight Committee” responsible for increased supervision of its partners and directors. The engagement partner responsible for the Ligand audit was banned from association with a registered accounting firm, although after two years he may file a petition for relief. These sanctions mark the first time the PCAOB has used its enforcement powers against a Big 4 auditor (or any national or international firm), as well as the first time the PCAOB has issued a monetary penalty against any individual or registered accounting firm.

Finance

Savings selectivity bias, subjective expectations and stock market participation

Yosef Bonaparte and Frank Fabozzi
Applied Financial Economics, Volume 21, Issue 3, pp. 119-130.

Studies of household stock market participation report low participation rates. The explanations cited are that the fixed costs associated with participation and high risk aversion discourage households from buying stocks. However, the low participation rate findings are unchallenged. We argue that because prior studies fail to recognize that not all households save, there exists a selection bias when estimating the household participation rate. After correcting for this selection bias, as well as accounting for the influence of subjective expectations on market participation, we show that the unconditional probability of participating in the stock market would increase twofold.

Entrepreneurship

Leader self-development as organizational strategy

Rebecca J. Reichard and Stefanie K. Johnson
The Leadership Quarterly Vol. 22, Issue 1, Pages 33–42

Leader self-development enables leaders to adapt to the continually changing environment both within and outside of the organization. The purpose of this paper is to describe the construct of leader self-development and the processes by which it can serve as an organizational leadership development strategy. We framed the paper around a multi-level model of leader self-development linking organizational level constructs such as human resources practices and resources with group level phenomena of norms, supervisor style, and social networks with the individual leader self-development process. Leader self-development is a cost-effective way for organizations to develop leaders resulting in competitive edge.

Health Management, Information Systems

Patient perceptions of electronic medical records: physician satisfaction, portability, security and quality of care

Christopher Sibona, Steven Walczak, Jon Brickey, and Madhavan Parthasarathy
International Journal of Healthcare Technology and Management, Vol. 12, Number 1, Pages 62-84

Physicians are adopting electronic medical records in much greater numbers today and are escalating the rate of adoption. The American Recovery and Reinvestment Act of 2009 provides incentives for physicians to adopt this technology. The objectives of this paper are to determine whether patient satisfaction is affected by computer use in the exam room and whether patients who have experienced computers in the exam room perceive differences in the utility of electronic medical records. Physicians received higher overall satisfaction scores when a computer was used to retrieve patient information. Physicians received similar satisfaction scores when a computer was used to enter patient information. Patients who have experienced electronic medical records perceive benefits such as increased portability of the record but do not believe that physicians who use electronic medical records produce better health outcomes. Patients who have experienced electronic medical records do not desire more control over their record than those who have traditional medical records.

Finance

The effects of bank relations on stock repurchases: Evidence from Japan

Jun-Koo Kanga, Kenneth A. Kim, P. Kitsabunnarat-Chatjuthamard, and Takeshi Nishikawa
Journal of Financial Intermediation, Vol. 20, Issue 1, Pages 94–116

This paper examines the effects that bank relations have on stock repurchases in Japan. Similar to US evidence, we find that stock repurchase announcements in Japan have positive announcement period returns. Announcement returns are positively related to equity ownership by main banks, but are negatively related to nonbank debt ratios. In contrast, bank debt ratios do not have such a negative relation. Announcement returns are also negatively related to future growth opportunities, suggesting that repurchase announcements are greeted more positively by investors when repurchasing firms have lower growth opportunities. We also find that firms with high leverage are less likely to repurchase stocks, whereas firms with high equity ownership by main banks are more likely to do so. Overall, these results are consistent with the views that banks, particularly main banks, are effective monitors of agency costs and financial distress risk, and that their presence as dual stakeholders are value-enhancing.