03 Management Accounting (including Behavioral) (MAN)

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    The Balanced Scorecard: Plant-Level Evidence of Relations Between the Four Perspectives
    ( 2022) Anderson, Mark ; Banker, Rajiv ; Hyun, Soonchul
    We use structural equation modeling to evaluate patterns of relations in two models – a sequential model that links a series of non-financial and financial outcome measures in an ordered hierarchical manner according to the four perspectives described in the balanced scorecard (BSC) and a complex model that permits direct relations between outcome measures in lower-order perspectives with outcome measures in any higher-order perspective of the BSC hierarchy. We perform our analysis at the plant level using generic outcome measures from a nation-wide survey of business establishments in Canada. Our model specifications follow Bryant, Jones and Widener (2004) who conduct a firm-level analysis of companies included in the American Customer Satisfaction Index. Our plant-level results indicate that both the sequential and complex models fit the data well. The validity of the sequential model supports the premise of linking the outcome measures in a sequential chain ordered according to the BSC hierarchy. Direct relations observed in the complex model support the proposition that some relations between perspectives exist that are not permitted in the sequential model. We find evidence of two such types of relations for our outcome measures and data. Innovation and quality (internal business process perspective) link sequentially to profitability outcomes (financial perspective) through customer satisfaction and market share (customer perspective) but also link directly to productivity (financial). Computer usage (learning and growth perspective) links sequentially through innovation and quality (internal business process) to customer satisfaction (customer) but also links directly to return on sales and productivity (financial).
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    Human Resources, Managerial Ability, and Innovation: HR’s Moderated Effect on Firm Growth
    ( 2022) Valle, Natalie ; Anderson, Mark
    Drawing from Penrose and March, we conceptualize human resource (HR) slack as the margin for firm growth and managers as the firm’s coordinating mechanism. Therefore, we propose that the effect of HR slack on firm growth systematically depends on managerial ability. We elaborate our conceptual model to distinguish between managers who invest in HR slack primarily as additional units of time from those who invest in HR slack as unknown potential, by testing a three-way interaction among HR slack, managerial ability, and innovation intensity. Using publicly available firm-level data, we find that managerial ability negatively moderates HR slack’s effect on firm growth. The three-way interactions indicates that medium and high-ability managers of non-innovation intensive firms positively moderate HR slack’s effect on firm growth while high-ability managers of innovation intensive firms have the oppositive effect. In the Penrosian tradition, we interpret these results as different illustrations of HR slack envisioned as additional units of time compared to HR slack envisioned as unknown potential.
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    CEO-Board Cultural Distance
    ( 2022) Cai, Wei ; Qiu, Lin
    Divergence in cultural backgrounds between the CEO and directors can play a crucial role in shaping the CEO-board dynamic. Using novel data, we measure the cultural distance between the CEO and directors of U.S. S&P 1500 firms based on their first and last names. Consistent with the theoretical predictions in Hermalin and Weisbach (1998), we find that the CEO-board cultural distance decreases in CEO tenure. Moreover, we find that the CEO-board cultural distance is positively associated with board-monitoring effectiveness. This effect is not driven by director networks or a CEO’s involvement in director nomination. At the same time, we also find that greater cultural distance between a CEO and directors seems to weaken advising and innovation. We also exploit director death and retirement as plausibly exogenous shocks to the CEO-board cultural distance and find robust results. Taken together, our findings highlight the role of CEO-board cultural distance in corporate governance.
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    Does Target Setting Improve Value Creation? Evidence from Private Firms Internationally
    ( 2022) Ai, Xi ; Sun, Han ; Wang, Man
    Target setting is a critical component of management control systems because of its role in resource allocation and performance evaluation. However, empirical research of whether target setting improves value creation has been limited. In this study, we investigate the benefit of target setting using a large-scale multiple-country sample of private firms in the emerging economies. We find that firms with targets create more value and that the effect establishes through various value chain activities. We also find that the benefit of target setting on value creation varies the effect is more pronounced when uncertainty in the firm’s external environment is higher at both the firm-level and the country-level. Overall, our results suggest that target setting is an effective management accounting technique in achieving the goal of value creation.
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    Entrenched Management, Underperformance, and the Adaptation Option
    ( 2022) Oler, Mitchell
    This paper examines underperforming firms, proxied by firms with market values less than book values, continue to exist because management does not utilize the adaptation option. If managers have the option to adapt assets (either internally or externally via selling the firm) to other uses when the expected net present value from current earnings is less than book value, then a book-to-market (BTM) ratio greater than one should not be observed since managers could exercise the option to increase shareholder value. However, a sample from 1996 to 2015 indicates 23,976 firm-year observations where the BTM ratio is above one. I find evidence consistent with observations that use entrenchment devices persisting with a BTM above one longer than those that do not. I also find that a change in the CEO and share repurchases are related to a firm’s BTM ratio falling below one again. This paper extends the research on the adaptation option and provides an explicit link between firm value and corporate governance.
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    Do Constraints Have to Be Constraining? A Textual Analysis of Constraints and Organizational Performance
    ( 2022) Ma, Yan ; Anderson, Mark ; Banker, Rajiv
    Constraints at the organization level can have profound impacts on organizational behavior, especially under uncertain business conditions. Managers and scholars tend to treat constraints as obstacles or hindrances to performance. Our study challenges this presumption by testing whether constraints have an inverse-U shaped relation with company performance. Using a textual analysis methodology to measure organizational constraints, we find that firm return on assets exhibits an “inverse-U” shaped relationship with the percentage of constraining words used in annual reports. Constraints measured by the percentage of constraining words initially lead to higher firm performance – the organization earns higher returns with fewer resources – but, beyond a certain level, constraints eventually become stifling and inhibit firm performance. The inverted U-shaped relationship is influenced by moderation effects imposed by different levels of R&D intensity, capital intensity, and managerial ability.
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    The Corporatization of Nonprofit Pay and Managerial Autonomy
    ( 2022) Roberts, Andrea Alston ; Zamora, Valentina
    We examine whether the corporatization of nonprofit pay varies based on who influences the pay-setting process, and in turn, whether pay practice choices shape managerial actions. We find that nonprofits without a clientele of sophisticated donors, with corporate-interlocked directors, and with entrenched executives are also more likely to use incentive pay. These results suggest that governance actors who strongly monitor nonprofits, play multiple roles, or have mixed motives influence the corporatization of nonprofit pay. Further, we find evidence consistent with nonprofits that use incentive pay being more likely to exercise greater financial autonomy over core and commercial initiatives and greater personnel autonomy to professionalize functional activities. Our findings are of interest to governance actors who set, regulate, or evaluate nonprofit executive pay choices and outcomes.
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    Climate-linked Incentives and Supply Chain Management
    ( 2022) Li, Minjia
    This paper examines whether climate-linked performance in executive compensation leads firms to increase their greenhouse gas emissions along the supply chain. Using a sample of 912 unique U.S. firms from 2006 to 2020, I find that firms with better corporate governance, greater performance and lower firm growth opportunities are more likely to link executive compensation to climate performance. Such compensation practices are followed by increases in greenhouse gas emissions along the supply chain. This effect is more pronounced among firms with greater environmental pressure, higher bargaining power over suppliers, and lower institutional monitoring. Additionally, I show that firms with climate-linked incentives initiate fewer new contracts with suppliers from regions with higher environmental enforcement, stronger mandatory ESG reporting regulations and civil law countries. Overall, this paper unveils the potential impact on the supply chain of climate-linked performance in executive compensation.
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    Effects of Transparent Performance Data on Employee Performance: Evidence from a Field Experiment
    ( 2022) Li, Shelley ; Bernstein, Ethan
    There is a growing trend of continuously tracking performance metrics and providing them to employees via digital means without supervisor intermediation. Using a field experiment at a service organization, we examine how employees respond to transparent performance data previously available only to supervisors (i.e., daily performance metrics of employees in the same work group). We find that, compared with the pre-intervention mean value, the treatment group experienced an 11-percent decrease in strictly nonproductive time relative to the control group. The effect on reducing strictly nonproductive time seems greater than that on increasing strictly productive time. Performance improvements are greater in certain employee subsamples: those who previously perceived their supervisors as less-supportive, those with low intrinsic motivation, and those with high extrinsic motivation. We find inconclusive evidence on the moderating effects of social comparison orientation, suggesting that the main effect is unlikely to be driven by access to relative performance information.
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    The Spillover Effect of Adopting a Formalized Culture-fit Measurement System in the Employee Selection Process
    ( 2022) Cai, Wei
    Many organizations rely on employee selection as a management control system to diffuse organizational culture. While prior literature has focused on the role of an employee selection system in selecting new employees who are more aligned with organizational values, whether and how such system would influence existing employees remain scantly studied. Using proprietary data, I investigate the spillover effect of implementing a culture-fit measurement system in the employee selection process on existing employees’ performance. I exploit the staggered feature of the adoption of the system and find that the culture-fit measurement system has a positive effect on existing employees’ performance, especially when the percent of new employees selected through that system reaches a critical mass. The positive spillover effect is stronger 1) when existing employees are more likely to learn from new employees selected through the system, and 2) when existing employees face less culture clash. Taken together, this study implies that an employee selection system that sorts potential employees based on their value alignment may also exert spillover effects on existing employees’ performance. Such spillover effects may provide a novel perspective on how to diffuse a desirable organizational culture more efficiently.