Coles Research Magazine Sixth Issue | 2020
Conducting innovative, actionable research for the business community is a critical part of the Michael J. Coles College of Business mission. The Coles Research Magazine allows us to spotlight this work each year and to recognize the talented faculty and students who are furthering our theoretical and practical understanding of business. The research featured in this edition includes four papers published in Financial Times top-50 journals as well as the work of two PhD students, the winners of the Coles College Outstanding Journal Publication and Community Engagement awards, participants in the fourth Summer Research Fellowship, the winners of the College’s Working Paper Series awards, and papers presented at the second annual Coles Research Symposium on Homeland Security. Readers will find executive summaries of each paper and a list of key takeaways. Research only achieves its full potential when the results reach those who can put them into practice. Through decades of relevant, high-quality research, Coles College has emerged as a leader in the global effort to enhance how scholars study business and organizations conduct it. I am extremely proud to present the latest issue of The Coles Research Magazine and to share the valuable work of our students and faculty.
Robin Cheramie Dean, Michael J. Coles College of Business Tony and Jack Dinos Eminent Scholar Chair of Entrepreneurial Management Kennesaw State University
Table of Contents
Journal Publications - Financial Times Top 50 Journals 4 Auditor Sensitivity to Real Earnings Management: The Importance of Ambiguity and Earnings Context By Benjamin P. Commerford, Dana R. Hermanson , Richard W. Houston, and Michael F. Peters 6 Greater Reliance on Major Customers and Auditor Going-Concern Opinions By Dan Dhaliwal, Paul N. Michas, Vic Naiker, and Divesh S. Sharma 8 Multiechelon Lot Sizing: New Complexities and Inequalities By Ming Zhao and Minjiao Zhang 10 Robust Inference for Consumption-Based Asset Pricing By Frank Kleibergen and Zhaoguo Zhan Journal Publication - Distinguished Journal 12 Corporate Social Responsibility Report Narratives and Analyst Forecast Accuracy By Volkan Muslu, Sunay Mutlu , Suresh Radhakrishnan, and Albert Tsang Community Engagement 14 Research and Services Related to the US-China Trade War By Xuepeng Liu Research Grant 16 Using Neurophysiological Tools to Understand How Individual Characteristics Relate to Cognitive Behaviors of Students By Adriane Randolph PhD Summaries 18 Threat Recognition in Incumbent Firms: A Case for Organizational Velocity By Alan Amling , Torsten Pieper, Joseph Astrachan, and Clayton Christensen
PhD Summaries 20 Making Good Decisions: An Attribution Model of Decision Quality in Decision Tasks By Bethany Niese , Reza Vaezi , Michael Gallivan, and Saurabh Gupta Coles Research Symposium 22 Integration, Repression and Fungibility of Foreign Aid under Endogenous Corruption By Abhra Roy 24 Direct and Indirect Effects of Human Capital on Domestic Terrorism By Aniruddha Bagchi and Benjamin Scafidi 26 Determining Optimal Policies to Maintain the Strategic Mix and Force Readiness of Enlisted Military Personnel By Leo MacDonald and Jomon A. Paul 28 Democracy, Personal Freedom, and Islamic State Fighters By Moamen Gouda, Shimaa Hanafy, and Marcus Marktanner Summer Research Fellowship 30 Mapping Neural Networks of Ideal and Actual Leaders: A Visual Representation of Implicit Leadership Theories By Graham H. Lowman Working Papers 32 Foreign Operations’ Effect on the Audit Quality of US Multinational Corporations: Evidence from PCAOB International Inspections By Yuyuan Chang, Yangyang Fan, and Duanping Hong 34 Corporate Philanthropy: Do Board Gender Diversity and CEO Gender Matter? By Divesh S. Sharma , Vineeta D. Sharma , and Lucy F. Ackert 36 How Private Nonprofit Hospitals Differ from Private For-Profit Hospitals in Average Inpatient Length of Stay? By Jomon A. Paul and Huan Ni 38 Performance Implications of Diversification Strategies of Business Group and M-form Firms By Saptarshi Purkayastha, Rajaram Veliyath , and Rejie P. George
* Coles College of Business faculty highlighted in bold.
Auditor Sensitivity to Real Earnings Management: The Importance of Ambiguity and Earnings Context Benjamin P. Commerford, Dana R. Hermanson, RichardW. Houston, andMichael F. Peters
Contemporary Accounting Research Vol. 36, No. 2 (Summer 2019), pp. 1055-1076
Overview Real earnings management (REM) involves altering transactions, such as cutting expenses, in order to meet financial targets. In recent years, REM has become more popular, as auditors appear to have restricted other ways of manipulating financial results. We explore how auditors react to REM, using an experiment administered to auditors. We use three levels of REM (none, possible REM, and explicit REM), and we also vary whether the hypothetical client exceeded or missed its profit target. We find that auditors encountering REM decrease their assessment of management’s tone, and indicate a greater chance that they would discuss their concerns with the board’s audit committee and not continue to serve the client. When the REM is explicit, auditors react regardless of the profit target, but they react to possible REM only when the target was exceeded. The key driver of auditors’ reaction to REM is management tone, suggesting that REM reflects poorly on management’s character.
4 | Journal Publications - Financial Times Top 50 Journals
■ REM involves altering transactions, such as cutting expenses, to meet financial targets. ■ REM has become much more prevalent as auditors focus on accounting estimates. ■ We find that auditors view management negatively when there is REM. ■ A key indicator of REM is that the company exceeded its profit target.
Dana R. Hermanson, Professor, Dinos Eminent Scholar Chair of Private Enterprise
Greater Reliance on Major Customers and Auditor Going-Concern Opinions Dan Dhaliwal, Paul N. Michas, Vic Naiker, and Divesh S. Sharma
Contemporary Accounting Research Vol. 37, No. 1 (Spring 2020), pp.160-188
Overview In this study, we predict and provide evidence that distressed firms that rely heavily on sales to major customers have a high incidence of receiving going- concern opinions (GCOs), and this effect is driven by the most distressed firms. We also find that variations in key characteristics of the relationship between a distressed firm and its primary customer are incrementally linked to GCOs; specifically, the GCQ effect of greater reliance on major customers is driven by firms that are relatively smaller than their largest major customer. Additionally, GCOs are more likely when firms are in a shorter relationship with their major customer and have a different auditor than the major customer. Overall, our study indicates that supply-chain relationships are relevant business risks associated with auditors’ going-concern assessments.
6 | Journal Publications - Financial Times Top 50 Journals
■ Financially challenged suppliers’ reliance on major customers can be a bane or a boon. ■ Major customers can take advantage of vulnerabilities to increase a supplier’s financial risk. ■ Auditors can provide insights to better manage risks in the supply chain. ■ Supply-chain relationships should be carefully monitored, evaluated, and managed.
Divesh Sharma, Professor of Accounting
Multiechelon Lot Sizing: New Complexities and Inequalities
Ming Zhao andMinjiao Zhang
Operations Research (forthcoming)
Overview We study a multiechelon lot-sizing (MLS) problem for a serial supply chain where demands can exist at the single production level as well as any of several transportation levels. Assuming stationary production capacity and general cost functions, our mixed-integer programming model integrates production, inventory, and transportation decisions, and generalizes existing literature on many multiechelon lot-sizing models. We answer an open question in the literature by showing that the MLS problem with intermediate demands is NP-hard. We develop polynomial-time algorithms for both uncapacitated and capacitated MLS with a fixed number of echelons. The results outperform many known algorithms developed for various MLS models. We also present families of valid inequalities for MLS that generalize known inequalities. For the uncapacitated case, we develop a polynomial-time separation algorithm and efficient separation heuristics. Finally, we demonstrate the effectiveness of a branch-and-cut algorithm using the proposed inequalities to solve large multi-item MLS problems.
8 | Journal Publications - Financial Times Top 50 Journals
■ Production, inventory and transportation decisions are challenging in supply chain systems. ■ The MLS problem with a fixed-charge cost structure is NP-hard. ■ Computational complexities of many uncapacitated and capacitated MLS cases are improved. ■ Several families of existing valid inequalities for MLS are generalized. ■ The proposed branch-and-cut algorithms are efficient in solving large MLS instances.
Minjiao Zhang, Associate Professor of Quantitative Analysis
Robust Inference for Consumption-Based Asset Pricing
Frank Kleibergen and Zhaoguo Zhan
Journal of Finance Vol. 75, No. 1 (February 2020), pp. 507-550
Overview The reliability of traditional asset-pricing tests depends on (i) the correlations between asset returns and factors; and (ii) the time-series sample size T compared to the number of assets N. However, for macro-risk factors, like consumption growth, they often cannot be trusted. We extend the Gibbons-Ross-Shanken statistic to identify risk premiums and construct their 95-percent confidence sets. These sets are wide or unbounded when T and N are close, but when T exceeds N by a considerable margin, average returns are not fully spanned by betas. Our approach enables meaningful empirical inferences.
10 | Journal Publications - Financial Times Top 50 Journals
■ In asset pricing, different consumption measures lead to different empirical findings. ■ Traditional tests fail to encompass the questionable quality of consumption measures. ■ We provide two robust inference methods for risk premiums.
Zhaoguo Zhan, Associate Professor of Economics
Corporate Social Responsibility Report Narratives and Analyst Forecast Accuracy VolkanMuslu, Sunay Mutlu, Suresh Radhakrishnan, and Albert Tsang
Journal of Business Ethics Vol. 154 (2019), pp. 1119–1142
Overview The information released in stand-alone corporate social responsibility (CSR) reports varies considerably because they are voluntary. In this study, we develop a disclosure score based on the tone, readability, length, and numerical and horizon content of CSR reports and examine its relationship to analyst forecasts. We find that high disclosure scores are associated with more accurate forecasts, while forecasts for firms that scored low are no more accurate than those for firms that do not issue CSR reports. The findings, driven by experienced rather than first- time CSR reporters, are robust to controlling for firm characteristics, including CSR activity ratings and financial narratives. Together, they suggest that more substantial CSR reports improve analysts’ forecast accuracy.
12 | Journal Publications - Distinguished Journal
■ We develop a disclosure score based on the content of stand-alone CSR reports. ■ Our disclosure score offers guidelines for improving CSR reports. ■ The content and style of CSR report narratives affect market participants. ■ External assurance of CSR reports complements the effects of the disclosure scores. Executive Takeaways
Sunay Mutlu, Assistant Professor of Accounting
Research and Services Related to the US-China Trade War
Overview Dr. Xuepeng Liu has done extensive research on US-China trade. He has been following the development of the recent trade war closely and sharing his research and expertise as an analyst of the tax-evasion behaviors traders exhibit when they face a sudden increase in barriers. He has published several papers on the subject in top (A+/A level) journals, which have been widely cited in both academic and policy circles. Some are featured on influential academic websites, such as the VOX, a policy portal to promote "research-based policy analysis and commentary by leading economists." Out of a sense of duty, Dr. Liu has presented his opinions at various events and contributed nontechnical writings to journals like China Currents and media outlets like The Telegraph (UK), GateHouse Media (US), and Weekendavisen (Denmark). He suggests a gradual approach to re-negotiate the US-China trade deal, like the US-Japanese negotiations in the 1980s, although its course may be affected by the severity of the COVID-19 pandemic. Dr. Liu also provides professional service to the US-China Business Council and the US Air Force, advising them on trade rerouting/transshipments and technology transfer during the trade war.
14 | Community Engagement
■ Dr. Liu has published on US-China trade in top journals in his field. ■ He is an expert on the tax-evasion behaviors of exporters and importers. ■ He is engaged in research and service related to the US-China trade war. ■ He has been interviewed by various domestic and international media on the trade war. Executive Takeaways
Xuepeng Liu, Professor of Economics
National Science Foundation Grant: Using Neurophysiological Tools to Understand How Individual Characteristics Relate to Cognitive Behaviors of Students
Adriane B. Randolph and Kimberly Linenberger Cortes
Overview Neurophysiological tools are increasingly used to examine cognitive behaviors in cross-disciplinary educational settings. In a three-year study funded by the National Science Foundation, “Collaborative Research: Modeling for the Enhancement of Learning Chemistry (ModEL-C): Measuring cognitive load & impact of modeling activities across the chemistry curriculum,” Drs. Adriane B. Randolph (Department of Information Systems) and Kimberly Linenberger Cortes (Department of Chemistry and Biochemistry), in collaboration with faculty at the University of Minnesota Rochester, are using brainwaves and eye-tracking technologies to model the cognitive load of undergraduate chemistry students. In one study, they recorded the EEG of students interacting with an information system for visualizing molecules and found that meditation, levels of athleticism, and medication affecting alertness practices significantly and positively correlate with increased cognitive load. Neurophysiological tools may enable instructional designers to facilitate students’ engagement without overloading them. The NSF award, issued under the Education and Human Resources program for Improving Undergraduate STEM Education, concludes this spring, but a no-cost extension will support another year of data collection and analysis.
16 | Research Grant
■ Neurophysiological tools can be used to model the cognitive load of chemistry students. ■ They can pinpoint students’ difficulties in using virtual models to grasp chemical phenomena. ■ Individual characteristics are related to the cognitive load experienced. ■ Instructional materials can be revised to target students’ individual learning capacity. ■ These studies contribute to our knowledge about undergraduate STEM learners.
Adriane Randolph, Professor of Information Systems
Threat Recognition in Incumbent Firms: A Case for Organizational Velocity Alan Amling (PhDGraduate) Torsten Pieper (Dissertation Co-Chair) Joseph Astrachan (Dissertation Co-Chair) Clayton Christensen (Reader)
Overview A combination of connecting and thinking technologies—the internet, AI/ machine learning, big data analytics, the internet of things, the cloud, and 5G—is accelerating change and increasing uncertainty in the business environment. Firms face a wider variety of threats that vary in frequency and financial impact. How effectively they see them, internalize them as important (or not), and act on them in a timely manner (or not) can be critical to their survival. However, the academic literature on navigating threats from initial observation through action and across organizational contexts is inadequate. This qualitative study explores the process of threat recognition in several industries and organizational contexts through in-depth interviews with senior business and military leaders. Organizational velocity, defined as the capacity to observe, accept (or not), and act (or not) on threats and opportunities with speed and agility, emerges as a crucial determinant of a firm’s success.
18 | PhD Summaries
■ The pace of organizational velocity is primarily a choice, not a circumstance. ■ The best defense against disruption is a relentless offense. ■ Trust lubricates the friction inhibiting organizational velocity. ■ Understanding technological impacts cannot be delegated to the IT department.
Alan Amling, PhD Graduate
Making Good Decisions: An Attribution Model of Decision Quality in Decision Tasks Bethany Niese (PhDGraduate) Reza Vaezi (Dissertation Co-Chair) Michael Gallivan (Dissertation Co-Chair) Saurabh Gupta (Reader)
Overview To improve decision-making, the processes by which individuals form their beliefs about whether they have made a good decision must be understood as well as the technologies they rely on to find patterns and make sense of data. This study focuses on the factors that significantly contribute to perceptions of decision quality. Data were collected from 413 business decision-makers who used decision support technologies in their tasks. Results show that their perceptions of both their own self-efficacy and the fit between the decision support technology and the task directly affect their perception of the resulting decision’s quality. The study also indicates that task-technology fit and intolerance for ambiguity influence perceptions of self-efficacy in decision-making and satisfaction with the decision-support technology.
20 | PhD Summaries
■ Technology-enabled decision-makers consider both their personal qualities and aspects of the environment when determining decision quality. ■ Task-technology fit, an external attribute, influenced perceptions of decision quality more than the internal attribute of self-efficacy. ■ Task-technology fit also positively affected the decision-maker’s self-efficacy. ■ Ambiguity negatively affects the decision-maker’s self-efficacy.
Reza Vaezi, Associate Professor of Information Systems Bethany Niese, PhD Graduate
Integration, Repression, and Fungibility of Foreign Aid under Endogenous Corruption
Coles Research Symposium on Homeland Security Special Issue, SIFALL19-02, October 2019
Overview We analyze a model of counter-terrorism that analyzes the interaction between restriction on civic liberties (repression), foreign aid and social integration of the minority within the domestic country (the host). The terrorist engages the host in a contest in which it tries to appropriate a critical resource that is also of strategic interest to a foreign country (ally). Consequently, the ally provides aid to the host that is used to deter terrorism. We find that the ally does not provide aid unless the host reserves part of the aid to promulgate anti-terrorist rhetoric or propaganda along with pursuing preemptive measures. Further, we show that the minority is more (less) integrated when the host uses propaganda provided that the penalty associated with corruption is greater (smaller). We also find that the host is more repressive against minorities when it does not have access to propaganda. Finally, we show that the probability of an attack and corruption are lower (higher) when the host does not have access to propaganda provided that marginal cost of integration is below (above) a certain threshold. Finally, we show that aid is increasing in repression only if the host has access to propaganda.
22 | Coles Research Symposium
■ Immigrants may fully integrate only if the host uses propaganda against the terrorist. ■ The host is more repressive against minorities when it does not have access to propaganda. ■ Foreign aid increases with the degree of repression provided the host uses propaganda. ■ The ally provides aid only if the host can promulgate propaganda along with preemption. ■ A rise in repression increases integration only when the host cannot use propaganda.
Abhra Roy, Associate Professor of Economics
Direct and Indirect Effects of Human Capital on Domestic Terrorism
Aniruddha Bagchi and Benjamin Scafidi
Coles Research Symposium on Homeland Security Special Issue, SIFALL19-03, October 2019
Overview We consider the effect of human capital on domestic terrorism. Our results indicate that human capital increases domestic terrorism, and the magnitude of this effect is largest for tertiary education. We also consider the interaction of human capital with some well-known determinants of terrorism, such as unemployment, political stability and political repression. We find that political stability interacts positively with human capital. Also, unemployment interacts positively with tertiary education. The interaction of political repression with human capital is not statistically significant. The net effect of human capital on domestic terrorism in a country depends upon how strong each of these factors are. We also consider several extensions of our model. In one such extension, we show that everything else remaining constant, higher primary test scores is associated with more domestic terrorism. These results show that ignorance is not a root cause of domestic terrorism.
24 | Coles Research Symposium
■ We empirically examine if ignorance has a causal effect on domestic terrorism. ■ We find evidence that human capital increases domestic terrorism. ■ The above effect is strongest for the case of tertiary education. ■ Also education can magnify harmful effects of unemployment or political repression. ■ Overall we conclude that domestic terrorism is not caused by ignorance.
Aniruddha Bagchi, Professor of Economics Benjamin Scafidi, Professor of Economics
Determining Optimal Policies to Maintain the Strategic Mix and Force Readiness of Enlisted Military Personnel
LeoMacDonald and Jomon A. Paul
Coles Research Symposium on Homeland Security Special Issue, SIFALL19-04, October 2019
Overview Maintaining strength is a critical component of military workforce planning. It is a complex problem given the hierarchical structure, large number of personnel, and underlying uncertainties, including the number of promotions and both voluntary and involuntary separations. Our stochastic model of military workforce planning incorporates these uncertainties to inform realistic protocols to maintain force readiness. We first derive algorithms for the optimization of single-period planning scenarios, minimizing overage, underage, and training costs. Specifically, we develop a modified newsvendor approach for the recruitment problem with extensions that address promotion caps and retention policies and provide risk- adjusted solutions to ensure a minimum probability of maintaining target force levels. We then translate these models to a dynamic, multi-period framework, developing heuristics to provide guidance for recruiting and retention policies to enable military planners to meet personnel targets at each rank. Simulations performed at each stage ensure the models and results are consistent with the underlying stochastic problem.
26 | Coles Research Symposium
■ The new model incorporates key uncertainties in a realistic framework related to workforce planning. ■ It is designed to optimize recruiting and retention policies to meet workforce targets. ■ It can also be used to evaluate and adjust for risks to meeting target levels. ■ Its heuristic approaches can be used to solve any large-scale workforce planning problems.
Leo MacDonald, Professor of Quantitative Analysis Jomon A. Paul, Professor of Quantitative Analysis
Democracy, Personal Freedom, and Islamic State Fighters
Moamen Gouda, Shimaa Hanafy, andMarcus Marktanner
Coles Research Symposium on Homeland Security Special Issue, SIFALL19-01, October 2019
Overview Never before in modern history have foreign fighters voluntarily gathered at the speed and scale they have in the territory of the Islamic State (IS). While some argue that many IS foreign fighters join in reaction to persistent, systemic local autocracy, discrimination, and oppression, a considerable number come from developed countries enjoying high levels of democracy and personal freedoms. Even after the demise of the Islamic State in 2017, IS foreign fighters remain a severe security risk globally; those who were involved in terrorist operations in the Middle East may return to their homeland to continue the fight. We examine the effect of democracy and personal freedoms on the flow of IS foreign fighters to and from Syria. While the effect of democracy appears insignificant, our cross- country regressions show that in countries with higher levels of personal freedoms, significantly more residents (per million population) joined IS in Syria and a significantly larger percentage share returned. This phenomenon illustrates that the threat to personal freedoms for all increases with the number of those who cannot take advantage of them.
28 | Coles Research Symposium
■ Personal freedoms are a push factor for individuals vulnerable to becoming foreign fighters. ■ Personal freedoms in the home country increase the serve as incentives for foreign fighters to return. ■ Personal freedoms are best protected by active, not passive, labor market programs.
Marcus Marktanner, Professor of Economics
Mapping Neural Networks of Ideal and Actual Leaders: A Visual Representation of Implicit Leadership Theories
Graham H. Lowman
Leadership is critical to organizational success. However, despite generally agreeing on its importance, people conceptualize and perceive leadership qualities differently. Often, these differences are based on implicit leadership theories (ILTs), or a list of attributes by which they identify leaders; for example, intelligence. Our novel method analyzes ILTs from a neural network perspective, representing the attributes that comprise ILTs as interconnected nodes. It is designed to identify the central nodes, which are the attributes that most people prioritize when describing their ideal or an actual leader. Early findings from a U.S. sample suggest that differences exist for men and women when thinking about ideal leaders. For example, men associate strong leaders with being hard working, while women associate strong leaders with being knowledgeable. When asked to evaluate actual leaders, differences were found in the traits of leaders men and women associate with sincerity and dedication, as examples. While still in its early stages, this method provides a theoretically grounded approach to exploring how people conceptualize and perceive leaders.
30 | Summer Research Fellowship
■ People use implicit leadership theories (ILTs) to identify leaders. ■ ILTs can be viewed as neural networks, where nodes represent the leader’s attributes. ■ Mapping these nodes can demonstrate how people conceptualize and perceive leaders. ■ Network differences can help to identify the attributes that a specific leader’s followers value.
Graham H. Lowman, Assistant Professor of Organizational Behavior and Human Resource Management
Foreign Operations’ Effect on the Audit Quality Of US Multinational Corporations: Evidence from PCAOB International Inspections
Yuyuan Chang, Yangyang Fan, and Duanping Hong
Coles Working Paper Series, SPRING20-03, March 2020
Overview The audit of a multinational corporation (MNC) is an international group audit where a domestic principal auditor audits the MNC’s domestic operations and coordinates the work of foreign participating auditors that audit the MNC’s foreign subsidiaries. The variable quality of the participating auditors’ work can affect the overall quality of the MNC’s audited financial statements (i.e., audit quality). This study examines how US MNCs’ audit quality is affected by their operations in foreign countries that prohibit the Public Company Accounting Oversight Board (PCAOB) from inspecting their local auditors. We measure audit quality by (1) whether the MNC subsequently restates its financial statements, an indicator of lower audit quality, and (2) how strongly the stock market reacts to the MNC's announcement of audited earnings. We find that (1) MNCs with a relatively greater presence in no-inspection countries are more likely to issue restatements, and (2) their investors have smaller stock-price reactions to earnings. Overall, our results suggest that the more operations an MNC conducts in countries without PCAOB inspections, the poorer its quality of audited financial statements.
32 | Working Papers
■ Local auditors audit the foreign subsidiaries of a multinational corporation (MNC). ■ Not every foreign country allows PCAOB inspections of its local auditors' work. ■ As a result, some MNCs have poorer quality of audited financial statements. ■ MNCs operating in no-inspection countries issue more restatements. ■ The US stock market reacts less to the earnings of MNCs that operate in no-inspection countries.
Duanping Hong, Assistant Professor of Accounting
Corporate Philanthropy: Do Board Gender Diversity and CEO Gender Matter?
Divesh S. Sharma, Vineeta D. Sharma, and Lucy F. Ackert
Coles Working Paper Series, FALL19-01, November 2019
Overview We examine the relationship between boardroom gender diversity and corporate philanthropy. Specifically, we hypothesize associations between corporate philanthropy and (i) the board’s gender diversity, (ii) the CEO’s gender, and (iii) the genders of CEOs serving as board chairs. Although society acknowledges the value of corporate philanthropy and women in the boardroom, for regulators and corporate boards, corporate philanthropy is a discretionary social responsibility, and the advancement of women to the boardroom is also voluntary; no US legislation mandates female appointments as CEOs or directors. Using a relatively large dataset of 10,573 observations on the philanthropy of listed companies as a “natural laboratory”, we find that a higher percentage of female independent directors on the board, a female CEO, and female CEOs serving as board chairs have significantly positive effects. Our results are robust to selection bias and endogeneity, unlike the few prior studies on gender and corporate philanthropy. We also find that the critical mass at which board gender diversity influences philanthropy is two independent, female directors, and three or more have an even greater effect. Our study has important implications for gender and governance research and, in practice, for various stakeholders.
34 | Working Papers
■ Female CEOs, board chairs, and directors foster charitable giving. ■ Companies can enhance their social responsiveness by adding women to their boards. ■ A critical mass of two women is necessary for favorable social responsibility outcomes. ■ Nonprofits/charities should look to firms with gender-diverse boards to source donations.
Lucy F. Ackert, Professor of Finance, Vineeta D. Sharma, Professor of Accounting, and Divesh S. Sharma, Professor of Accounting
How Private Nonprofit Hospitals Differ from Private For-Profit Hospitals in Average Inpatient Length of Stay?
Jomon A. Paul and Huan Ni
Coles Working Paper Series, FALL19-04, November 2019
Overview Inpatient length of stay (LOS) could serve as a measure of a variety of healthcare features, such as accessibility, cost, and quality. With the accelerating increase in healthcare costs and need to improve quality, the factors that may affect LOS must be understood. We use a national dataset to empirically investigate whether the type of hospital ownership (nonprofit vs for-profit) is associated with LOS. Our results show that stays at nonprofit hospitals are likely to be longer, and this result holds after we model LOS and inpatient readmission rate jointly. The simultaneous equation model indicates a negative relation between LOS and readmission, which indicates a longer LOS may lead to a better health outcome. Our work also indicates that when we study LOS empirically, hospital ownership should be treated as endogenous; otherwise, the estimates of the relation between LOS and hospital ownership are biased.
36 | Working Papers
■ Patients at nonprofit hospitals are likely to have longer length of stay. ■ Nonprofit hospitals have lower readmission rates. ■ Hospital ownership should be treated as endogenous when studying length of stay.
Jomon A. Paul, Professor of Quantitative Analysis Huan Ni, Associate Professor of Economics
Performance Implications of Diversification Strategies of Business Group and M-form Firms Saptarshi Purkayastha, RajaramVeliyath, and Rejie P. George
Coles Working Paper Series, SPRING20-01, March 2020
Overview This study examined 3,173 diversified Indian companies from 2003 to 2012 to determine the effects of business group (BG) or M-form divisional structure on performance outcomes. The BG structure, exemplified by Wipro, most closely resembles a holding company, with varying degrees of control and influence over a portfolio of often unrelated, independent businesses. In the M-form structure, exemplified by Biocon, a corporate headquarters has integrated and centralized control over many related or unrelated divisions. We find that for both structures, the extent of diversification positively affects firm performance. However, when we assess the effects on related and unrelated diversification separately, the BG form works better when the divisions are unrelated, reflecting its ability to navigate institutional voids and exploit underlying opportunities. In contrast, the M-form structure advances firm performance primarily when the divisions are related, which is typical in developed markets. These results can inform CEOs seeking to configure their organizations to better implement their preferred diversification strategies, bearing in mind the country context.
38 | Working Papers
■ An M-form structure results in better performance when diversification involves related businesses. ■ A Business Group structure leads to better performance when diversification involves unrelated businesses. ■ With both structures, the more diversification, the better the firm performance.
Rajaram Veliyath, Professor of Management
Special thanks to the following faculty and committees for their significant contributions to the Coles Research Magazine .
Coles Working Paper Series
Editor: Jomon Paul
Editorial Board: Aniruddha Bagchi ■ Canan Mutlu ■ Dennis Chambers ■ Humayun Zafar Jennifer Hutchins ■ Jesse Schwartz ■ Lance Brouthers ■ Leo MacDonald Marcus Caylor ■ Maria Kalamas ■ Rajaram Veliyath ■ Rongbing Huang Stacy Campbell ■ Sunay Mutlu ■ Susan Young ■ Sweta Sneha Vineeta Sharma ■ Xiao Huang ■ Xuepeng Liu ■ Zhaoguo Zhan
Research and Development Committee Abhra Roy ■ Canan Mutlu ■ Hong Qu ■ Jennifer Hutchins Justin Cochran ■ Max North ■ Mona Siha ■ Muhammad Obeidat Vineeta Sharma ■ Xuepeng Liu
Summer Research Fellowship Committee Jomon Paul ■ Marcus Caylor Maria Kalamas ■ Michael Maloni ■ Saurabh Gupta
PhD Program Executive Director: Brian Rutherford
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