Neeley faculty are committed to scholarly research. It is part of our mission to develop and disseminate leading edge thought to improve the practice of business.
The Neeley Working Paper Series helps us achieve this mission. Copies of these research papers may be requested through the e-mail links of the Neeley faculty authors. Papers included in this series are at the working paper stage, under review by journals, under revision for journals, or accepted by journals but not yet published.
Topic Areas Include:
THE EFFECTS OF RATE LIMITS ON PROPERTY TAX REVENUES AND SCHOOL EXPENDITURES: EVIDENCE FROM TEXAS
This study examines whether a 1.5% property tax rate limitation lowered the short run and long run growth rates of property tax revenues and school expenditures, and whether other revenue sources increased to help compensate school districts for lower tax revenues. Using a sample of 1,033 Texas school districts over the period 1994 through 2004, we separately examine two groups of districts. Consecutive year districts are districts that reach the 1.5% rate limit and stay there in each subsequent year. We find that the 1.5% rate limit is binding for these districts and decreases the growth in tax revenues in the short run and long run. We find only limited evidence that consecutive year districts reduced expenditures. These districts appear to have sustained expenditures by increasing non tax revenues. Non consecutive year districts are districts that hit the 1.5% rate limit, stay there for a year or more, and then reduce their tax rate in a subsequent year. Results suggest that non consecutive year districts choose the 1.5% tax rate as part of an overall strategy to increase revenues when growth in property values is small. Results also suggest that non consecutive year districts decrease expenditures and increase non tax revenues to help maintain the balance between revenues and expenditures during these years. We find no evidence that state or federal funding increased for either group.
FINANCIAL CONSEQUENCES FROM IMPLEMENTING LEAN MANUFACTURING WITH THE SUPPORT OF NON-FINANCIAL MANUFACTURING PERFORMANCE MEASURES
In the last 30 years, many U.S. firms have adopted lean manufacturing strategies. Despite evidence of variation in firms' success with lean strategies, few studies have examined firms' management accounting systems (MAS) as a potential source of the variation. This study uses structural equation modeling to examine whether one MAS component - the use of non-financial manufacturing performance (NFMP) measures - mediates the relationship between lean manufacturing and financial performance. Consistent with the view that firms' MAS must fit their operational strategies, the results indicate that lean strategies' financial performance effects are indeed mediated through the utilization of NFMP measures. The study also reports confirming results from regression-based tests examining the mediating role of the use of NFMP measures in the lean manufacturing/financial performance relationship.
THE ECONOMIC CONSEQUENCE OF VOLUNTARY AUDITING IN CHINA
A number of Chinese firms voluntarily seek to have their interim reports audited, even though the auditing of interim reports is mandatory only for a small number of firms in circumstances that are specified by the state regulators. This unique institutional characteristic of the Chinese market provides a natural experimental setting to directly investigate why listed firms voluntarily have their financial reports audited, and whether investors place more value on voluntarily audited earnings than on unaudited earnings. Based on a sample of 2,458 semi-annual interim reports that were released by listed Chinese firms between 1996 and 1999, we find that the choice of voluntary auditing is positively associated with the percentage of tradable shares, profitability, and firm size. We also find that the interim earnings response coefficients of audited firms are higher than those of unaudited firms, especially when the auditing has been undertaken voluntarily. Our findings are consistent with the theoretical proposition that managers voluntarily seek external auditing to enhance the credibility of accounting numbers. This study contributes to the literature on the economic value of voluntary auditing.
DID ACQUIRING FIRMS TAKE EXCESSIVE IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES IN THE 1990S?
Abstract In-process research and development (IPRD) is the value allocated to incomplete research and development projects in acquisitions treated as purchases, and charged to expense by the acquirer at the acquisition date. In this paper, we investigate the SEC's charge that some firms managed their earnings by re-cording excessive IPRD. We assess excessive IPRD by developing a measure of normal IPRD, and com-pare IPRD charged in acquisitions to the R&D expenses reported previously by the firms acquired. We observe a decrease in the portion of purchase prices assigned to IPRD following SEC scrutiny. We assess whether the decreased charges were related to changes in types of firms acquired, a decrease in R&D intensity, and the advent of SFAS No. 142, rather than changes in corporate accounting policy given SEC scrutiny. We find evidence that firms that were more profitable and faced higher investor expectations took excessive charges before 1998. The SEC's focus on IPRD led to more appropriate subsequent reporting of the transaction. Finally, we document that post-acquisition, investors discount earnings overstated by the immediate expensing of IPRD.
||Thomas D. Dowdell, Steve C. Lim , and Eric Press; We acknowledge the helpful research assistance of Scott Boyd, Oladayo Famakinwa, and Margaret Pittman.
THE UNDERPRICING OF PRIVATE TARGETS
We examine the pricing of private targets with a unique sample of acquisitions of withdrawn IPOs. We estimate the value of the target at the time of the proposed IPO and the target's acquisition price. Acquirer announcement returns are highest when the target is acquired for more than its IPO value, suggesting greater target underpricing. The positive relation between target underpricing and target valuation changes, due to both market and firm-specific factors, parallels the partial adjustment effect in IPOs. Our results are consistent with theories of compensation for the provision of information and behavioral biases in negotiation outcomes.
FINANCE AND INVESTMENTS
ARE 'REAL OPTIONS' ACTUALLY USED IN THE REAL WORLD?
The inability of classic NPV analysis to capture the future value of options in a capital budgeting analysis is now well documented by Trigeorgis , Copeland and Antikarov  and others. In spite of this, traditional NPV analysis continues to be described as a normative approach. The author surveys Fortune 1,000 companies to see if they have picked up on the use of real options to complement traditional analysis. Out of 279 respondents, 40 were currently using real options (14.3 percent). While the percent is small, the number is higher than in previous studies. The author goes on to describe in what manner real options are being used and, of equal importance, why they are resisted by many. Somewhat encouraging is the intent of well over half the non-users to consider the use of real options in the future.
GLOBAL TRENDS IN REAL RISK FREE RATES
We examine real returns to government debt of the G7 countries, for both short and long maturities. Our focus is on returns to fixed income investing rather than contemporaneous yields. We find evidence that investments in the same maturity across countries may be modeled as a cointegrated process, in a vector error correction
framework, with interesting relationships among countries uncovered. Our findings are based on analysis of both short term maturities and long term maturities. However, the structure varies excessively across maturities and time frames, with recent data showing less integration.
PRIOR OUTCOMES AND RISKY CHOICES BY PROFESSIONAL TRADERS
How is professional risk-taking related to prior results? We examine the impact of prior gains or losses on subsequent futures traders' activity. As a group, these traders exhibit little tendency to take higher risk following abnormal gains. In addition, cross-sectional evidence suggests that the more successful traders are more likely to increase risk after abnormal gains. On the other hand, we find that experienced traders are relatively unlikely to take unusually high risks after a period of abnormally profitable trading. In combination, the results suggest that if trading success does lead to overconfidence among professionals in the short run, longer run experience limits the impact of this effect.
WHO HERDS? WHO DOESN'T*
We build a simple model of analyst behavior in which the forecast choice depends on a desire both to be accurate and not to move far away from the prevailing consensus among other analysts. Using ideas from the literature on GMM (that a first-order condition is one source of a population moment, and can serve as an estimating equation) and simulated method of moments (that adding a zero-mean noise term to an estimator defined in terms of sample moments preserves asymptotic properties), we construct an estimator for the herding propensity parameter. While the herding parameter is significantly positive in a large number of cases, it is significantly negative in 3% of the cases, suggesting that some analysts seek to stand out from the crowd. Out-of-sample testing validates our underlying model of analyst's forecasting behavior. Cross-sectional analyses show that the herding propensity of analyst-firms is associated with a variety of forecast, analyst and firm-related factors including dispersion among analysts in the prevailing consensus, forecast horizon, analyst coverage and experience, and firm size.
DO BROAD-BASED OPTION COMPENSATION PLANS IMPROVE FUTURE FIRM PERFORMANCE FOR TECHNOLOGY AND NON-TECHNOLOGY FIRMS?
Although stock option grants to non-executives account for over 90 percent of all options granted, there is little evidence regarding the return to shareholders for such grants. In this study, we examine the relation between future firm performance and stock option grants to (1) the top five executives and (2) non-executive employees. Consistent with prior research, we find a positive payoff for executive options; one dollar of options granted to top executives leads to future operating income (cash flow) of $2.58 ($2.21). However, future operating income (cash flow) is only $0.40 ($0.47) for one dollar in options granted to non-executive employees. This suggests that broad-based option compensation plans result in a negative payoff to shareholders, on average. When the sample is split into technology and non-technology firms, the earnings payoff to executive options is $3.45 for technology firms and $2.58 for non-technology firms. For options granted to non-executives, the payoff to technology firms approximates $1.00, while the payoff to non-technology firms is only $0.31, significantly less than $1.00. This result suggests that our overall evidence that broad based option plans result in negative payoffs is driven by non-technology firms, i.e., these firms actually experience a reduction in firm value for option grants to non-executives. This finding is consistent with arguments that broad based option grants are an inefficient means of providing incentives to lower-level employees at least in the non-technology sector.
INFORMA TION SYSTEMS
UNDERSTANDING CIO ROLE EFFECTIVENESS: THE ANTECEDENTS AND CONSEQUENTS
This study describes the development of a research model exploring the antecedents and consequents of CIO role effectiveness. Specifically, we argue that CIO managerial discretion (the latitude of actions available to CIOs), CIO capability (business knowledge, IT knowledge, political savvy, and communication skill), and CIO/CEO shared understanding of IT role in the organization are important antecedents of CIO role effectiveness. In addition, we posit that an effective CIO will increase the contribution of IS function to the firm in terms of strategic, operational and financial impacts. The study also applies a CIO/CEO matched-pair field survey method to test the research model.
DETERMINANTS OF THE CHIEF OFFICER'S PERCEIVED MANAGERIAL DISCRETION
Managerial discretion refers to the perceived latitude of action that an executive has in making strategic choices. A high-discretion context allows an executive to appropriately engage in strategic decision-making and potentially increase this executive's marginal product and their ability to directly influence firm performance. This research empirically examines the influence of organizational and individual factors on the CIO's perceived level of managerial discretion. The research model was empirically tested using a cross industry sample of 396 CIOs from U.S. based organizations through structural equation modeling. Results found that resource availability, the top management team's (TMT) attitude toward IT, and the CIO/TMT working relationship influence the CIO's perceived level of managerial discretion. In addition, positional power and human capital were respectively found to influence the CIO's perceived managerial discretion when the CIO's positional tenure was low and high. Recommendations are provided as to how organizations can understand the factors that influence the CIO's perceived level of managerial discretion within the organization and the impacts thus perceived level of discretion has on organizational outcomes.
DO IT HUMAN RESOURCES MATTER? AN EMPIRICAL STUDY ON THE NON-LINEAR RELATIONS AMONG STRATEGIC IT PROFESSIONALS, INVESTMENT INTENSITY, AND FIRM PERFORMANCE
The study contributes to the IT sourcing research by asserting that an IT sourcing decision should center on identifying the right IT human resources (rather than the right IT applications) to keep in house. First, we apply the theory of residual rights to partition IT professionals into two components: strategic and necessary. Next, we draw upon the knowledge-based theory of the firm and the resource-based IT management literature to hypothesize that 1) strategic IT professionals are value-adding resources that firms should keep, whereas necessary IT professionals do not generate economic rents and therefore could be outsourced; and 2) the economic effect of strategic IT human resources on the firm is non-linear and it is related to the firm's investment intensity. Finally, using the IT employee and spending data from InformationWeek, we develop empirical models to test our hypotheses. The results from the data analysis support our hypotheses.
EVALUATIONS OF RETAIL STORE ELEMENTS AND SHOPPING VALUE: THE ROLES OF OPTIMUM STIMULATION LEVEL AND SHOPPING TASK
This field study provides evidence for the associations between four store environment elements and consumers' shopping value in terms of hedonic and utilitarian value. Results indicated that consumers with high optimum stimulation levels more strongly evaluated store elements and obtained more hedonic value. Consumers with a task-oriented shopping goal received greater utilitarian value than experiential consumers, but did not differ regarding the evaluation of store elements.
GOING OUT WITH THE CROWD: THE EFFECTS OF GENDER AND SOCIAL CONTEXT ON RETAIL CROWDING
The authors investigate perceived crowding effects at a mall, food court, and entertainment venue, finding that females respond more favorably than males as perceived crowding increases-although social context and venue moderate responses. In contrast to prior research, perceived crowding produces positive affective responses in some individuals in some contexts.
THE SITUATIONAL EFFECTS OF SOCIAL DIGITAL INTERFACES
||Julie Baker , Liz Wang, Robin Wakefield, and Kirk Wakefield
Digital interfaces have the capacity, through the transmission of cues, to enrich channels and influence the impressions, attitudes, and behaviors of online consumers. This study integrates media richness theory with social response theory to explore how social cues embedded in digital interfaces influence online consumption. Findings indicate that digitized social cues elicit human social responses and increase arousal and attentiveness toward both functional and hedonic-oriented websites.
THE INTERACTION OF WEBSITE MUSIC CONGRUENCE AND GENDER: EFFECTS ON FLOW, HEDONIC VALUE, AND PURCHASE INTENTION
This study proposes that the effects of music congruence with a retail website's context may vary with the gender of online users. A lab experiment using a 3 (congruent music/incongruent music/no music) x 2 (male/female) factorial design was conducted to test the hypothesized relationships. The results indicated that males and females responded to incongruent and no music conditions differently in terms of flow, hedonic value and patronage intentions. The paper explores theoretical and managerial implications of the study, and suggests an agenda for future research.
BOUNDARYLESS LESSONS OF LEADERSHIP: ADAMS, ROOSEVELT, AND TRUMAN
"I wander alone, and ponder. I muse, I mope, I ruminate. We have not men fit for the times. We are deficient in genius, education, in travel, fortune - in everything. I feel unutterable anxiety." So wrote future U.S. President John Adams during the American war for independence. His words reflect the uncertainty and apprehension with which even brilliant leaders must contend in times of crisis, whether political, organizational, or personal. Biographer David McCullough has written eloquently in chronicling the lives and contributions of presidents Adams, Roosevelt, and Truman. This article, based on interviews with McCullough, explores boundaryless lessons of leadership exemplified by these three men as they guided the nation through times of crisis and threat, stability and progress.
THE EMPATHETIC ORGANIZATION
A new type of organization has evolved to complement the knowing and learning organizations that have generated interest for their unique managerial approaches. These organizations, termed empathetic organizations, involve their customers intimately in the creative processes of product and service development, and as a result of such involvement, learn and grow with their customers. Several empathetic organizations from widely divergent industries, such as the Container Store, Mary Kay Cosmetics, Apple Computer and Harley-Davidson, are examined. The practices of empathetic organizations are reviewed to illustrate how they empower their customers, help them articulate their needs and problems, and facilitate their development of personalized solutions. In addition, the distinguishing features of empathetic organizations are identified to include organizational values, cultures, management practices, policies, and strategic approaches. It is concluded that these unique features enable empathetic organizations to form intimate bonds with their customers thereby encouraging repeat purchases and powerful loyalty. The uniqueness of empathetic organizations is summarized by a comparison of their key characteristics with those of knowing and learning organizations and questions for the future of empathetic organizations are posed.
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