Research Abstracts

Latest Published Work by Merage School Faculty Members

Accounting Abstracts

Professor

Joanna Ho

Title: “The Effects of In-Group Identity and Clarity of the Bonus Determination Criteria on Supervisors’ Discretionary Bonus Adjustments: Field Evidence from China”

Co-author: Cody Lu and Anne Wu

Accepted at: Journal of International Accounting Research

This study examines the influence of in-group identity between supervisors and subordinates and the clarity of the bonus determination criteria on supervisors’ discretionary adjustments of subordinates’ bonus compensation through the lens of social identity theory. Using field data from a multinational manufacturing company’s subsidiary in China, we find that in-group sales agents receive higher bonus awards and that this effect is more pronounced when there is high clarity of the bonus determination criteria. Additional analysis shows that these effects hold for higher-tenured sales agents and in regions characterized by lower sales agent turnover. Finally, we find that higher bonus awards are positively (negatively) associated with in-group sales agents’ future performance when there is low (high) clarity of the bonus determination criteria. Our findings hold potential implications for management practices in corporations operating in countries that have strong relationship-based cultures.

Professor Emeritus Mort Pincus and Professor Patricia Wellmeyer

Title: “Are Key Audit Matter Disclosures Useful in Assessing the Financial Distress Level of a Client Firm?”

Co-authors: María-del-Mar Camacho-Miñano and Nora Muñoz-Izquierdo

Accepted at: The British Accounting Review

This study examines the usefulness of new expanded audit report key audit matters (KAM) disclosures in assessing the level of financial distress present at a client firm. Using six years of KAM disclosures for U.K. Premium-listed firms beginning in 2013, we investigate the relation between firm financial distress and the number, risk level, financial statement impact, and individual nature of auditor-disclosed KAMs. We expand on literatures examining audit report disclosures in gauging financial distress assessments as well as the utility of expanded audit reporting. We find the greater the number of KAMs disclosed, the higher a firm’s financial distress level. Additionally, results show entity-level KAMs, account-level KAMs with a primary impact on profitability and solvency, and certain types of individual KAMs are more likely to be disclosed when client firms face higher levels of financial distress. The results are robust to alternative measures of financial distress and to endogeneity tests. Our findings also indicate KAMs have predictive ability in assessing subsequent periods’ financial distress levels. In all, evidence from this study suggests a way financial statement users can use independent auditor disclosures to assess one of the main risks associated with a firm - the risk of failure.

Professor Chenqi Zhu

Title: “All losses are not alike: Real versus accounting-driven reported losses”

Co-authors: Feng Gu and Baruch Lev

Accepted at: Review of Accounting Studies (Journal on Financial Times Top 50 list)

We examine the value relevance of accounting-driven losses that result from the immediate expensing of firms’ internally-generated intangible investments vs. losses occurring irrespective of intangible investments. Contrary to the long-held view that losses are less relevant than profits for valuation, we find that once the accounting bias of intangibles-expensing is undone, earnings of firms reporting intangibles-driven losses are as informative as earnings of profitable firms. Furthermore, contrary to the view that persistent losses decrease earnings relevance, our evidence shows no decrease in the relevance of earnings for firms reporting persistent intangiblesdriven losses. We also find that firms reporting intangibles-driven losses subsequently outperform other loss firms and even profitable firms in value creation from investments in technological innovation and human capital. Our evidence further shows that firms reporting intangibles-driven losses have stronger future performance than other firms. Taken together, the results of this study demonstrate the fundamental differences between losses driven by the immediate expensing of internally-generated intangible investments and losses reflecting genuine business performance shortfalls. Standard accounting performance measures, however, do not properly reflect these operational differences and their implications.

Economics/Public Policy Abstracts

Professor Ed Coulson

Title: “An Alternative Approach to Estimating Foreclosure and Short Sale Discounts”

Co-authors: James Conklin, Moussa Diop, and Nuno Mota

Accepted at: Journal of Urban Economics

Current research documents astonishingly large price discounts for foreclosures and short sales. However, such outsized estimates may largely be due to omitted variables bias. We propose an innovative methodology relying on appraisers’ ability to match properties along both observable and unobservable attributes when performing appraisals. Our empirical approach, which relies on the use of appraisal fixed effects, produces foreclosure and short sale discounts of approximately 5% after controlling for a rich set of characteristics, including quality and condition, attributable mostly to the stigma associated with distress itself. We show that these lower estimates are not due to appraisers selecting high-price distressed properties as comps and are robust across a wide variety of subsamples and under alternative estimation methods.

Finance Abstracts

Professor Jinfei Sheng

Title: “Do Investors Affect Financial Analysts’ Behavior? Evidence from Short Sellers”

Co-authors: Kin Lo, Yun Ke, and Jenny Zhang

Accepted at: Financial Management

We examine how short sellers affect financial analysts’ forecast behavior using a natural experiment that relaxes short-sale constraints. We find that increased ease of short selling improves analyst earnings forecast quality by reducing forecast bias and increasing forecast accuracy. The improvements can be explained by both the disciplining pressure from short sellers and increased price efficiency from incorporating information in a timely manner. Although it is well documented that financial analysts can affect investors, our paper provides novel evidence on how sophisticated investors, short sellers, can affect analysts.

Professors Jinfei Sheng and Zheng Sun and PhD Student Wanyi Wang

Title: “Partisan Return Gap: The Polarized Stock Market in the Time of a Pandemic”

Accepted at: Management Science (Journal on Financial Times Top 50 list)

Using two proxies for investors’ political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days (Partisan Return Gap). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 40% of the return gap. Polarized political beliefs about COVID, revealed through people’s social distancing behaviors, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic.

Professor Yuhai Xuan

Title: “Lending Next to the Courthouse: Exposure to Adverse Events and Mortgage Lending Decisions”

Co-author: Da Huo, Bo Sun, and Mingzhu Tai

Accepted at: Journal of Financial and Quantitative Analysis (Journal on Financial Times Top 50 list)

Adverse market events can affect credit supply not only by hurting financial fundamentals but also by changing the risk-taking behaviors of individual decision makers. We provide micro-level evidence of this individual decision-making channel in the U.S. mortgage market. We find that mortgage application rejection rates are more sensitive to foreclosure intensity when loan officers are more exposed to foreclosure news, despite the same housing market and bank fundamentals. Loans originated from the affected branches have lower ex-post default rates, consistent with higher lending standards being applied. In the aggregate, this effect results in tighter credit supply during housing market downturns.

Marketing Abstracts

Professor Tonya Bradford

Title: “The Influence of Ritual Efficacy on Ritual Vitality: Temporal Plaiting in the Vestaval”

Co-author: John F. Sherry Jr.

Accepted at: Journal of Marketing Management

Ritual, which connects participants within brand communities, is a vehicle for creating and understanding time. Consumer and marketplace rituals have been theorised with respect to staging, enactment, outcomes, and place-making, but little consideration has been devoted to the timescapes that shape them. The study of time in marketing research is broadening beyond the chronos of chronology to the kairos of apperception or momentous liminality. We analyse distinct and interwoven chronos and kairos temporal strands experienced through the course of the vestaval ritual embedded within a brand community, in a plaiting process that ensures that contrasting temporalities co-exist, leaving the participant unmoored in time and resonant with deep personal significance of the moment. We theorise a temporal plaiting process and interpret its significance for ritual efficacy. We conclude with a discussion of research and managerial implications.

Professor Tonya Bradford

Title: “How Marketers and Consumers Synchronize Temporal Modes to Cocreate Ritual Vitality”

Co-author: John F. Sherry Jr.

Accepted at: Journal of the Academy of Marketing Science (Journal on Financial Times

Top 50 list)

Marketers recognize the contributions that consumer rituals make to their organizations. They endeavor to have such contributions persist as they support consumers in enacting those rituals. This ethnographic study examines the temporal aspects of ritual, termed ‘ritual vitality.’ We explain how marketers can influence ritual vitality through engagement in the chronos and kairos temporal dimensions of ritual; theorize the relationship between those dimensions; identify the ways in which marketers and consumers interact through a ritual’s chronos and kairos temporal dimensions; and theorize how marketers and consumers co-create these experiences as each party guides, aligns with, or detours from one another. This co-creation is central to ritual vitality. Finally, we contribute an understanding of how chronos and kairos temporal dimensions shape, structure, and perpetuate ritual performance, and identify opportunities for marketers and consumers to participate in the synchronization of chronos and kairos temporality and the support of ritual performances that together may result in ritual vitality.

Professor Imran Currim

Title: “National Customer Orientation: An Empirical Test Across 112 Countries”

Co-authors: Ofer Mintz (PhD alumnus) and Rohit Deshpande

Accepted at: Marketing Letters

Customer orientation is a central tenet of marketing. However, less is known about how customer orientation varies across countries and time. Mintz, Currim, and Deshpandé (2022) propose a country-level construct, national customer orientation, and develop theoretical propositions on how a country’s wealth and average customer price sensitivity affect national customer orientation during and after global economic shocks without providing an empirical test. This paper tests drivers of national customer orientation by employing World Economic Forum and World Bank annual panel data from 112 countries between 2007-2017. The results show customer orientation is a greater luxury of richer nations and price sensitivity is a partial mediator of that relationship, however, both relationships only transpire in non-recessionary times. The empirical test furthers scholarly research on national customer orientation and provides managers with country-level customer orientation benchmarks across countries and time.

Professor Connie Pechmann

Title: “When Students Patronize Fast-food Restaurants Near School: The Effects of Identification with the Student Community, Social Activity Spaces and Social Liability Interventions”

Co-author: Brennan Davis (PhD alumnus)

Accepted at: International Journal of Environmental Research and Public Health

U.S. schools have fast-food restaurants nearby, encouraging student patronage, unhealthy consumption and weight gain. Geographers have developed an activity space framework which suggests this nearby location effect will be moderated by whether people perceive the location as their activity space. Therefore, we study whether students perceive a fast-food restaurant nearby school as their activity space, and whether social marketing messages can change that perception. We conduct six studies: a secondary data analysis, a field experiment and four lab experiments. We find that students who strongly identify with their student community patronize a fast-food restaurant nearby school (vs. farther away) because they view it as their activity space, while students who weakly identify do not. We also find that to deter the strong identifiers, messages should convey that patronage is a social liability, e.g., portray student activism against fast food. We show that standard health messages do not change perceptions of the restaurants as social activity spaces. Thus, to combat the problem of fast-food restaurants nearby school causing unhealthy consumption, policy and educational interventions should focus on students who strongly identify with their student community and find ways to weaken their perceptions that fast-food restaurants nearby schools are their activity spaces.

Organization and Management Abstracts

Professor Patrick Bergemann

Title: “The Activation of Internal Versus External Social Control Agents: Reporting the Taliban in Afghanistan”

Co-author: Austin Wright

Accepted at: Sociological Science

In many settings, witnesses can report wrongdoing to internal authorities such as officials within an organization, or to external authorities such as the police. We theorize this decision of where to report as rooted in the policing of group boundaries, as the use of different reporting channels symbolically affirms or disaffirms affiliation with different social categories. As such, both witnesses and other social actors have an interest in where witnesses report. We evaluate this theory using villagers’ reporting of illegal Taliban activity in Afghanistan in 2017 and 2018, where witnesses could report externally (e.g., to the National Police) or internally (e.g., to village elders). We show how responses to wrongdoing arose from the interaction between self and others’ attitudes toward the Taliban, and reveal how reporting can be simultaneously punitive for the wrongdoer and affiliative for the category to which the wrongdoer belongs.

Strategy Abstracts

Professor Libby Weber

Title: “Managers’ Perceptions and Microfoundations of Contract Design”

Co-author: Russell Coff

Accepted at: Academy of Management Review (Journal on Financial Times Top 50 list)

In interfirm exchanges such as contracts, transaction cost economics theory (TCE) argues asset specificity, critical for value creation, poses hazards requiring contractual safeguards. TCE assumes actors have foresight to mitigate these hazards even though specificity is typically hard to observe, suggesting managers’ impressions may be biased. Taking a microfoundational approach, we explore how individual negotiators form perceptions of optimal asset specificity and aggregate them to a firm-level assessment that may be influenced through negotiation. We then explore how managers may actively manipulate their counterpart’s perceptions to maximize their firm’s value capture. We theorize about when this may occur and the implications for contractual governance, value creation/ capture, and repeated exchanges – each of which may vary from extant predictions. By applying both an expanded bounded rationality assumption (including cognitive distortions) and net value capture motivation symmetrically, we augment contract design research allowing it to predict when and how managers’ strategic behavior may impact exchange outcomes. As a result, this analysis provides a more nuanced understanding of when contract design may intentionally deviate from efficient governance predictions.