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Article
Publication date: 29 March 2020

Looking forward instead of backward: Overconfidence, forward-looking aspirations and exploitive/explorative search

Desmond Ng

According to behavioral research, aspirations influence a firm's search – exploitive and explorative – for solutions that satisfy a firm's goals. Yet, such goal seeking…

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Abstract

Purpose

According to behavioral research, aspirations influence a firm's search – exploitive and explorative – for solutions that satisfy a firm's goals. Yet, such goal seeking behavior is adaptive to a firm's past experiences and not to a manager's expectations of its firm's future. A manager's expectations are often explained in terms of their confidence in future events. The purpose of this study is to address the following research question: how does a manager's confidence influence its expectations of a firm's future performance and goals; and how do these future expectations influence a firm's exploitive/explorative search?

Design/methodology/approach

In drawing on cognition and legitimacy research, a conceptual model was developed to explain the antecedents and outcomes of a firm's “forward-looking” aspirations. The antecedents to a firm's forward-looking aspirations are attributed to a manager's overconfidence – anchoring, confirmation and availability – biases. In using strategic legitimacy explanations, these biases introduce distinct types of forward-looking (exploitive/explorative) search that legitimize/de-legitimize a manager's forward-looking aspirations.

Findings

A key finding of this study is that it introduces a strategic decision-making process in which a firm's exploitive/ explorative search is adaptive toward its forward-looking aspirations.

Research limitations/implications

This forward-looking strategic decision-making process offers research implications to understand how a firm's future goals and expectations can offer new understandings of their past experiences and traditions and explains how a manager's overconfidence biases can influence the assessment of a firm's social aspirational groups.

Practical implications

In addition, this study also offers practical implications in which illustrative examples are used to explain this study's forward-looking strategic decision-making process.

Originality/value

A distinct contribution of this study is that it introduces a forward-looking orientation that has not been previously examined the backward focus of behavioral research.

Details

Journal of Strategy and Management, vol. 13 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/JSMA-07-2019-0120
ISSN: 1755-425X

Keywords

  • Overconfidence
  • Aspirations
  • Organizational learning
  • Organizational search

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Book part
Publication date: 22 November 2012

Structural Estimation of the New-Keynesian Model: A Formal Test of Backward- and Forward-Looking Behavior

Tae-Seok Jang

This chapter analyzes the empirical relationship between the pricesetting/consumption behavior and the sources of persistence in inflation and output. First, a small-scale…

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Abstract

This chapter analyzes the empirical relationship between the pricesetting/consumption behavior and the sources of persistence in inflation and output. First, a small-scale New-Keynesian model (NKM) is examined using the method of moment and maximum likelihood estimators with US data from 1960 to 2007. Then a formal test is used to compare the fit of two competing specifications in the New-Keynesian Phillips Curve (NKPC) and the IS equation, that is, backward- and forward-looking behavior. Accordingly, the inclusion of a lagged term in the NKPC and the IS equation improves the fit of the model while offsetting the influence of inherited and extrinsic persistence; it is shown that intrinsic persistence plays a major role in approximating inflation and output dynamics for the Great Inflation period. However, the null hypothesis cannot be rejected at the 5% level for the Great Moderation period, that is, the NKM with purely forward-looking behavior and its hybrid variant are equivalent. Monte Carlo experiments investigate the validity of chosen moment conditions and the finite sample properties of the chosen estimation methods. Finally, the empirical performance of the formal test is discussed along the lines of the Akaike's and the Bayesian information criterion.

Details

DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments
Type: Book
DOI: https://doi.org/10.1108/S0731-9053(2012)0000028013
ISBN: 978-1-78190-305-6

Keywords

  • Backward- and forward-looking behavior
  • formal test
  • intrinsic persistence
  • maximum likelihood
  • method of moment
  • New-Keynesian

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Article
Publication date: 1 June 2015

Unpaid overtime in the Netherlands: forward- or backward-looking incentives?

Peter H. van der Meer and Rudi Wielers

– The purpose of this paper is to test forward-looking incentives against backward-looking incentives.

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Abstract

Purpose

The purpose of this paper is to test forward-looking incentives against backward-looking incentives.

Design/methodology/approach

Wage growth model to estimate forward-looking effects of unpaid overtime and a probit model of participation in unpaid overtime controlling for excessive pay to estimate backward-looking effects. The authors use data form the OSA labour supply panel (years 1994, 1996 and 1998).

Findings

The importance of backward-looking incentives is demonstrated in an empirical analysis of participation in unpaid overtime. The authors show that employees who have relatively good wages now or who have had relatively good wages in the recent past participate more often in unpaid overtime. The authors also show that participation in unpaid overtime does not lead to extra wage growth.

Research limitations/implications

These results imply that involvement in unpaid overtime is to be explained from backward-looking incentives, not from forward-looking incentives. The paper concludes that backward-looking incentives deserve more attention in the economic literature, especially as they are well-accepted as work motivation devices by employees. Limitations are the length of the panel study (four years) and the fact that the data are restricted to one country (the Netherlands).

Social implications

Personnel policies should focus more on the intrinsic motivation of personnel rather than on extrinsic motivation.

Originality/value

This is the first paper to test both forward- and backward-looking incentives simultaneously.

Details

International Journal of Manpower, vol. 36 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/IJM-12-2012-0185
ISSN: 0143-7720

Keywords

  • Careers
  • Employee behaviour
  • Motivation (psychology)
  • Compensation
  • Human resource management
  • Hours of work
  • Financial benefits

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Article
Publication date: 15 May 2017

Forward looking vs backward looking: An empirical study on the effectiveness of credit evaluation system in China’s online P2P lending market

Yanyan Gao, Jun Sun and Qin Zhou

The purpose of this paper is to estimate the effectiveness of the credit evaluation system using the borrowing data from China’s leading P2P lending platform, Renrendai.com.

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Abstract

Purpose

The purpose of this paper is to estimate the effectiveness of the credit evaluation system using the borrowing data from China’s leading P2P lending platform, Renrendai.com.

Design/methodology/approach

The current credit valuation systems are classified into the forward-looking mechanism, which judges the borrowers’ credit levels based on their uploaded information, and the backward-looking mechanism, which judges the borrowers’ credit levels based on their historical repayment performance. Probit models and Tobit models are used to examine the effectiveness of credit evaluation mechanisms.

Findings

The results show that only the “hard” information reflecting borrowers’ credit ability can explain the default risk on the platform under the forward-looking credit evaluation mechanism. The backward-looking credit evaluation mechanism (BCEM) based on the repeated borrowings produces both promise-enhancing and “fishing” incentives and thus fails to explain the default risk, and weakens the effectiveness of forward-looking credit indicators in explaining the default risk because it encourages borrowers to invest in forging forward-looking credit indicators. Additional information such as the interest rate and the repayment periods reveals borrowers’ credit and thus can also be used as a predictor of borrowers’ default risk.

Practical implications

The findings suggest that current ex ante screening based on the information collected from the borrowers or repeated borrowings is inadequate to control the default risk in P2P lending markets and thus needs be improved. Ex post monitoring and sharing on defaulter’s information should be strengthened to increase the default cost and thus to deter potential bad borrowers.

Originality/value

To the authors’ knowledge, this is the first paper classifying the credit evaluation system in online P2P lending market into the forward-looking type and the backward-looking type, which is important since they provide different incentives to borrowers. The paper also investigates and provides evidence on the promise-enhancing and “fishing” incentives of BCEMs.

Details

China Finance Review International, vol. 7 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/CFRI-07-2016-0089
ISSN: 2044-1398

Keywords

  • Default risk
  • Credit evaluation
  • Online P2P lending
  • Renrenddai.com
  • Repeated borrowings

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Article
Publication date: 16 October 2007

The determinants of forward‐looking information in annual reports of UAE companies

Khaled Aljifri and Khaled Hussainey

This paper aims to empirically explore the underlying factors that may affect the extent to which forward‐looking information is disclosed.

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Abstract

Purpose

This paper aims to empirically explore the underlying factors that may affect the extent to which forward‐looking information is disclosed.

Design/methodology/approach

This study uses a list of forward‐looking keywords to demonstrate the differences, if any, in the level of disclosure among firms and between sectors. The sample includes 46 companies listed in either the Dubai financial market or the Abu Dubai securities market. Statistical analysis is performed using a backward regression.

Findings

Debt ratio and profitability are found to be significant; however, sector type, firm size, and auditor size are found to have insignificant association with the level of forward‐looking information disclosed in UAE annual reports.

Practical implications

A number of users, such as investors, lenders, and auditors, may find these results beneficial. These users may consider the results of this study when they are dealing with firms that have low profitability and high financial risk. Accordingly, they may wish to extend their investigations and verify such reporting practices. By doing this, the quality of information that is available to the public may be enhanced; and hence, users of annual reports may be better served.

Originality/value

It is important to note that the association between the extent of disclosure and the selected corporate attributes is still ambiguous. There are a very limited number of studies that have examined disclosure of forward‐looking information in developing countries and even fewer such studies may be found in the Middle Eastern countries. To the best of the one's knowledge, no study yet has examined the forward‐looking information disclosure issues in the UAE or Middle Eastern countries.

Details

Managerial Auditing Journal, vol. 22 no. 9
Type: Research Article
DOI: https://doi.org/10.1108/02686900710829390
ISSN: 0268-6902

Keywords

  • Disclosure
  • Annual reports
  • Emerging markets
  • United Arab Emirates

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Article
Publication date: 30 September 2019

Encouraging client’s knowledge sharing in enterprise system post-implementation through psychological contract and entrepreneurial orientation

Zhao Cai, Hefu Liu, Qian Huang, Yue Kang and Liang Liang

The purpose of this paper is to discuss the relationship between psychological contract and knowledge sharing behavior in the enterprise system (ES) post-implementation…

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Abstract

Purpose

The purpose of this paper is to discuss the relationship between psychological contract and knowledge sharing behavior in the enterprise system (ES) post-implementation stage. The fulfillment and obligation of psychological contract are proposed as antecedents of knowledge sharing behavior performed by client firms. Additionally, entrepreneurial orientation (EO) is considered a moderator in the relationship between psychological contract and knowledge sharing.

Design/methodology/approach

This study adopted the questionnaire survey to collect data from 132 client firms of a focal ES provider in the garment industry of China. Hierarchical regression analysis was used for data analysis.

Findings

Psychological contract fulfillment is negatively related to knowledge sharing, whereas the positive role of psychological contract obligation is supported. EOstrengthens the role of both psychological contract fulfillment and obligation in shaping knowledge sharing behavior of client firms.

Originality/value

This study adopts forward- and backward-looking approaches in decision making as a theoretical lens to investigate how to improve client firms’ knowledge sharing behavior through psychological contract. By figuring out the roles of psychological contract and EO in influencing knowledge sharing, this research benefits both vendor and client firms in maintaining sustainable collaboration and continuous improvement of ES projects.

Details

Information Technology & People, vol. 33 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/ITP-11-2018-0510
ISSN: 0959-3845

Keywords

  • Knowledge transfer
  • Survey
  • Contract
  • Methodology
  • Practice
  • Management practices
  • Post-implementation
  • Information system development
  • Phenomenon

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Article
Publication date: 2 January 2018

Determinants of forward-looking disclosures in integrated reporting

Merve Kılıç and Cemil Kuzey

This paper aims to examine the nature and extent of forward-looking disclosures in early examples of integrated reporting and to investigate the determinants of those disclosures.

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Abstract

Purpose

This paper aims to examine the nature and extent of forward-looking disclosures in early examples of integrated reporting and to investigate the determinants of those disclosures.

Design/methodology/approach

The sample for research involved 55 non-financial companies whose reports are available in the Integrated Reporting Examples Database for the year 2014. The authors used content analysis to investigate the quantitative and qualitative forward-looking disclosures among early adopters of integrated reporting. The forward-looking disclosure index (FLDI) was categorized into two main groups, quantitative and qualitative, including 30 items in total. Multivariate ordinary least squares regression was used to investigate the associations proposed in the research hypotheses.

Findings

The authors determined that the majority of the entities tended to provide qualitative forward-looking disclosures rather than quantitative. Further, the findings showed that gender diversity and firm size are positively related to forward-looking disclosures, whereas leverage is negatively related to forward-looking disclosures. Contrary to expectations, the authors did not find a significant impact created by board size, board composition, profitability or industry on forward-looking disclosures.

Originality/value

The research contributes to the current integrated reporting and forward-looking disclosure literature. To the best of the authors’ knowledge, there is no prior study that has investigated forward-looking disclosures in integrated reports. This study contributes to the current literature by examining the determinants of forward-looking disclosures by categorizing them as quantitative and qualitative. Further, this research adds empirical findings to the literature on the association found between female directors and forward-looking disclosures.

Details

Managerial Auditing Journal, vol. 33 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MAJ-12-2016-1498
ISSN: 0268-6902

Keywords

  • Voluntary disclosure
  • Corporate governance
  • Integrated reporting
  • Board gender diversity
  • Forward-looking disclosure

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Article
Publication date: 1 January 2020

Phillips curve and long-run inflation under commitment

Dario Pontiggia

The purpose of this paper is to study the optimal long-run rate of inflation in the presence of a hybrid Phillips curve, which nests a purely backward-looking Phillips…

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Abstract

Purpose

The purpose of this paper is to study the optimal long-run rate of inflation in the presence of a hybrid Phillips curve, which nests a purely backward-looking Phillips curve and the purely forward-looking New Keynesian Phillips curve (NKPC) as special limiting cases.

Design/methodology/approach

This paper derives the long-run rate of inflation in a basic New Keynesian (NK) model, characterized by sticky prices and rule-of-thumb behavior by price setters. The monetary authority possesses commitment and its objective function stems from an approximation to the utility of the representative household.

Findings

Commitment solution for the monetary authority leads to steady-state outcomes in which inflation, albeit small, is positive. Rising from zero under the purely forward-looking NKPC, the optimal long-run rate of inflation reaches its maximum under the purely backward-looking Phillips curve. In this case, inflation bias arises, while, under the hybrid Phillips curve, positive long-run inflation is associated with an output gain.

Research limitations/implications

This paper serves as a clarification against the misperception that log-linearized models take as given the steady-state inflation rate rather than being capable of determining it. Analysis is sensitive to the basic NK setting, with the assumed rule-of-thumb behavior by price setters and price staggering.

Originality/value

The results are the first to quantify the optimal long-run rate of inflation in a fully microfounded model that nests different Phillips curves.

Details

Journal of Economic Studies, vol. 47 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/JES-06-2018-0229
ISSN: 0144-3585

Keywords

  • Inflation persistence
  • Phillips curve
  • Optimal monetary policy

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Article
Publication date: 16 May 2020

Developing forward-looking orientation in integrated reporting

Martin H. Kunc, Maria Cleofe Giorgino and Federico Barnabè

According to the “strategic focus and future orientation” principle of the integrated reporting (<IR>) framework, <IR> should provide information useful to support…

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Abstract

Purpose

According to the “strategic focus and future orientation” principle of the integrated reporting (<IR>) framework, <IR> should provide information useful to support investors in assessing the future financial performance of organizations. This study aims to support the operationalization of this function by improving the forward-looking orientation of the integrated report.

Design/methodology/approach

Basing on the backward- and forward-looking disclosure in <IR> and the dynamic resource-based view (DRBV), this study develops an explorative case study building a quantitative simulation model based on an integrated report.

Findings

This study provides useful insights into how operationalizing the <IR> “future orientation” and obtaining more quantitative information on the organization’s capacity to create value in the future by applying DRBV and quantitative simulation modeling.

Research limitations/implications

The article presents one case study to explore the method suggested to improve the <IR> forward-looking orientation. Additional case studies applying the same research design should be certainly useful to refine the method.

Practical implications

Supporting the <IR> forward-looking orientation, this study provides additional information for the decision-making process of investors, thus contributing to the efficient and productive allocation of capital.

Originality/value

Few studies have investigated forward-looking information in integrated reports, highlighting the existence of an “information gap” referred to such disclosure. Overcoming these previous results, the study provides useful insights on how to improve the <IR> forward-looking orientation.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
DOI: https://doi.org/10.1108/MEDAR-12-2019-0664
ISSN: 2049-372X

Keywords

  • Simulation
  • Integrated reporting
  • Integrated thinking
  • Dynamic resource-based view
  • Forward-looking information

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Article
Publication date: 3 April 2017

The relationship between corporate governance, corruption and forward-looking information disclosure: a comparative study

Ben Kwame Agyei-Mensah

This paper aims to examine the relationship between corporate governance, corruption and disclosure of forward-looking information in listed firms in two African…

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Abstract

Purpose

This paper aims to examine the relationship between corporate governance, corruption and disclosure of forward-looking information in listed firms in two African countries, Botswana and Ghana.

Design/methodology/approach

The study uses 174 firm-year observations between the period of 2011-2013 for listed firms in the two countries. Each annual report was individually examined and coded to obtain the disclosure of forward-looking information index. Descriptive analysis was performed to provide the background statistics of the variables examined. This was followed by regression analysis which forms the main data analysis.

Findings

The findings show that firms in the least corrupt country, Botswana, disclose more forward-looking information than firms in Ghana, one of the most corrupt countries in sub-Saharan Africa. This confirms the relationship between the transparency level of a country and the transparency level of the listed firms in that country.

Originality/value

This is one of the few studies in sub-Saharan Africa that considered the impact of corporate governance factors on transparency and disclosure of forward-looking information. This study contributes to the literature on the relationship between corporate governance and disclosure by showing that disclosure of forward-looking information in Ghana is associated with the proportion of independent board members. The disclosure of forward-looking information in Botswana on the other hand is influenced by board ownership concentration. The findings of this study will help market regulators in Ghana, Botswana and sub-Saharan Africa, Security and Exchange Commission (SEC) and the Sub-Sahara African Exchanges in evaluating the adequacy of the current disclosure regulations in their countries.

Details

Corporate Governance: The International Journal of Business in Society, vol. 17 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/CG-11-2015-0150
ISSN: 1472-0701

Keywords

  • Ghana
  • Corporate governance
  • Botswana
  • Financial reporting
  • Forward-looking information

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