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Many argue that the design of compensation contracts for public company chief executive officers (CEOs) is often not guided by a goal of value maximization. Yet, there is…
Many argue that the design of compensation contracts for public company chief executive officers (CEOs) is often not guided by a goal of value maximization. Yet, there is limited direct empirical evidence on the negative consequences of the proposed inefficient contracting between shareholders and CEOs. Using data on CEO bonus contracts of the S&P 500 firms, we investigate potential firm performance implications of the use of qualitative criteria such as leadership and mentoring in those contracts. We maintain that unlike quantitative criteria, qualitative criteria are difficult to define and measure on an objective basis, possibly resulting in an inefficient and biased incentive structure. Twenty-five percent of the sample observations have CEO bonus contracts that include a qualitative criterion for bonus payment determination. Our results show that employee productivity, asset productivity, capital expenditures, and future abnormal stock returns are lower for firms that use a qualitative criterion in CEO bonus contracts than those that do not. Further, contrary to the argument in prior literature that earnings management decreases with the use of subjective performance indicators in incentive contracts, we find that income-increasing accruals are actually higher when the CEO bonus contract includes a qualitative criterion. We recommend that compensation committees set concrete, measurable performance goals for CEOs, providing CEOs with better guidance and helping improve their corporate decision making.
Accounting educators continue to look for efficient ways to introduce personal competencies into the curriculum. Prior literature contains numerous suggestions on how…
Accounting educators continue to look for efficient ways to introduce personal competencies into the curriculum. Prior literature contains numerous suggestions on how faculty can implement a single personal competency, such as written communication. This chapter describes our strategy for integrating a variety of personal competencies using team projects. We implement this strategy by selecting projects that are content oriented and not only involve critical thinking but also address students’ skills related to written and oral communication, technology, teamwork, and leadership. We offer guidance on how to implement this project-oriented strategy and also provide selected tools for streamlining the assessment of student performance, such as sample grading rubrics and an online survey for evaluating team leader and team member performance. Feedback suggests that students perceived an improvement in their competencies as a result of the course's activities. While we bundled a variety of personal competencies within a managerial cost accounting course, instructors can easily adapt our strategy to any course in the curriculum.
Purpose – This article examines the operating lease cost stickiness characteristics exhibited by retail firms.Methodology/approach – Anderson, Banker, and Janakiraman (2003…
Purpose – This article examines the operating lease cost stickiness characteristics exhibited by retail firms.
Methodology/approach – Anderson, Banker, and Janakiraman (2003) laid important groundwork for the study of asymmetric cost behavior or cost stickiness. The authors found that a firm’s selling, general, and administrative costs (SG&A) costs increase more with a sales increase than those expenses decrease with an equivalent sales decline. Their findings provided avenues for many studies with differing focal variables; however, extant research has not explored the degree of cost stickiness associated with operating lease expenses. Recognizing the nature and magnitude of operating leases and the competitive and changing environment for retailers, this study adapts Anderson et al.’s (2003) model to provide insights into operating lease stickiness. The study uses archival financial data from 1997 through 2016 for specialty retail firms in testing the lease cost stickiness hypotheses.
Findings – The results of this study supported the hypotheses that operating lease expenses exhibit stickiness behavior and are relatively stickier than future lease commitments for retail firms.
Originality/value – By focusing on retail firms and related lease expenses, this study provides insights into the increasingly competitive retailer environment. This article’s findings will enhance understanding of how specialty retail firms’ managers react to reduced revenues. Finally, given recent authoritative pronouncements affecting accounting for leases and the significance of leasing transactions, research providing insights into cost behavior and managerial actions stands to make an important contribution to literature and practice.
The purpose of this study is to conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and…
The purpose of this study is to conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and post-financial crisis periods. To conduct the comparative analysis, the authors consider five years before and five years after the financial crisis of 2008. The authors use the data from the US financial service institutions and run separate regressions for the pre- and post-crisis periods to check if there is any significant difference in the economic determinants of executive compensation before and after the financial crisis. The authors find that total compensation and its incentive components decreased significantly in the post-crisis period. In the pre-crisis period, total compensation was determined by stock performance, accounting profit, growth, and leverage, whereas in the post-crisis period stock returns and leverage are the major factors influencing total compensation. The authors also find that firms’ leverage negatively influences the sensitivity of the pay for performance, but the influence of leverage on pay for performance is weaker in the post-crisis period. Our research is significant in the context of the US economy, the regulatory reforms of financial institutions, and the perspectives of the executive compensations. This is the first study that compares the relationship between compensation and firm performance over the pre- and post-crisis periods. It is an explicit attempt to develop a theoretical understanding of the compensation/performance relationship for the financial industry, which is blamed for the financial crisis and is affected by the Dodd–Frank regulation after the crisis.
Purpose – Over the last 15 years, research provided insight into several firm- and country-level determinants of asymmetric cost behavior. Their implicit premise builds on…
Purpose – Over the last 15 years, research provided insight into several firm- and country-level determinants of asymmetric cost behavior. Their implicit premise builds on rational trade-off decisions between holding costs of idle resources and adjustment costs. The authors build upon these findings and establish an irrational component – sunlight-induced managerial mood.
Methodology/approach – The authors rely on the established cross-sectional model of asymmetric cost behavior to investigate short-term resource adjustment decisions and extend it by an exogenous proxy for managerial mood (i.e., daily sunshine hours per US county-year).
Findings – Beyond rational trade-off and planning decisions, the authors provide large-sample evidence on the influence of irrational mood on cost decisions. In accordance with research in psychology showing that higher serotine levels, attributable to sunlight, contribute to happiness and optimism, the results suggest that sunlight-induced mood increases the level of asymmetric cost behavior. Managers from firms headquartered in counties with a higher level of sunlight less likely react to a decrease in sales by reducing idle resources. Instead, they seem to be more optimistic about future demand conditions and, thus, more inclined to “sit out” downturns in firm activity until sales recover.
Research limitations/implications – Although the mood proxy is truly exogenous in the setting, the authors are unable to establish causality as the actual cost management decisions could not be observed directly. Moreover, the analyses are limited to the county level, whereas weather undoubtedly oftentimes exhibits intra-county variation.
Originality/value – This study is the first to establish an irrational antecedent of managerial resource adjustment decisions, which adds to the cost stickiness literature by demonstrating the important role of deliberate managerial decisions for corporate cost behavior.
This study examines how firms’ use of competitor-focused accounting information, specifically competitor monitoring information, impacts their pricing, demand, and overall…
This study examines how firms’ use of competitor-focused accounting information, specifically competitor monitoring information, impacts their pricing, demand, and overall revenue performance. The monitoring activities examined are the scope of monitoring, monitoring above and below one’s own hotel class (i.e., market segment), and the extent of reciprocity of monitoring. Competitor analysis is a central element in strategic management accounting (SMA), yet little empirical research has been done since companies do not disclose competitor monitoring activities. Proving the value of competitive monitoring provides strong support for SMA. Archival, proprietary monitoring information regarding pricing, demand, and revenue were obtained from one of the largest hotel markets in the United States. Using regression, we modeled the relationships between performance measures (pricing, demand, and revenue) and monitoring behaviors, while controlling for quality (hotel characteristics and management skill), competitive intensity, hotel class, geographic location, and ownership type. Our results indicate that two aspects of competitor monitoring impact hotel pricing that, in turn, impacts hotel demand and revenue performance. Specifically, a hotel monitoring more competitors (what we refer to as Scope) achieves higher prices with unchanged demand, resulting in higher revenue performance. Most hotels monitor within their class. However, deviating from one’s class has profound outcomes: looking at lower (higher) quality hotels results in a hotel setting lower (higher) prices, resulting in higher (unchanged) demand and lower (higher) revenue performance. Surprisingly, we did not find support for the reciprocity of monitoring. That is, whether the competitors monitored by a hotel, in turn follow the target, has no impact on hotel revenue performance outcomes. While the SMA literature notes the importance of competitor monitoring, this study fills a gap in an important, under-researched area by documenting the link between competitor monitoring behaviors and organizational revenue performance. This may help promote greater diffusion of SMA practices.
Purpose – The authors investigate the interpretations of senior university decision-makers on three questions: (1) What constitutes “relevant” research? (2) In what ways…
Purpose – The authors investigate the interpretations of senior university decision-makers on three questions: (1) What constitutes “relevant” research? (2) In what ways is the relevance of research typically measured? and (3) What alternative ways might be adopted in measuring the relevance of research?
Design/methodology/approach – This exploratory study adopts an inductive approach, informed by data collected from semi-structured interviews with senior research-related university leaders and archival sources in five Australian and eight US universities.
Findings – There is considerable convergence in the conceptualization as well as the operationalization of the notion of relevance between the Australian and US universities participating in this study. The evidence supports a relational rather than currently prevailing transactional approaches in operationalizing the concept of research relevance. This relational approach emphasizes the importance of stakeholders, their needs and expectations, and their engagement in the articulation of measures that demonstrate the relevance of research in both the short and longer terms.
Research limitations/implications – The evidence is primarily based on the views of university senior management drawn from a relatively small number of universities leading to questions about the representativeness and generalizability of the findings. Moreover, the findings have been informed by leaders at the most senior hierarchical levels. Although consistent with the aim of the study, the views of university leaders provide only one view on our research questions.
Originality/value – The authors provide a conceptual view of research relevance from the perspective of one pivotal group – university senior management – that has been largely and surprisingly overlooked in discussions of the relevance of academic research.
The authors investigate the joint effects of two environmental variables, performance-based pay (PBP) and performance monitoring (PM), on behavioral dishonesty in a…
The authors investigate the joint effects of two environmental variables, performance-based pay (PBP) and performance monitoring (PM), on behavioral dishonesty in a setting where the controls subsequently are absent. In a laboratory study using 88 participants in a 2×2 experimental design, simulating a work environment, the authors manipulate the presence of PBP and PM. Once the participants are accustomed to their assigned work environment and have completed contractual tasks unrelated to the dishonesty experiment, the authors allow them to privately roll dice to determine the size of a bonus gift card. Dishonesty levels are inferred from differences between treatment groups in the prizes claimed. The authors find an interaction effect, where inferred dishonesty in the performance-based-pay group is higher than the fixed-pay group when there is no PM, but lower when there is PM. Although theory and existing literature did not lead us to hypothesize these exact results, they offer important insights into a complex relationship. By jointly examining the effects of worker contracts and workplace monitoring on dishonesty, this research extends the understanding of the potential consequences of formal controls. As the workplace grows more complex, employers increasingly rely on information provided by frontline employees and managers. Thus, unintended effects of managerial controls on honesty are an important topic in the business literature.