Accounting - Research Publications

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    The Tone from Above: The Effect of Communicating a Supportive Regulatory Strategy on Reporting Quality
    Van Duin, SR ; Dekker, HC ; Wielhouwer, JL ; Mendoza, JP (Wiley, 2018-05-01)
    ABSTRACT In collaboration with the Authority for the Financial Markets in the Netherlands, we manipulate the content of official letters that instruct financial intermediaries to submit a mandatory self‐assessment. As part of the Registered Report Process, we submitted our hypotheses, experimental procedure, and planned statistical analyses before data collection. We predicted that a request indicating a supportive regulatory attitude has a positive effect on reporting quality on average. We also predicted this effect to be stronger for small firms and for firms with a long‐term orientation, and to become negative for firms with a short‐term orientation. Planned analyses show that a supportive letter reduced reporting quality unless firms had a long‐term orientation, supporting the moderating influence of time horizon, but providing no support for the expected average effect or for moderation by firm size.
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    When one size does not fit all: Using ex post subjective ratings to provide parity in risk-adjusted compensation
    Anderson, SW ; Dekker, HC ; Sedatole, KL ; Wiersma, E (Elsevier, 2020-12-01)
    Firms typically use a ‘one-size-fits-all’ (OSFA) compensation contract that specifies a common formulaic relation between performance and compensation (i.e., a performance bonus) for non-executive managers in similar jobs. However, a contract that is appropriate on average, may be suboptimal for individual managers if heterogeneity in the operating environment creates varying compensation risk. We use field data from a retail firm that introduced an OSFA bonus compensation plan for its store managers. The common bonus formula is based on a weighted sum of objective measures of performance and a subjective rating made by supervisors. The firm intended the supervisors’ discretionary subjective rating to evaluate performance on dimensions that are difficult to measure (e.g., store appearance). We test and find that supervisors give uniformly higher subjective ratings to managers whose objective measure of sales performance is measured with greater noise, and to managers who face higher performance target difficulty, the latter assessed both prior to (ex ante) and subsequent to (ex post) the evaluation period. These results obtain after controlling for manager ability and performance, and for alternative mechanisms to mitigate differences in compensation risk (e.g., salary changes, sales target changes, and bonus adjustments). The evidence suggests that supervisors use discretion in subjective ratings to provide manager-specific risk premiums for non-executive managers who are subject to an OSFA contract.
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    The Influence of Performance Measurement on the Processual Dynamics of Strategic Change
    Abernethy, M ; Dekker, H ; Grafton, J (INFORMS, 2021-01-01)
    We draw on a five-year longitudinal dataset to investigate the influence of performance measurement in the processual dynamics of strategic change, and particularly in enacting effective strategic change. Our model examines the role of performance measurement in driving strategy-consistent operational changes and in ensuring that desired objectives of the strategic change process are achieved. We investigate these roles for performance measurement over time and empirically document lags between changes in strategic priorities, changes in operational processes and subsequent changes in firm performance. We find that performance measurement supports the implementation of strategic change by influencing the extent to which changes to operational tasks and activities are made in response to new strategic priorities, as well as influencing the quality and impact of these operational changes, as reflected in improved contemporaneous and future firm performance.
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    Renegotiation of joint venture contracts: The influence of boards of directors and prior ties as alternative governance mechanisms
    Duplat, V ; Klijn, E ; Reuer, J ; Dekker, H (Elsevier, 2020-04-01)
    Research on alliance governance has pointed out that joint ventures (JVs) are particularly complex forms of collaboration. Partnering firms therefore often face difficulties in anticipating contingencies and collaborative behaviors at the contract negotiation stage. When initial JV contracts are incomplete, renegotiation represents a key strategic opportunity for enhancing contractual safeguards or coordination guidelines over the course of the joint venture. Costs and risks entailed by renegotiating JV arrangements at a later stage are far from trivial, however. Existing research on alliances suggests that practitioners have alternative relational and formal governance solutions at their disposal for handling possible inefficiencies caused by contractual gaps over time. Although insightful, this research does not enable a determination as to whether these alternative relational and formal mechanisms substitute for or facilitate ex post contractual renegotiation. The competing arguments found in the literature provide little guidance to JV practitioners as well. Our results show that the collaborative context within which the JV is embedded (i.e., prior inter-partner ties) obviates the need for enhancing incomplete JV contracts ex post. By contrast, ex post contractual adjustments are fostered and facilitated by the formal and administrative apparatus engaged over the course of the JV (i.e., an involved JV board of directors). Such opposing effects suggest that prior ties can “prevent” the occurrence of inefficiencies caused by contractual gaps, while an involved JV board primarily can act as a mediation and renegotiation platform to “repair” the exchange when inefficiencies occur. Our findings highlight the multidimensional nature of joint venture governance, and in particular the interplay among various formal and informal governance solutions in the execution of joint ventures. By unpacking their complex effects on the decision to renegotiate incomplete JV contracts, our study also holds important value for managers seeking to govern their JVs over time.
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    Industry Self-regulation Under Government Intervention
    Mendoza, JP ; Dekker, HC ; Wielhouwer, JL (Springer Verlag, 2020-03-01)
    Objective: Industry actors (organizations, associations) can influence the way in which firms comply with regulations. This study examines how this influence process is affected by government intervention. Methods: Using official, anonymized data from the entire industry of financial intermediation in the Netherlands (N = 8655 firms), we examine how firms’ affiliations with industry actors relate to (1) voluntary actions aligned with improving regulatory compliance (e.g., requesting audits, attending workshops), and (2) law violations. Industry actors are distinguished between trade associations and the industry’s self-regulatory organization (SRO), which is subject to more government intervention. The analysis employs Poisson regressions to explain count variables, and bootstrapping to assess indirect associations. A series of robustness tests focus on relevant sub-samples, employ exact matching to address possible self-selection, and incorporate lagged dependent variables. Results: The association between affiliations with industry actors and law violations is negative and significant. This association is more indirect for trade associations than for the SRO (i.e., it is more strongly mediated by the voluntary actions firms take and which help to improve compliance). Conclusions: These findings go in line with the theory that government intervention makes industry-self regulation more mandated and less voluntary. Under less government intervention, industry actors may promote more voluntary efforts to comply.
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    Dynamic influences on cooperation in a social dilemma: How type of experience and communication affect behavioral spillovers.
    Bruin, BJ ; Dekker, HC ; Groot, TLCM ; Capraro, V (Public Library of Science (PLoS), 2019-03-12)
    In many work and decision situations, realizing cooperation among individuals is important. However, decision making environments of individuals are far from stable, resulting in changes in task complexity and the social settings they encounter. We argue that past experiences with cooperative behavior can result in different cooperative norms and expectations about the behavior of others and will have an effect on an individual's subsequent behavior in new situations. This study experimentally investigates these dynamics of cooperative behavior in social dilemmas and addresses the role of communication to provide empirical evidence about a cognitive mechanism that may lead to these spillovers. Specifically, the experimental design randomly assigns subjects to one type of repetitive interactions in the first social dilemma (single partner or different partners) and we then examine how this impacts the propensity to behave cooperatively in subsequent social dilemmas with unfamiliar partners (either single or different). Because of the variety in complexity of decision-making environments in practice, we do so by examining behavioral spillovers across three different social dilemmas that vary in difficulty to make cooperation successful. Our findings show that individuals cooperate more during initial interactions with a single partner. More importantly, this has positive spillover effects for subsequent behavior and communication, even to settings without repeated interactions with a single partner. However, environmental conditions affect the ability to transfer established norms of cooperation to subsequent interactions, as an initially learned cooperative norm is gradually replaced by a more competitive attitude when individuals start to interact with unfamiliar others in a setting in which cooperative success is more difficult to achieve. Our findings illustrate the power of repeated interactions for establishing and sustaining cooperation in other settings and enhance understanding of how cooperative decisions can be shaped by both incentives and the broader behavioral context of individuals.
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    Firm enablement through outsourcing: a longitudinal analysis of how outsourcing enables process improvement under financial and competence constraints
    Dekker, H ; Mooi, E ; Visser, A (Elsevier, 2020-10)
    The dominant view is that outsourcing is driven by efficiency considerations. We demonstrate that a different path to outsourcing originates from critical internal resource shortages. These shortages pose a critical dilemma; on the one hand outsourcing is a reasonably durable approach to solving resource shortages. On the other hand, the same resource shortages complicate the management of outsourcing and may create knowledge and evaluation problems. We empirically examine this dilemma and thereby add to the limited work on the enabling effects of outsourcing under resource constraints. We employ two rich and unique panel datasets of Australian firms observed over five-year periods, to test dynamic change models if firm-level financial and competence constraints induce outsourcing, and if this in turn enables internal process improvement. The results show that outsourcing indeed is associated with both financial and competence constraints, although the impact of these constraints differs over time. In turn, we find that increased outsourcing relates positively to contemporaneous and future process improvement. These findings thus shed a positive light on how outsourcing can enable firms to overcome constraints and realize internal process improvement.
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    An Empirical Examination of Goals and Performance-to-Goal Following the Introduction of an Incentive Bonus Plan with Participative Goal Setting
    Anderson, SW ; Dekker, HC ; Sedatole, KL (INFORMS, 2010-01)
    Prior research documents performance improvements following the implementation of pay-for-performance (PFP) bonus plans. However, bonus plans typically pay for performance relative to a goal, and the manager whose performance is to be evaluated often participates in setting the goal. In these settings, PFP affects managers' incentive to influence goal levels in addition to affecting performance effort. Prior field research is silent on the effect of PFP on goals, the focus of this paper. Using sales and sales goal data from 61 stores of a U.S. retail firm over 10 quarters, we find that the introduction of a performance-based bonus plan with participative goal setting is accompanied by lower goals that are more accurate predictors of subsequent sales performance. Statistical tests indicate that increased goal accuracy is attributable to managers “meeting but not beating” goals and to new information being impounded in goals. We further investigate how differences among managers are associated with goal levels. We find significant “manager effects” but no “supervisor effects.” In additional tests we find that cross-sectional differences among managers are related to differing marginal returns to slack-building effort. Turning to the role of new information on goals, we find that prior period performance has incremental power to explain goal levels in the postplan period. Our results provide field-based evidence that PFP and participative goal setting affect the level and accuracy of goals, effects that are associated with both information exchange and with managers' incentives to influence goals.
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    Management control for market transactions: The relation between transaction characteristics, incomplete contract design, and subsequent performance
    Anderson, SW ; Dekker, HC (INFORMS, 2005-12)
    Using an unusually comprehensive database on 858 transactions for information technology products and accompanying services, we study how close partners who are exposed to opportunistic hazards structure and control a significant transaction. We analyze data on the terms of contracting to determine whether transaction and supplier characteristics that generate opportunistic hazards are related to the formal management control structure. We also examine whether misalignment between transaction and supplier characteristics and the control structure is associated with ex post performance problems. Characteristics associated with hazards are found to be positively related to contract extensiveness. Factor analysis of the use of 24 contract terms reveals four groups of contract terms that are commonly used in combination. We interpret these factors as “dimensions of management control” and label them: assignment of rights, product and price, after-sales service, and legal recourse. Characteristics associated with hazards are positively related to the use of all four dimensions of management control, with different hazards associated with different controls. We then examine the relation between transaction characteristics and ex post transaction problems, demonstrating that even in the presence of mutually agreeable contracts, hazards remain. We conclude that costs of contracting are associated with increased use of contract terms on assignment of rights, after-sales service, and legal recourse. Finally, we present evidence that management control structures that are better aligned with transaction hazards mitigate subsequent performance problems, though at a nontrivial cost of contracting.