Research Magazine 2025

COLES

RESEARCH SPRING 2025 MAGAZINE

COLES RESEARCH MAGAZINE

THIS ISSUE Dean’s Forward��4 Our Research/Coles College Contributors��5

Is the Impact of High-Frequency Trading on Market Quality around FOMC Announcements Affected by Uncertainty? | Hyungshin Park ��30 Financial Reporting Alternatives for Stock Repurchases and Their Effects on Stock Repurchase Decisions | Kelly Ha �� 31

COMPETITIVE GRANT

CPRS-Inc Grant: Analysis of Duplicate/Erroneous Transactions & Related Identification Techniques | Aaron French ��19

PH.D. SUMMARIES

JOURNAL PUBLICATIONS - FINANCIAL TIMES TOP 50 JOURNALS

WORKING PAPERS

State Governments Take a Bath: Earnings Management in State Governments |

The Ironic Impact of Schadenfreude: When the Joy of Inflicting Pain Leads to Increased Prosocial Behavior | Yael Zemack-Rugar, Laura Boman , Thomas Kramer��7 Sharing to Persuade: The Role of Donor-Versus Charity-Focused Word of Mouth | Laura Boman , Xin He��8 The Taguchi Approach to Large-Scale Experimental Designs: A Powerful and Efficient Tool for Advancing Marketing Theory and Practice | Jordan W. Moffett, Patrick Fennell , Colleen M. Harmeling, Daniel Sheehan, Alexander Bleier��9 How Large is the Pay Premium from Executive Incentive Compensation? | Ana Albuquerque, Rui Albuquerque, Mary Ellen Carter, Qi (Flora) Dong �� 10

A Framework for the Blockchain Ecosystem for Smart Tourism | Aaron French ��33 The Power of Accounting: Capitalization of Cloud Computing for Utilities | Kelly Ha , Bryan Brockbank, Mary Hill , Wayne B. Thomas��33 Do You Believe in Second Chances? | Marcus Caylor, Duanping Hong, Hyungshin Park, Hong Qu ��34 Registered Direct Offerings and Confidentially Marketed Public Offerings | Rongbing Huang , Hong Qian��34 Composite Quantile Regression for Alpha Estimation | Zhaoguo Zhan ��35

Chris Slinkard, Benedikt Quosigk, Sunay Mutlu, Mary Hill ��21 Opposites Attract: The Contrary Influences of Empowerment and Accountability Climates on Proactive Work Behavior | William Yaeger, Stacey R. Kessler, Paul Spector, Paul Johnson��22

Societal Impact��23

COLES RESEARCH SYMPOSIUM

Our Publications��11

A Model of Fortification Using Bayesian Persuasion | Abhra Roy, Jomon A. Paul ��25 A Typology of Disinformation Intentionality and Impact | Aaron French ��26 Tullock Contest Alliances with Proportional Prize- Sharing Agreements: Private Collective Action Mechanisms? | James Boudreau , Shane Sanders��27

JOURNAL PUBLICATION – DISTINGUISHED JOURNAL

Conscious Empathic AI in Service | Hadi Esmaeilzadeh, Reza Vaezi �� 13

JOURNAL PUBLICATION – OUTSTANDING PRACTITIONER FOCUSED RESEARCH

The Fraud Prevention Pyramid | Douglas M. Boyle, Dana Hermanson �� 15

COMMUNITY ENGAGEMENT

SUMMER RESEARCH FELLOWSHIP

Leadership Through Service – Growing the Internal Audit Profession by Bridging Education and Practice | Brad Schafer �� 17

Investigating Information Security Policy Noncompliance as a Local Phenomenon | Botong Xue ��29

11TH ED. SPRING 2025

COLES RESEARCH MAGAZINE

225 15994

TOTAL NUMBER OF JOURNAL PUBLICATIONS:

TOTAL NUMBER OF CITATIONS:

TOTAL EXTERNAL RESEARCH GRANT DOLLARS:

Can technology develop creative, empathetic artificial intelligence-based service providers? Can five companywide practices protect businesses from fraud? Does high- frequency trading give markets much-needed liquidity or contribute to instability? Explore these questions and more in the 2025 issue of the Coles Research Magazine. In its 11th year, the Coles Research Magazine continues to highlight innovative, actionable research conducted by the faculty and students of the Michael J. Coles College of Business. Their work not only enhances Kennesaw State University’s reputation as a thought leader in business theory, but also solidifies the University’s position as a valued partner in the decision-making processes of countless firms. Research featured this year includes four papers published in Financial Times Top 50 journals; research from the winners of the Coles College Distinguished Publication, Competitive Grant, Practitioner Outlet, and Community Engagement awards; the work of recent Coles Working Paper Series award winners; papers presented at the Coles Research Symposium on Homeland Security; and two Ph.D. candidate executive summaries. As always, the research presented here includes digestible, easy-to-understand outlines alongside key takeaways, ensuring conclusions are accessible to academics and real-world professionals alike. I invite you to explore the 11th edition of The Coles Research Magazine and discover why Kennesaw State University has become a leading voice in the study of business theory and practice.

Coles College Faculty

The following Coles faculty and student work has been featured in this year’s magazine

Laura Boman , Assistant Professor of Marketing Patrick Fennell , Assistant Professor of Marketing and Professional Sales Qi (Flora) Dong , Associate Professor of Accounting Reza Vaezi , Professor of Information Systems Dana Hermanson , Dinos Eminent Scholar Chair of Private Enterprise and Professor of Accounting Brad Schafer , Associate Professor of Accounting Aaron French , Assistant Professor of Information Systems Chris Slinkard , Ph.D. Graduate Benedikt Quosigk , Associate Professor of Accounting Sunay Mutlu , Associate Professor of Accounting Mary Hill , Associate Professor of Accounting William Yaeger , Ph.D. Graduate

Stacey R. Kessler , Associate Professor of Organizational Behavior/Human Resources Management Abhra Roy , Associate Professor of Economics Jomon A. Paul , Professor of Quantitative Analysis James Boudreau , Professor of Economics Botong Xue , Assistant Professor of Information Systems and Security Hyungshin Park , Assistant Professor of Accounting Kelly Ha , Assistant Professor of Accounting Rongbing Huang , Professor of Finance Zhaoguo Zhan , Professor of Economics Marcus Caylor , Professor of Accounting Duangping Hong , Assistant Professor of Accounting Hong Qu , Associate Professor of Accounting

Coles Research Magazine | Financial Times Top 50 Journals

The Ironic Impact of When the Joy of Inflicting Pain Leads to Increased Prosocial Behavior SCHADENFREUDE:

FT-50 JOURNAL PUBLICATION AWARD WINNERS

Journal of Consumer Psychology, 2024

The present work investigates a commonly used but heretofore unexamined donation appeal: a misfortune-involving appeal. Misfortune-involving appeals (e.g., dunk tanks, pie tosses) invite consumers to donate to inflict misfortune on others. The process via which such appeals operate remains unknown and guidelines for their effective design are nonexistent. We propose that misfortune-involving appeals that invite consumers to inflict mild misfortune on deserving targets enable consumers to deliver interpersonal justice, thus eliciting schadenfreude. In turn, schadenfreude increases donation amounts. Six studies demonstrate such increases, establishing the mediating role of schadenfreude, addressing alternative explanations (e.g., licensing and sadism), and identifying boundary conditions. Theoretically, our work is the first to question a common prior assumption: that schadenfreude only occurs when consumers passively observe misfortune. Instead, we show that schadenfreude also emerges when consumers actively inflict misfortune. This finding refines the distinction between schadenfreude and sadism; we show that this distinction relies not on consumers’ active/passive role, but on misfortune severity. Our findings expand the understanding of schadenfreude’s role in the marketplace, opening the door for future research. Misfortune-involving appeals featuring mild misfortune to deserving targets boost donations. Actively inflicting mild misfortune elicits schadenfreude, increasing donation amounts. Schadenfreude, not sadism or guilt, drives donations in misfortune-involving appeals. Severe misfortune in appeals decreases donations by evoking sadism rather than schadenfreude. Prior punishment of targets reduces schadenfreude and, consequently, donation amounts.

Yael Zemack-Rugar Laura Boman Thomas Kramer

The Financial Times maintains a list of the top 50 academic business journals based on the quality and impact of their featured research. Having research published in a Financial Times Top 50 Journal is a solid indicator that a business school is among the top tiers. Each year, the Coles College recognizes faculty whose research appears in one of these prestigious journals with an award. Read on to learn about this year’s recipients.

The Taguchi Approach to Large-Scale Experimental Designs: A Powerful and Efficient Tool for Advancing Marketing Theory and Practice Journal of Marketing Science, 2024

Sharing to Persuade: The Role of Donor-Versus Charity-Focused Word of Mouth

Current marketing research often relies on narrowly focused experimental methods that address just a few independent variables or correlational designs, despite calls for future research to take big- picture perspectives that offer real-world applicability and causal evidence. This disparity likely reflects the constraints imposed by the need for extensive resources to conduct broad, causal examinations. To bridge this gap, our work presents the Taguchi approach to large- scale experimental design, which remains notably underutilized in marketing research despite being well-established in other fields. Its effectiveness stems from the robust catalog of experimental design rubrics that can incorporate many different independent variables systematically and efficiently. The causal and efficient experimental option for broad scopes of investigation embraces the embeddedness of in-dependent variables and thus can help build marketing theory and advance practice. In this work, we detail the fundamentals of the Taguchi approach, its relative advantages, and a three-step implementation process. Taguchi designs enable researchers to: Boost research efficiency by testing many variables with fewer conditions. Uncover causality in real-world scenarios with diverse configurations. Identify key drivers in complex phenomena to refine and extend theories. Advance theory with robust, real-world applicable causal evidence.

Journal of Marketing Research, Vol. 62 No.1(2024) pp.22-39

Laura Boman Xin He OVERVIEW

TAKEAWAYS

Jordan W. Moffett Patrick Fennell Colleen M. Harmeling

Charitable organizations are increasingly soliciting donors to engage in word-of-mouth (WOM) as a strategy to foster future contributions. While some organizations encourage donors to share WOM that focuses on their own donations (donor-focused WOM; e.g., “I just donated to the kids of @StJude. Join me in saving children’s lives.”), others prompt donors to share WOM that focuses on the organization itself (charity- focused WOM; e.g., “Smile Train gives children with clefts the #PowerOfASmile.”). Contrary to the common be-lief that people mostly want to talk about themselves, the current research demonstrates that donor-focused WOM backfires, such that donors are less likely to share donor- than charity-focused WOM. This effect is driven by their belief that donor-focused WOM is less altruistic and is therefore less efficacious in persuading others to contribute to the same cause. In addition to sharing, the type of WOM solicited exerts far-reaching impact, with donor-focused WOM attracting fewer new donors in comparison to charity-focused WOM. Together, the current research improves the understanding of WOM type, its effect, and the underlying processes.

Donor-focused word of mouth (WOM) is less likely to be shared than charity-focused word- of-mouth. Donor-focused WOM is seen as less altruistic and less effective in persuading others to donate. Soliciting donor-focused WOM attracts fewer new donors compared to charity-focused WOM. Emphasizing organizational mission in WOM increases sharing and donation efficacy. For effective fundraising, charities should avoid donor-focused WOM solicitations.

Daniel Sheehan Alexander Bleier

Coles Research Magazine | Financial Times Top 50 Journals

OVERVIEW

We estimate the pay premium associated with CEO incentive compensation. Using explicit detailed U.S. CEO compensation contract data and simulation analysis, we find that CEOs with riskier pay packages receive a premium for pay at risk that represents 13.5 percent of total pay. The premium is positively correlated with proxies for CEO risk aversion, but implied risk aversion values suggest that the premium is economically smaller than suggested by prior studies. We perform our tests using a variety of proxies to measure the variance of pay and find consistent evidence of economically small pay risk premiums. These results are consistent with recent findings suggesting that risk may have a more limited influence over the level of pay than previously thought.

A+ JOURNALS FACULTY HAVE PUBLISHED IN

Auditing: A Journal of Practice & Theory European Journal of Marketing Information Systems Journal International Journal of Hospitality Management Journal of Consumer Psychology Journal of Management Accounting Research Journal of Management

Journal of Management Studies Journal of Marketing Research

Journal of Money, Credit and Banking Journal of Organizational Behavior Journal of Retailing Journal of Service Research

The Accounting Review The Florida Tax Review

The Journal of Human Resources Strategic Management Journal

EDITORIAL BOARD MEMBERS OF

Academy of Management Review Auditing: A Journal of Practice and Theory Contemporary Accounting Research Industrial Marketing Management International Journal of Hospitality Management Journal of Banking and Finance Journal of International Business Studies Journal of Organizational Behavior Journal of the Academy of Marketing Science

The Accounting Review, 2024

TAKEAWAYS

CEOs with riskier compensation packages earn a 13.5% premium for taking on pay at risk. This premium is economically smaller than suggested by prior studies. The small premium suggests risk-sharing does not fully explain U.S. executive incentives.

Ann Albuquerque Rui Albuquerque Mary Ellen Carter Qi (Flora) Dong

Coles Research Magazine | Financial Times Top 50 Journals

Conscious Empathic AI in Service Journal of Service Research, Vol. 25, No. 4 (2022), pp. 549-564

OUTSTANDING PUBLICATION AWARD When faculty publish in top-tier journals, the researcher and the College become part of the ongoing academic discussion. By recognizing faculty whose work is published in exceptional journals, the Coles College Outstanding Publication Award recognizes the dedication, commitment, and rigor involved in producing research that gains the attention of these respected publications.

Hadi Esmaeilzadeh Reza Vaezi

Recent advances in artificial intelligence (AI) have achieved human-scale speed and accuracy for many tasks, including human speech. Current systems do not need to be conscious to recognize patterns and classify them or to mimic human linguistic skills (e.g., ChatGPT). However, for AI to advance to the next level, it needs to develop capabilities such as metathinking, creativity, empathy, and free will. This article contends that such a paradigm shift

is possible through a fundamental change in the state of artificial intelligence toward consciousness, similar to what took place for humans through evolution. To that end, we propose that consciousness in AI is an emergent phenomenon that primordially appears when two machines co-create their own language (creativity) through which they can recall and communicate their internal state of time-varying symbol manipulation (metathinking). They

should be able to repeatedly use this newly developed language to form agreements and accomplish tasks outside of their training and purpose (free will). Also, be-cause, in the proposed view, consciousness arises from the communication of inner states, it leads to empathy in the machines, as empathy is the ability of one conscious entity to recreate the internal states of another entity within itself.

Resist AI managers—for now. Wait for empathic ones, not the goal-only psychopath types. Empathic AI is coming. Be ready to shape laws and regulations—like with pets or kids. Empathic AI opens doors—imagine services that sense, empathize, and guide users wisely.

The Fraud Prevention Pyramid

PRACTITIONER PUBLICATION AWARD WINNER While the audience for scholarly journals is typically other academics, practitioner journals, on the other hand, are written specifically for people working in that field. Papers in practitioner journals often have actionable best practices that can support professionals immediately. This section features the award given by the Coles College to faculty who publish high-quality work in practitioner journals.

Professional Ethics & Values, March 11, 2024

Douglas M. Boyle Dana Hermanson

Accountants often pressure to act unethically. Dana Hermanson worked with Coles DBA alumnus Doug Boyle to develop “The Fraud Prevention Pyramid,” a five-level framework designed to help accountants build increasing levels of personal anti-fraud competence that will protect them from pressures and incentives to act unethically (https://www. sfmagazine.com/articles/2024/ march/the-fraud-prevention- pyramid). The pyramid focuses on (1) developing fraud awareness and acumen, (2) understanding fraud

ingredients, (3) avoiding common fraud pitfalls, (4) mitigating dark triad traits and pressure, and (5) mastering emotional intelligence. For each level of the pyramid, the authors synthesize core messages and identify relevant resources for interested readers. Building anti-fraud defenses before facing pressure is critical to avoiding trouble. The article was recognized as the Institute of Management Accountants 2024 Strategic Finance Curt Verschoor Ethics

Feature of the Year. In addition, the authors participated in an Institute of Management Accountants podcast, “The Fraud Prevention Pyramid Explained,” to discuss the Pyramid and its elements (https:// podcast.imanet.org/264). After the article was published, Herman- son reorganized and updated his undergraduate course, Fraud and Forensic Accounting, to adopt the Fraud Prevention Pyramid as the organizing framework for much of the course.

Accountants often pressure to act unethically. The authors developed the Fraud Prevention Pyramid, a five-level anti-fraud framework. For each level, the authors offer core messages and relevant resources. Building anti-fraud defenses before facing pressure is critical to avoiding trouble.

Leadership through Service - Growing the Internal Audit Profession by Bridging Education and Practice

COMMUNITY ENGAGEMENT AWARD WINNER

Brad Schafer

Taking the role of KSU’s Internal Audit Center (IAC) Director in 2017, Dr. Brad Schafer’s goal was not to merely maintain the Institute of Internal Auditor’s (IIA) “Center of Excellence” rating, but to grow the KSU program and the Internal Audit (IA) Profession. The IAC is currently the world leader in issuing IA Educational Partnership Certificates. Dr. Schafer transformed the IAC advisory board to include executive audit leaders from 50 leading organizations,

who engage with KSU to prepare the next generation’s audit profession. As IAC Director, he developed a mentor program where every interested MAcc student is connected with an executive mentor. The IAC has raised over $100,000, which has provided financial support to host two IA exclusive networking events each year, employ a graduate student, and support student travel to the IIA’s Global Stu-dent Conference. Dr. Schafer has mentored students

for case competitions, where KSU’s students have placed 1st or 2nd in statewide and global competitions in each of the past 5 years. Since be-coming Director, Dr. Schafer has accepted leadership roles at the IIA Atlanta Chapter and IIA Global. He currently serves the IIA Global on both the CIA Exam Standards Committee and the Global Model Curriculum Committee. In 2022, the IIA Atlanta Chapter awarded Dr. Schafer the Bill Mulcahy Leadership Award.

Through their research and service, Coles College faculty can often provide real, lasting benefits to an external organization or the community/society at large. Specifically, the winner’s efforts have improved processes, products, or services for organizations and entities outside the College.

Director of the KSU Internal Audit Center - the global leader in issuing IA Educational Partnership Certificates Mentors students and serves on global IIA committees Recipient of the 2022 IIA Atlanta Chapter’s Bill Mulcahy Leadership Award

CPRS-Inc. Grant: Analysis of Duplicate/ Erroneous Transactions & Related Identification Techniques

COMPETITIVE GRANT AWARD WINNER By their nature, competitive grants are challenging to receive, as faculty must make a case for why their research should be funded over other projects. This award recognizes top-quality research completed as part of competitive grants from organizations like the National Science Foundation, National Institute of Health, Department of Homeland Security, The Institute of Internal Auditors, and more.

Aaron French

This research project, supported by a $53,000 grant in collaboration with CPRS, aimed to enhance duplicate payment detection using machine learning techniques. CPRS is a leader in AP audit services specializing in recovering duplicate payments and other overpayments by analyzing data beyond typical ERP system checks. Our project developed an advanced tool to complement CPRS’s existing detection processes, introducing machine learning models to identify

payments meeting a minimum duplication threshold with assigned probabilities. This innovation enables faster auditing and more efficient payment recovery. Through comprehensive data analysis, we found that duplicate payments occurred in less than one percent of all vendors but identified several vendors with multiple duplicate payment instances. These findings resulted in recommendations to improve business processes and targeting recommendations for

business to address recurring issues with problem vendors. Our research advances automated auditing capabilities, supporting CPRS’s mission to maximize payment recovery and strengthen vendor accountability. Based on success of the project, the grant was renewed for spring 2025 contributing to a total of $106,000 for the 2024-2025 academic year with new business problems to solve.

Organization Awarding Grant: https://cprs-inc.com/ap-audit-services/

Complex systems and messy data require significant transformation for effective ML use. Data analysis is more than outcomes; it requires understanding the story of data. ML tools enabled the identification of duplicate payment well below standard thresholds. This success resulted in a contract renewal to address other business problems.

EARNINGS MANAGEMENT IN STATE GOVERNMENTS STATE GOVERNMENTS Take a Bath:

PH.D. PROGRAM DISSERTATIONS

Chris Slinkard (Ph.D. Graduate) Benedikt Quosigk (Dissertation Chair) Sunay Mutlu (Committe Second) Mary Hill (Reader)

OVERVIEW

TAKEAWAYS

The culmination of a Ph.D. candidate’s journey is completing their dissertation, which represents years of research, refining, and defending their work. This section features approved dissertations from candidates in the Coles College’s Ph.D. in Business Administration program, allowing readers to sample the work of these newly christened scholarly academics.

This study investigates earnings management practices in U.S. state governments following the implementation of GASB Statement No. 34. The research examines how state officials use discretionary accounting techniques to manipulate financial reporting outcomes, analyzing financial statements across all 50 states over ten years (2010-2019). The findings support the view that bureaucrats use income-increasing or deficit-decreasing techniques to achieve break-even outcomes, with variations based on political control. These patterns have important implications for transparency, accountability, and effective stewardship of public resources. As state government deficits reach unprecedented levels, understanding these accounting manipulations is important for ensuring high-quality financial information and long-term economic sustainability.

State governments systematically engage in earnings management through discretionary accruals and other financial sources and uses (OFSU). Officials use income-increasing or deficit- decreasing techniques to achieve near-zero (“break-even”) financial outcomes. Political party affiliation significantly influences the magnitude and direction of discretionary accounting choices. Republican legislative control correlates with fewer discretionary accruals and less interfund transfers. Split legislative chambers and non-trifecta governments show distinctive patterns of accounting manipulation.

OVERVIEW

Societal Impact & Industry Collaboration Cross-Disciplinary Research: CCB fosters research integrating business, technology, and healthcare, addressing challenges such as sustainable tourism, fintech innovation, and digital transformation. The Education Economics Center produces research on school choice, public finance, and teacher labor markets, influencing national and state policy. CCB's research extends to cybersecurity, supply chain resilience, and digital payments, ensuring businesses and communities adapt to evolving technological landscapes Industry Partnerships: Collaborations with NASA, NSF, fintech leaders, and multinational corporations provide faculty and students with opportunities to engage in real-world problem-solving. The KSU Small Business Development Center (SBDC) has facilitated over $172 million in capital infusion, directly supporting 600+ small businesses, enabling job creation and economic growth The National Hybrid Schools Project (NHSP) serves as a research hub for alternative education models, supporting the growing hybrid schooling movement across the U.S. Corporate innovation programs, such as partnerships with WellStar Health System and Radical Logistics, drive advancements in healthcare technology, logistics, and entrepreneurial ecosystems. Thought Leadership: Faculty contribute to policy debates, government hearings, and think tanks, influencing decisions on education funding, digital economy regulations, and market structures. Notable contributions include testimony before the U.S. House Education & Workforce Committee, participation in Harvard University policy forums, and research featured in Forbes and The Economist The Digital Payments Summit brings together fintech leaders, policymakers, and students, shaping discussions on blockchain, artificial intelligence, and digital banking trends. CCB's Marketing Innovation & Tech Strategy (MITS) Competition fosters interdisciplinary collaboration between marketing and information systems, preparing students for careers in Web3, AI, and digital strategy.

Prior research suggests that employee empowerment allows employees to step outside of their defined roles, take control of decision making, and drive change to improve organizational performance. At the same time, researchers and the popular press have called for more accountability in organizations, citing examples of leaders’ abuse of power, negligence, unethical behaviors, and even violations of law. Through the lens of both social information processing(SIP) and cognitive dissonance(CD) theories, I examine how both empowerment and accountability climate jointly influence employees’ psychological states (i.e., occupational self-efficacy and felt responsibility), thereby impacting their willingness to exhibit the proactive work behaviors (i.e., personal initiative and taking charge behavior) that contribute to firm success. The study also assesses how supervisor rapport (i.e., interactional justice) and dispositional factors (i.e., regulatory focus) moderate these relationships. Data was collected from two U.S. based medical device companies. The final sample consisted of 116 employees, representing a 55% response rate. Results indicated that accountability climate directly and positively affects employees’ proactive work behaviors, albeit via different mediators that those proposed. However, empowerment climate did not directly influence either of the proactive work behaviors but indirectly influenced an employees’ personal initiative via the employees’ occupational self-efficacy. Taken together, it seems that both climate domains influence employees’ exhibiting of proactive work behaviors, but likely through different mechanisms.

The Contrary Influences of Empowerment and Accountability Climates on Proactive Work Behavior

TAKEAWAYS

Via SIP and CD theory both the extrinsic and intrinsic effects on employee behavior are evaluated. Prior research posits Accountability and Empowerment Climates are negatively related, I found them unrelated. Firms should encourage employee empowerment and build self-efficacy regarding as-signed tasks. Firms benefit by ensuring employee understanding of core responsibilities and how those impact the organization. Employee regulatory focus orientation can ensure the right people are placed in the right roles.

William Yaeger (Ph.D. Graduate) Stacey R. Kessler (Dissertation Chair) Paul Spector (Committee Second) Paul Johnson (Reader)

Coles Research Magazine | Ph.D. Program Dissertations

A Model Fortification Using Bayesian Persuasion

COLES RESEARCH SYMPOSIUM

Coles Research Symposium on Homeland Security Special Issue, SIFALL24-01, November 2024

We analyze a model of communication between a Sender and Receivers using Bayesian Persuasion in the context of fortification. The government acts as a Sender and wants firms (the Receivers) with critical infrastructure to bolster their defenses. The firms benefit from bolstering only if an attack is imminent. Bolstering does not offer any benefits, otherwise. Each firm is also assumed to have a different expected return and/or costs of fortification but have identical priors about the probability of an attack. We assume that the government receives noisy intelligence about whether an attack is imminent and searches for an optimal persuasion rule that maximizes the number of firms that fortify under different types of intelligence failures. We then extend the analysis to admit firms having heterogenous priors. Finally, we derive the upper bounds for the cost of intelligence in each scenario and Pareto-rank equilibria obtained under different types of intelligence failure.

The annual Coles College Research Symposium on Homeland Security brings together researchers from across KSU and across the country to share their work on critically important issues like terrorism, public health, natural disasters, cyberattacks, and more. This section includes research presented at the Fall 2024 symposium.

Abhra Roy Jomon A. Paul

There exists unique equilibrium persuasion mechanism that increases the number of firms that fortify. More firms may fortify when the intelligence is less than perfect. Updating intelligence may not always increase welfare. Full information disclosure may not always be optimal. Persuasion always improves welfare.

OVERVIEW

In today’s world, many people rely on social media for news, but this has also made it easier for false and misleading information—called disinformation— to spread. Disinformation is intentionally created to deceive people, and it can cause division and confusion on important social, political, and health issues. It’s become such a serious problem that experts now see it as a cybersecurity threat. This research introduces a new tool called the Disinformation Intentionality and Impact (DII) Typology, which helps us understand and categorize disinformation based on how believable it is and how much harm it can cause. The more believable the false information is, the more likely people are to share it, even if they don’t realize it’s

TULLOCK CONTEST ALLIANCES WITH PROPORTIONAL PRIZE-SHARING AGREEMENTS: PRIVATE COLLECTIVE ACTION MECHANISMS? Coles Research Symposium on Homeland Security Special Issue, SIFALL24-02, November 2024

false. The typology uses principles from information manipulation theory and risk management to evaluate how likely disinformation is to go viral and how deeply it might divide people. The DII typology helps identify different types of dis-information and suggests targeted ways to reduce the harm they can cause. To show how it works, the typology is applied to real examples, including political events. The paper also offers recommendations for how organizations and platforms can reduce the spread of harmful disinformation online.

James Boudreau Shane Sanders

OVERVIEW

TAKEAWAYS

This paper focuses on humanity’s supposedly irrational behavior in conflict decision-making, challenging two rationalist puzzles in political science and economics: war’s in-efficiency and alliance formation. More specifically, we ask whether alliances can benefit the allies. Standard Tullock contest alliances are plagued by free riding, undermining successful collective action. In a three-party contest environment when two of the parties ally, input substitution and fixed prize division hinder collective action. Analyzing the same con-test with input-cost complementarity and proportional prize division, we propose a trans-formative solution that avoids the usual problems of alliance formation and stability. While input-cost complementarity partially mitigates those concerns, a proportional prize-sharing agreement offers a comprehensive remedy, ensuring equitable contributions and gains for the allied parties. The proposed approach not only resolves the alliance- formation puzzle but also enhances the allies’ prospects for success.

Standard contest models can’t explain alliance formation, as alliances make both allies worse off. Cost complementarities alone do not resolve the collective action problem. Proportional prize-sharing aligns the allies’ incentives, resolving the alliance puzzle. NATO’s historical experience supports the role of proportional rewards in alliance behavior. A 2% pledge of military spending will be ineffective if alliance benefits are not shared proportionally.

TAKEAWAYS

Introduction of the Disinformation Intentionality and Impact Typology for Risk Management. Classifies disinformation threats based on intentionality of the spread and the impact. Identifies four distinct categories of false information spreaders based on DII categories. Proposes a model outlining risk mitigation strategies based on the DII typology. Proposes a New Organizational Role for risk assessment: Disinformation Management Officer.

Coles Research Magazine | Coles Research Symposium

SUMMER RESEARCH FELLOWSHIPS

Investigating Information Security Noncompliance as a Local Phenomenon

OVERVIEW

Organizations often have information security policies (ISPs) in place that require employees to follow them. Despite decades of research on the topic, ISP noncompliance remains a problem. We take an alternative approach to examining the factors that underly ISP noncompliance. We argue that ISP noncompliance may be a local phenomenon, rather than a contextualized general phenomenon as treated by the extant literature. On that basis, we focus on identifying and examining the local (unique) factors that solely predict employees’ ISP noncompliance and are not related to other non-ISP-related behaviors (or general organizational policy violations). To identify these factors, we adopt a sequential mixed-method research approach comprising a qualitative study (Study 1) and a quantitative cross-sectional survey (Study 2), and semi-structured interviews for triangulation (Study 3). We hope that this research will contribute to both the information security literature and management practice.

One of the ways that the Coles College encourages faculty research is by offering $10,000 fellowships each summer to new, junior, and senior faculty. Read on to learn more about the projects that Coles College faculty members will be working on throughout Summer 2025.

TAKEAWAYS ISP noncompliance behavior has its own features and uniqueness, compared to normal policy violation. We uncovered factors that primarily predict employees’ ISP violation behavior. A sequential multi-study mixed-method research approach was adopted.

Botong Xue

OVERVIEW

In this study, we investigate whether changes in HFT activities before, during, and after the Fed chair’s announcement of FOMC meeting results depend on the uncertainty surrounding changes in the Fed’s monetary policies. Specifically, we examine whether HFT activities in these periods align with liquidity-supplying or liquidity-demanding behavior and whether uncertainty about Fed rate changes influences high-frequency traders’ strategies and their liquidity-providing or liquidity-demanding activities. Our study contributes to the existing HFT literature by demonstrating that HFTs’ liquidity-providing versus liquidity-demanding behavior around an event can vary depending on the relative benefits and costs of acting as a market maker versus adopting aggressive trading strategies.

Financial Reporting Alternatives for Stock Repurchases and Their Effects on Stock Repurchase Decisions

Corporations repurchase shares to manage capital structure, enhance earnings per share, and signal financial strength. However, the sensitivity of repurchase activity to earnings may depend on the chosen accounting treatment. Under the treasury stock method, repurchases reduce retained earnings, making firms more mindful of earnings when deciding on buybacks. In contrast, the retirement method permanently removes shares without directly affecting retained earnings, potentially making repurchase decisions less sensitive to earnings. We argue that firms using the treasury method exhibit greater earnings sensitivity in their repurchase behavior than those using the retirement method. This research contributes to the literature by linking accounting choices to managerial decision- making and informs standard setters, investors, and policymakers about the financial implications of repurchase accounting treatment.

Kelly Ha

We explore how repurchase sensitivity to earnings varies by accounting treatment. We investigate if accounting choices shape managerial repurchase decisions. We consider the financial implications of accounting methods for repurchases.

TAKEAWAYS

While HFT is generally known to enhance market quality through liquidity-providing market-making activities during normal times, some practitioners have criticized it for exacerbating market volatility during extreme events. The Fed chair’s announcements of FOMC meeting results have had a significant impact on the market in recent years due to drastic changes in the Fed rate. Since the overall impact of HFT on the U.S. equity market remains debatable, FOMC announcements provide an ideal setting to examine the pros and cons of HFT activities during a scheduled normal event, as the costs (e.g., increased price volatility and reduced liquidity) may outweigh the benefits (e.g., improved price discovery).

Hyungshin Park

Coles Research Magazine | Summer Research Fellowships

Aaron French

A Framework for the Blockchain Ecosystem for Smart Tourism Coles Working Paper Series, FALL24-07, November 2024

Smart technology has changed the way people travel by making their experiences better and more enjoyable. New technologies like blockchain can take this even further by making it easier for people and businesses to communicate, automate tasks, and

verify information. This research introduces a new model showing how blockchain can connect all the different people and services involved in a trip to a smart tourist destination. The model explains what technologies are used, how they help, and how everything

is connected—benefiting both travelers and the companies that serve them. This study also opens the door for future research on how blockchain and smart tour- ism can work together and offers suggestions for improving current ideas with blockchain.

COLES WORKING PAPER SERIES

Blockchain connects tourism services for improved communication and customer service. A blockchain ecosystem adds transparency, building trust in tourism. Tourists get real-time personalized travel experiences with enhance security and payments. Visibility across the full travel experience provides improved and analytics and insights. Unified rewards let tourists earn across all services.

Kelly Ha , Bryan Brockbank, Mary Hill , Wayne B. Thomas

The Power of Accounting: Capitalization of Cloud Computing for Utilities.

Faculty often share their ongoing, unpublished research - called working papers - with one another to promote discussion and explore collaboration opportunities. The Coles College Working Paper Series collects faculty working papers to highlight emerging research and foster a dialogue between peers.

Coles Working Paper Series, FALL24-14, November 2024

This study examines the impact of accounting standards changes on utilities’ investment in cloud computing and subsequent operational outcomes. Following changes to U.S. GAAP and the issuance of a Federal Energy Regulatory Commission (FERC) accounting order, an increasing number of utilities requested and received approval from state public service commissions to include

cloud computing costs in their rate base, while other utilities made no such request. Using a difference-in- differences design, this study finds that utilities receiving approval to capitalize cloud computing costs in their rate base increased their investment in cloud computing, resulting in higher electricity rates charged to customers. These utilities also realized operational benefits, including a shorter

duration of power outages and lower regulatory penalties. The magnitude of these changes is greater for utilities operating in states with more experienced public service commissioners, while also being less costly to customers overall. This study contributes to the literature on real effects of ac- counting and provides insights for regulators on the consequences of capitalizing technology costs.

Utilities increased requests to capitalize cloud computing costs in rate bases after accounting rule changes. Approved capitalization of cloud computing costs led to higher customer rate. Utilities realized operational benefits from cloud computing including reduced outages.

firms compared to traditional firms because they expect DT firm managers to take corrective action. Consistent with these predictions, we find that the capital expenditures of DT firms are more sensitive to negative information reflected in stock prices, and their negative earnings are less persistent than those of traditional firms. Additionally, we find that analysts’ forecast revisions for DT firms are less responsive to negative earnings news than those for traditional firms. Our findings demonstrate that managers of DT firms exhibit strong-er feedback effects than traditional firms, indicating that they learn more from the negative information embedded in stock prices. Furthermore, analysts are more forgiving

We examine feedback effects in disruptive technology (DT) firms. We predict DT firms respond more to negative market feedback We predict sophisticated investors anticipate this behavior. DT firms’ capital expenditures react more to negative stock news. Analysts revise forecases less for negative earnings news of DT firms. of DT firms’ negative news, anticipating that managers are likely to adjust their investment and operational decisions to address and reverse their negative situation. Both RDOs and CMPOs allow firms to swiftly issue equity after confidential marketing. While RDOs are restricted to accredited investors, CMPOs can also reach retail investors. Firms with low risk and low information asymmetry prefer CMPOs over RDOs. CMPOs tend to involve more intermediaries and reach more institutional investors than RDOs. The two types of offerings are followed by similarly low long-run abnormal stock returns. successfully time the market than RDOs. Finally, we provide some evidence that post-offer stock performance is related to investor type.

Do You Believe in Second Chances? Marcus Caylor, Duanping Hong, Hyungshin Park, Hong Qu P

Coles Working Paper Series, SPRING25-07, April 2025

We study the feedback effect in disruptive technology (DT) firms. DT firms are typically young, high-growth companies. Since these firms often lack established product markets and customer bases, we predict that DT firm managers are more likely to adjust their investment decisions in response to negative market feedback. Consequently, the negative performance of DT firms is less likely to persist. We also predict that sophisticated market participants, such as financial analysts, will react less strongly to negative news from DT

Composite Quantile Regression for Alpha Estimation Coles Working Paper Series, FALL24-03, November 2024 Zhaoguo Zhan

Evaluation of asset pricing models is largely based on the alphas (intercepts) in the linear regression of excess asset returns on risk factors. When regression errors are not normally distributed, the least squares estimator for alphas is inefficient, which further

leads to less powerful testing of alphas by the Gibbons, Ross, and Shanken (1989, GRS) test. We use the composite quantile regression to estimate alphas, and show that it provides more accurate alpha estimates under a variety of non- normal distributions. A joint test

of alphas using composite quantile regression is also developed, which can reject zero alphas in spanning tests when the GRS test does not.

Among equity offerings (SEOs), also known as follow-on offerings, confidentially mar-keted seasoned public offerings (CMPOs) have become increasingly popular in the U.S., with the proceeds increasing from just over $0.5 billion in 2008 to over $10 billion in 2021. Registered direct offer-ings (RDOs) also permit confidential marketing of registered securities. Both RDOs and CMPOs allow firms to swiftly raise equity capital, typically concluding by the third trading day following the announcement. While RDOs exclusively target accredited investors, CMPOs are accessible to both accredited and retail investors. We identify two key factors influencing the choice between RDOs and CMPOs. First, issuers with low risk and low information asymmetry prefer CMPOs. Second, CMPOs tend to involve more investment banks and reach more

Registered Direct Offerings and Confidentially Marketed Public Offerings Rongbing Huang, Hong Qian P institutional investors than RDOs. There is also some evidence that a regulation requiring shareholder approval for a large private offering might discourage the use of RDOs.

The least squares estimator for regression coefficients can be inefficient. The composite quantile regression estimator can outperform least squares. A test based on composite quantile regression is developed.

Coles Working Paper Series, FALL24-04, November 2024

On average, both types of equity offerings are followed by low long-run abnormal returns, but participating investors can potentially earn positive abnormal returns by selling their offered shares early. CMPOs are not followed by lower average returns than RDOs, suggesting that the popularity of CMPOs is not because they allow issuers to more

Coles Research Magazine | Working Paper Series

COLES WORKING PAPER SERIES Special thanks to the following faculty and committes for their significant contributions to the Coles Research Magazine

Editor: Jomon A. Paul

Aaron French Ace Beorchia Andy Green Birton Cowden Botong Xue Canan Mutlu Dana Hermanson Divesh Sharma Duanping Hong Gregory Phelan Filippo Occhino Harun Avci Kelly Ha Laura Boman Leo MacDonald Lucy Ackert Marcus Caylor Nik Nikolov Pramod Iyer Prachi Gala Stefan Sleep Sunay Mutlu Vineeta Sharma Xiao Huang Xuepeng Liu Zhaoguo Zhan

RESEARCH AND DEVELOPMENT COMMITTEE Aaron French Filippo Occhino Hyunju Shin Kelly Ha James Meurs Pramod Iyer Qi Dong Soo Il Shin Xuepeng Liu Yoon Hee Kim

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Executive Director: Saurabh Gupta

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