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ItemDoes Cash Bonus Work? A Study on the Contingency Fit with Firm Strategy( 2017-08-31)Compensation research on cash-based incentives is limited due to the escalating value of stock-based incentives in executive compensation. However, firms continue to pay cash bonus to their executives. There are also few empirical studies on contingency-based compensation research, and these studies assume a linear relationship between incentive compensation and performance. In this study, we apply polynomial regression analysis, a more robust statistical tool, to explore the performance impact of the contingency fit between cash bonus awarded to executives (executive cash bonus) and their firm’s strategic orientation (prospector versus defender), using Miles and Snow’s (1973, 2003) typology of business strategy. The results show that there is an inverted U-shaped relationship between executive cash bonus and firm performance, and the matching form of fit applies to both prospector and defender firms. This suggests that cash bonus can be effective to incentivize executives to work to improve performance of both prospector and defender firms, up to a certain level at which firm performance is optimized. We also find that performance of prospector firms is more responsive to changes in executive cash bonus than performance of defender firms up to the optimal level of executive cash bonus. Thus, despite the popularity of stock-based incentives, cash bonus remains an effective tool to incentivize executives of both prospector and defender firms to work hard to improve firm performance, but it may not be an efficient tool for executives of prospector firms.
ItemIsomorphic Pressures in Short-term Managerial Decisions: Evidence from Working Capital Management( 2017-08-31)We investigate whether isomorphic pressures play a role in determining a firm’s working capital policy. Using instrumental variable estimation and excess-variance tests to overcome reflection problem in identifying isomorphic pressures due to peer interactions, we find that average change in working capital of peers positively impacts a firm’s working capital policy choice. Further, we hypothesize and find that the impact of peers’ working capital decisions on a firm is moderated by industry competitiveness. We also find that firms do not follow their peers if they are cash constrained i.e. they cannot afford to follow. In addition, we document that a firm’s long term investment strategy is negatively related to a firm’s propensity to follow peers in deciding its working capital policy.
ItemImpression Management Tactics on Goal Setting: A Case Study of Ontario Hospitals Quality Improvement Plans( 2017-08-15)In this study, we explore goal setting as an impression management tactic in Ontario’s hospital sector, and examine the impact of self-set goals and action plans on organizational performance improvement. We find that hospitals with current performance lower than their peers (low-performance hospitals) are more likely to set difficult goals (targets higher than current performance) because they have strong impression motivation. Low-performance hospitals which develop and include more quality improvement initiatives for specific quality indicators in their Quality Improvement Plans (QIP) will gain performance improvement, while those which include few quality improvement initiatives do not gain any performance improvement as they fail in the impression construction process. On the other hand, hospitals with current performance higher than their peers (high-performance hospitals) are more likely to set easy goals as their impression motivation is not as strong as low-performance hospitals. Moreover, high-performance hospitals are more concerned about achieving easy performance goals and maintaining their favorable image as high-quality hospitals in the impression construction process. To gain performance improvement, Ontario government should allocate resources and provide guidance to develop quality improvement initiatives to low-performance hospitals that set difficult goals. In contrast, high-performance hospitals should continue to set difficult goals to gain performance improvement.
ItemDisclosure Frequency Induced Myopia and the Decision to be Public( 2017-12-08)This study examines whether disclosure frequency induced myopia influences the types of firms that go public and their choice of listing exchanges if they decide to do so. We find that the incentive to stay private in order to avoid disclosure frequency induced myopia creates a downward kink in the relation between the length of the cash conversion cycle and the proportion of public firms at the industry level around the time frame that corresponds to the mandatory reporting interval. Second, at the firm level, public firms with longer cash conversion cycles relative to industry peers are more likely to list on exchanges that require less frequent mandatory disclosure to minimize disclosure frequency induced myopia. Furthermore, when the mandatory reporting frequency increased from semi-annual to quarterly, we observe a sharper decline in the percentage of public firms from industries whose cash conversion cycles are between one quarter and two quarters relative to those from other industries both in the United States and in the United Kingdom.