Spring 2018
Career Horizons and Team Synergy
Romana Autrey, Willamette University MBA
Friday, April 6, 10:30 a.m. - Noon
Managerial Spillovers in Project Selection
Alejandro Francetich, University of Washington Bothell School of Business
Friday, April 13, 10:30 a.m. - Noon
Family Ownership and Accounting Based Valuation of Thai Firms
Kriengkrai Boonlert-U-Thai, Chulalongkorn University
Friday, May 25, 10:30 a.m. - Noon; UWBB-260
Topic TBD
Sri Devi Duvvuri, University of Washington Bothell School of Business
Friday, June 1, 10:30 a.m. - Noon
A Perturbation Approach to Nonlinear Filtering: The Case of Stochastic Volatility
Natalia Sizova, Rice University
Friday, June 8, 10:30 a.m. - Noon
Winter 2018
Following in Partners’ Footsteps: The Role of Network Ties in Firms’ Choice of New Markets
Alex Makarevich, ESADE Business School, Ramon Llull University
Tuesday, January 9, 10:30 a.m. - Noon; UWBB-260
Social divestments as an activism tactic: Do they improve portfolio firms' social performance?
Gui Deng Say, Carlson School of Management, University of Minnesota
Friday, January 12, 10:30 a.m. - Noon; UWBB-260
Dear Enemy: Litigation and Cooperation in a Mobile Phone Standard Development Organization
Stephen Jones, College of Business, University of Wyoming
Friday, January 19, 10:30 a.m. - Noon; UWBB-260
The Incentive Effect of Relative Performance Evaluation on Early Option Exercise Behavior
Dimitris Vrettos, Cox School of Business, Southern Methodist University
Friday, February 2, 10:30 a.m. - Noon; UWBB-260
Mandatory IFRS Adoption and the Usefulness of Accounting Information in Predicting Future Earnings and Cash Flows
Siyi Li, College of Business Administration, University of Illinois at Chicago
Friday, February 9, 10:30 a.m. - Noon; UWBB-260
How Badly Do Listed Firms Want to Avoid IFRS? Delisting Decisions in the Post-IFRS Adoption Period
Maria Vulcheva, School of Accounting, Florida International University
Friday, March 2, 10:30 a.m. - Noon; UWBB-240
Fall 2017
Self-Serving Sins and Ingroup Indiscretions: How Self-Construal Influences Unethical Behavior
Sophie Leroy, UW Bothell School of Business
Friday, October 13, 10:30 a.m. - Noon; UWBB-230
Accounting Ethics Conference
Friday, October 20, 8:25 a.m. - 5:30 p.m.; North Creek Events Center
The Role of the Physical Store: Developing Customer Value through 'Fit Product' Purchases
Jonathan Zhang, UW Foster School of Business
Friday, October 27, 10:30 a.m. - Noon; UWBB-230
Learning and Self-confirming Long-Run Biases
Alejandro Francetich, UW Bothell School of Business
Friday, November 3, 10:30 a.m. - Noon; UWBB-230
Strict liability versus negligence in information security contracts
Camelia Bejan, UW Bothell School of Business
Friday, December 1, 10:30 a.m. - Noon; UWBB-230
Labor Unions and Real Earnings Management
Ying Li, UW Bothell School of Business
Friday, December 8, 10:30 a.m. - Noon; UWBB-230
Abstracts
Career Horizons and Team Synergy by Romana Autrey
Abstract/summary: This paper investigates the interaction between different career horizons and collaborative team synergy, and the impact of this interaction on the desirability of different types of observable performance measures. In this model, career concerns induce positive effort levels that vary with the type of performance measure. Individual measures are more informative about an individual agent’s ability, generating higher career concerns and thus higher effort levels. Team measures are more complete, capturing the team synergy that is generated when collaborating agents improve their teammates’ marginal productivity. In a high-synergy environment, a firm may be worse off adding a costless measure that is informative about an individual’s ability because it dilutes incentives to collaborate. Firms with teams of homogenous agents do benefit from stronger career concerns, but when agents have different career horizons, stronger career concerns can reduce firm profit.
Managerial Spillovers in Project Selection by Alejandro Francetich
Abstract/summary: Selecting investment or research projects is a general managerial decision, from managing the portfolio of functions such as R&D or marketing within a company, to determining the very identity and boundaries of the firm — which units or divisions to encompass, what portfolio of acquisitions or alliances to pursue. Projects are typically evaluated individually, in isolation. However, the different divisions of a firm share common managerial resources. Therefore, managers can transfer successful projects or practices from one unit to another unit within the firm, or to different firms within the portfolio. This introduces spillovers, whereby value of a portfolio is higher than the aggregate value of the projects in isolation. In this paper, we derive the optimal process for selecting projects accounting for said spillovers, and provide an algorithm that implements this process. Due to the spillovers, projects that would not stand alone may be profitable, and it may also be profitable to pass on multiple projects at once. Thus, ignoring the affiliation across projects can lead to excessively diversified firms or economies, as opposed to firms or economies with fewer larger scale projects.
Family Ownership and Accounting Based Valuation of Thai Firms by Kriengkrai Boonlert-U-Thai
Abstract/summary: Using insights from the fundamental accounting valuation model, this study reports evidence that financial markets place a higher weightage on earnings than book value for family run firms in Thailand. The firms run by founding family (FF) members exhibit this trait even more prominently. This evidence is contrary to that offered in the literature about family firms offering more opaque disclosures, lower earnings quality, and higher implied cost of equity capital. Our evidence is consistent with the insight that current earnings of the founding family (FF) firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. On the quality of earnings, we do observe the FF firms to have a higher quality of accruals, but fail to observe a higher earnings persistence. We consider these evidence consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.
A Perturbation Approach to Nonlinear Filtering: The Case of Stochastic Volatility by Natalia Sizova
Abstract/summary: Nonlinear filtering, that is the computation of the conditional distribution of a latent state vector given the available information, is generally an infinite dimensional problem for which no closed form solutions exist. This paper uses the perturbation method to derive an approximate filter for models in which the hidden state follows a linear Gaussian transition equation, but the observation equation is nonlinear and non-Gaussian. The proposed approximate filter is characterized by a finite number of sufficient statistics that are Markovian, and whose number increases with the order of the approximation. Explicit formulas are derived for stochastic volatility models.
Following in Partners’ Footsteps: The Role of Network Ties in Firms’ Choice of New Markets by Alex Makarevich
Abstract/summary: In this paper, we develop a new perspective on what determines firms’ choice of new markets for entry. Prior literature suggests that this choice is guided by firms’ resources and capabilities and by imitation of other firms (e.g., competitors). We advance and empirically test the proposition that firms select new markets for entry based on where they experience lower market-specific uncertainty provided by their network ties. Grounding our theorizing in the open-system theoretical tradition and drawing on the literature on inter-organizational networks, we predict that firms’ choice of new markets is directed toward markets in which their partners are present. Further, we delineate three contingencies of this effect: we find that market relatedness, firm experience, and network closure provide alternative avenues of uncertainty reduction and moderate the effect of partners’ presence in new market selection. We test our hypotheses in the empirical context of the U.S. venture capital (VC) industry using panel data over a 23-year period and find broad support for them.
Social divestments as an activism tactic: Do they improve portfolio firms' social performance? by Gui Deng Say
Abstract/summary: We examine how a socially conscious institutional investor’s divestments from a few firms affect the social values of the remaining portfolio firms. We theorize about an understudied form of social activism: divestments from portfolio firms culpable of environmental, social and corporate governance (ESG) transgressions. Social divestments by a prominent activist investor signal the potential for resource withdrawal and delegitimization, thereby activating broader improvements in portfolio firms’ ESG practices. Findings based on the social divestments by Norway’s sovereign wealth fund and changes in the ESG ratings of its U.S.-based portfolio firms over the period 1998-2011 show that while direct resource leverage enhances the positive effect of divestment, complementary voice-based activism that exerts institutional pressures on portfolio firms is more effective in combination with the threat of exit. Our study contributes to the debate concerning the virtues of positive activist engagement versus negative screening, by demonstrating that exit through divestments may be a ‘necessary evil’ for promoting the desirable social values among portfolio firms.
Dear Enemy: Litigation and Cooperation in a Mobile Phone Standard Development Organization by Stephen Jones
Abstract/summary: We study the impact of conflict on cooperation within wireless telecom standards development. There is limited systematic inquiry into inter-organizational conflict. The research on alliance management emphasizes mechanisms of formal and informal governance such as contractual terms and trust building as strategies to avoid cooperative failure. We build on and compare these insights with insights from evolutionary biology and collective action to highlight strategic implications of conflict while competing for resources. We empirically analyze the effects of patent litigation events on cooperative efforts within the 3GPP standard-setting organization which sets global standards for mobile communications. We find that, overall, litigation increases cooperation within litigating dyads, supporting the "dear enemy", or mutual forbearance, view of strategic interaction, but it also shifts defendants’ cooperative efforts towards other firms in the network, as they may divert the technology away from the attacker. We also find that technological distance and relational resources moderate the results. Our findings hold implications for understanding the dynamics of cooperation in technological competition.
The Incentive Effect of Relative Performance Evaluation on Early Option Exercise Behavior by Dimitris Vrettos
Abstract/summary: We examine how stock price volatility, executives’ outside wealth, and relative performance evaluation (RPE) schemes influence option exercise behavior. We find that option exercise is positively related to stock price volatility and negatively related to executives' outside wealth, which can be used to hedge equity portfolio risk. We offer evidence that the use of RPE in managers’ incentive contracts delays option exercise because it reduces portfolio volatility by filtering out its systematic component. Moreover, RPE and outside wealth each dampen the other’s effects on early option exercise because both can reduce the amount of risk to which managers’ portfolios are exposed.
Mandatory IFRS Adoption and the Usefulness of Accounting Information in Predicting Future Earnings and Cash Flows by Siyi Li
Abstract/summary: We examine whether the mandatory adoption of International Financial Reporting Standards (IFRS) has changed the usefulness of accounting information in predicting future earnings and cash flows out-of-sample. Using a sample of firms from European Union countries that mandatorily adopted IFRS in 2005, we find the out-of-sample earnings and cash flows forecasts derived from alternative accounting models become significantly more accurate after IFRS adoption. The accuracy, however, varies with the strength of legal and regulatory enforcement. Firms in strong enforcement countries experience larger improvements in earnings forecast accuracy than firms in weak enforcement countries but the opposite happens for cash flow forecasts. Accruals are useful in the prediction of both earnings and cash flows, but again their usefulness varies with the strength of the legal and regulatory environment. Portfolios of stocks based on the out-of-sample forecasts earn economically significant 12-month ahead hedge returns after IFRS adoption, which corroborates the detected forecast accuracy improvements. Overall, the study contributes to the IFRS literature by providing new evidence that an important dimension of accounting quality, predictive ability, has improved after mandatory IFRS adoption.
How Badly Do Listed Firms Want to Avoid IFRS? Delisting Decisions in the Post-IFRS Adoption Period by Maria Vulcheva
Abstract/summary: In this paper we provide evidence on the net effect (i.e., the interaction between benefits and costs) of the adoption and implementation of International Financial Reporting Standards (IFRS). We do so by examining the association between the country-level adoption of IFRS and firms’ delisting decisions in the post-IFRS adoption period. More specifically, we use a difference-in-differences analysis to compare the delisting behavior of firms from 14 IFRS-adopting jurisdictions and six non-adopting jurisdictions. We further examine how mandatory IFRS adoption relates to the probability of firms’ delisting voluntarily (through mergers and acquisitions, privatizations, and company requests) and involuntarily (through reorganization and bankruptcy filings and delistings by the exchange). We also test the association between IFRS mandate and firms’ delisting decisions in high and low regulatory quality jurisdictions. Our findings indicate that the probability of firms’ delisting (both voluntarily and involuntarily) is higher for firms from IFRS-adopting jurisdictions in the post-adoption period. However, this probability increases only for firms listed in high regulatory quality jurisdictions and the effect seems to be related to the costs of continued compliance rather than initial adoption. Our findings speak to the consequences of IFRS adoption and implementation and contribute to the literature on the association of accounting regulation with firms’ delisting decisions.
Self-Serving Sins and Ingroup Indiscretions: How Self-Construal Influences Unethical Behavior by Sophie Leroy
Abstract/summary: While most research has assumed that people act unethically to benefit themselves, the beneficiary of an unethical act is not always the self. Others may also either jointly or exclusively benefit. In this paper, we investigate how self-construal and beneficiary type (who benefits from the unethical act: the self and/or others) interact to influence unethical behavior, focusing especially on when and why people act unethically to benefit others. We argue that interdependent and independent self-construals activate different motivational systems that determine when unethical opportunities become appealing. We test our theory across three studies, which provide strong support for our predictions. Using experimental method, Study 1 shows that self-construal and beneficiary type interact to predict unethical behavior. Interdependent self-construal leads to more unethical behavior when others, in addition to the self, benefit as opposed to when only the self is to gain. In contrast, with an independent self-construal, unethical behaviors are not influenced by the presence or absence of benefit for others. Study 2 reveals that when only others benefit, interdependent self-construal leads to more unethical behavior than independent self-construal. Using field data, Study 3 replicates these findings, and show that the effect is mediated by anticipated gratitude— the expectation that one’s actions will garner appreciation from others. While Studies 1 and 2 focus on self-construal as a state, Study 3 approaches self-construal as a trait, further showing that acting unethically to only benefit others requires to be high on interdependent self-construal and low on independent self-construal.
The Role of the Physical Store: Developing Customer Value through 'Fit Product' Purchases by Jonathan Zhang
Abstract/summary: Recent trends suggest retailers are ambivalent regarding the contribution of the physical retail store. Ironically, several traditionally offline retailers are closing stores, while some traditionally online retailers are opening them. This raises the question, what is the role of the physical retail store in today's multichannel environment? We posit that the type of product purchased, "fit" or "non-fit", impacts subsequent customer value, and that purchasing fit products offline is especially effective at creating high value customers. We formulate a multivariate hidden Markov model (HMM) to investigate how customers make product and channel decisions. The HMM identifies two dynamic states - low-value and high-value. We hypothesize and find that fit-product purchases accelerate customer migration to the high-value state, especially if those purchases are made in the physical store. We theorize this occurs because buying fit products requires customer engagement, the physical store excels at providing this engagement, and engagement leads to higher customer satisfaction and hence value. In addition, we find that offline marketing communication, specifically direct mail, enhances the likelihood the customer buys fit products offline and hence migrates customers to the high-value state, or keeps them at high value if they are already there. Our findings identify a strategic role that fit products and retail stores play in customer development, and show that marketing can help implement this strategy.
Learning and Self-confirming Long-Run Biases by Alejandro Francetich
Abstract/summary: We consider an uncertainty averse, sophisticated decision maker facing a re-current decision problem where information is generated endogenously. In this context, we study self-confirming strategies as the outcomes of a process of active experimentation. We provide inter alia a learning foundation for self-confirming equilibrium with model uncertainty (Battigalli et al., 2015). We also argue that ambiguity aversion tends to stifle experimentation, increasing the likelihood that decision maker get stuck into suboptimal 'certainty traps.'
Strict liability versus negligence in information security contracts by Camelia Bejan
Abstract/summary: Over two decades after the internet moved out of universities and into people's homes, cyber-security has become a huge problem. History is one reason: the internet started life as a convenient network for sharing academic research, and security was just an afterthought. This paper argues that economics provides the other reason. Software developers and computer-makers do not have the incentives to get security right because they are not the ones who suffer when their products are subverted.
Labor Unions and Real Earnings Management by Ying Li
Abstract/summary: The overlapping interest in excess real activities between labor unions and managers who aim to boost earnings leads us to hypothesize that labor unions influence the extent of real earnings management. Consistent with the hypothesis, we find that the power of labor unions is positively associated with upward real earnings management, especially through the overproduction channel. The extent of upward real earnings management varies with union power with a magnitude that is both statistically and economically significant. The union effect is stronger in firms with higher dependence on human capital or whose states provide lower unemployment insurance benefits and weaker in firms when their states adopt the "right-to-work" laws or when firms switch from unionized to nonunionized. Further exploration suggests that the observed union effect is likely due to cooperation between labor unions and management when their interests agree.