Managerial Incentives Research Articles

We learn from History

Abstract Most business scandals are related to earnings management/manipulations. The purpose for this study is to explore the indicators/signs, incentives of earning management and techniques may be used in earnings manipulations. Firstly, this study summarizes the indicators/evidence and incentives of earnings management and what technique can be used to engage in earnings management and explores the possible reasons for the increased number of restatements in early of 2000s along with the effects of restatement on stock prices, restatement companies and investors. Then, this study uses three earnings management cases to sdemonstrate how the indicators, incentives of earnings management and techniques used by management are observed in these cases. Finally, the implications of earnings management in accounting and auditing are discussed.

Combined strategies for green roof incentive policies in Lisbon: Evaluating the potentiality of concession grants and identifying priority intervention areas

Incentive policies to promote new technologies is a strategy often employed by policymakers and governments. In some cities worldwide, mechanisms to encourage the adoption of Green Roofs (GR) have been implemented over the years. Although GR is not a new technology, the use of incentives, such as subsidies and tax abatements and/or exemptions, is still a recent strategy in many countries. The study covered in this paper proposes to explore the potential of combined incentive mechanisms for green roofs, using direct incentives (financial subsidies) and indirect incentives (tax/fee rebates). The granting incentives were verified by the feasibility assessment from both private (saved money) and public perspectives (reduction in municipal revenue) using scenarios of abatement percentages for fees and taxes and combining direct and indirect incentives. In addition, priority intervention areas for the installation of green roofs were defined based on three parameters: (i) the proportion of existing green spaces, (ii) urban heat islands and (iii) the potential of the building stock for green roof retrofit. The results show that granting a combined solution can be an effective option for facilitating the implementation of green roof projects. Moreover, the study serves as a decision support guide for politicians, urban planners, and public managers to formulate incentive proposals and make well-informed decisions regarding the incentive policies for GR.

Tax avoidance, overinvestment, financial reporting quality. Evidence from Italian private firms

PurposeThis study aims to examine whether tax avoidance is associated with overinvestment and the moderating role of financial reporting quality on such association in Italian private firms.Design/methodology/approachThis study uses a multivariate regression analysis based on a sample consisting of 65,535 firm-year observations between 2015 and 2022.FindingsResults show that tax avoidance is positively associated with overinvestment and that such relation is weaker for firms with a higher financial reporting quality than for firms with a lower financial reporting quality. Furthermore, findings hold to a wide range of robustness checks, including alternative measures of main variables, endogeneity and falsification tests.Research limitations/implicationsSince this study focuses on the Italian private firms, the results cannot be extensively generalized.Practical implicationsAs this study highlights the importance of tax avoidance on overinvestment, it can be particularly beneficial for managers, policymakers and other parties interested in assessing factors that lead to a capital allocation in less efficient investments.Originality/valueThis study provides novel evidence about the role of tax avoidance on overinvestment in private firms by mitigating the little attention of prior research in this area. It examines the Italian setting that is particularly of interest given the relevance of private firms in such context and the incentives of managers to reduce the tax burden.

Rent‐seeking or value‐creating? The impact of managerial autonomy from state‐built corporate pyramids on M&A performance

AbstractHow to give managers autonomy to improve organisational performance has long been a focus of business practice. In this paper, we use a unique Chinese context to investigate the effect of managerial autonomy arising from state‐built corporate pyramids on mergers and acquisitions (M&A) performance. We find that the number of pyramidal layers between the government and the state‐owned enterprise (SOE) is positively associated with M&A performance. This relationship is stronger when the SOE managers possess professional M&A abilities but weaker when the SOE management team and the government are politically connected. We attribute the positive association to the career path incentives of SOE managers. Additionally, we address the role of managerial autonomy in the M&A process and integration. We also analyse this effect in contexts where managerial autonomy is crucial in some investment decisions. Taken together, our study fills a critical gap on managerial discretion within internal organisational contexts.

Produrre legname per l’edilizia aiutando la natura di montagna e l’economia nazionale

The use of timber in the construction sector plays two fundamental roles, both “downstream” and “upstream” of industrial wood processing. Downstream, the construction sector is responsible for 37% of global emissions, and the expansion of timber construction is rightly considered strategic as part of a decarbonization process, where the need to replace high-emission materials represents a competitive advantage for biomass products. It also enhances the quality of living spaces, as highlighted in the New European Bauhaus initiative. Upstream, the construction sector is privileged and therefore essential for providing an outlet for “Closer-to-Nature” forest management: without a market for high-quality timber from sustainably managed forests, the incentives for long-rotation seminatural forest management diminish. This second motivation is well recognised in the public procurement policies of many advanced countries and in those that promote the construction sector. These two roles are of fundamental importance but often neglected in Italian policies aimed at adding value to mountain forests.

Factors influencing the intention of financial managers to conduct whistleblowing action (A study on the Government of Kotamobagu City)

This study aims to analyze the factors influencing the intention of financial managers to engage in whistleblowing within the Kotamobagu City Government. Using an associative quantitative research method, data were collected via questionnaires. The population for this study comprises financial managers within the Kotamobagu City Government. Data analysis was conducted using partial least squares (PLS) to determine the influence of each variable on the intention on whistleblowing. The results indicate that whistleblower protection, ethical judgment, and organizational commitment have a positive and significant impact on the intention of financial managers to engage in whistleblowing. Conversely, ethical climate, locus of control, level of seriousness of wrongdoing, and status of wrongdoer do not show significant effects. The variables of gender, age, and tenure also do not significantly influence whistleblowing intentions. These findings suggest that adequate protection for whistleblowers, good ethical judgment, and strong organizational commitment can encourage financial managers to report illegal or unethical actions. This study is expected to contribute to the development of government policies and organizational practices that support a conducive environment for whistleblowing and provide protection for whistleblowers.

Heterogeneous risk disclosure and earnings management motivation: evidence from China’s IPO market

Purpose Heterogeneous risk disclosure has been proven to improve the efficiency of new stock issuance, but excessive risk disclosure during the IPO may lead to irrational underestimation of the company, which is different from the original intention of management's detailed disclosure. Therefore, this study aims to examine the impact of IPO heterogeneous risk disclosure on earnings management motivations from the information transfer perspective of earnings management. Design/methodology/approach The sample includes 2,000 listed companies listed firms on Shanghai and Shenzhen Stock Exchanges from 2007 to 2022. This study uses the pretrained ERNIE model to measure text similarity in the prospectus to measure the heterogeneity of IPO risk disclosure. Findings This study empirically finds that heterogeneous IPO risk disclosure suppresses the opportunistic motivation of earnings management because managers tend to use earnings management to leverage information transmission functions. Such an effect is more pronounced in firms with higher analyst attention, lower marketization levels and non-state-owned. And heterogeneous risk disclosure may inhibit management’s over-investment behavior, thereby reducing the possibility of management engaging in opportunistic earnings management. Besides, price discounts are used to distinguish opportunistic and non-opportunistic earnings management and carry out a quasi-natural experimental design to demonstrate that marketization can enhance the relationship between heterogeneous risk disclosure and earnings management. Originality/value This study contributes evidence regarding the economic consequences of managerial earnings management behavior related to heterogeneous IPO risk disclosure. It supports highlighted firms in the IPO risk information disclosure to mitigate potential adverse outcomes through earnings management. This contributes to the literature and enhances information transparency in the capital market, fostering the healthy development of China’s capital market.

Be alert of the hyped words around fancy tech! Strategic digitalization disclosure under earnings pressure

We investigate whether managers conduct digitalization-related strategic disclosure when their firms are under earnings pressure based on a sample of Chinese listed companies. Our findings indicate that earnings pressure significantly increases corporate abnormal digitalization disclosure. Meanwhile, the inflated digitalization disclosure under earnings pressure is more pronounced for firms with greater market pressure, under weaker external monitoring, in industries where digitalization is of higher importance, and during the more recent years. Furthermore, our study reveals that more abnormal digitalization disclosure under earnings pressure indeed reduces negative investor reaction, validating the managerial incentive for this disclosure strategy. Our study serves as a caution to investors about the potential exaggeration of novel technology disclosure under certain circumstances.

Pengaruh Kompetensi, Beban Kerja dan Motivasi terhadap Kinerja Pegawai melalui Insentif sebagai Variabel Intervening pada Pengelola Keuangan di Sekolah Dasar Negeri Tanjung Pinang

This research aims to determine the influence of competency, workload and motivation variables on employee performance through incentives for financial managers at SDN Tanjung Pinang. Data analysis using SEM-PLS (structural Equation Modeling-Partial Least Square). The results of this study found that competence has a positive but not significant effect on employee performance, workload has a negative and significant effect on employee performance, motivation has a positive and significant effect on employee performance, competence has a positive but not significant effect on wages, workload has a positive and significant effect on incentives, motivation has a positive and significant effect on incentives, incentives have a positive and significant effect on performance, competence has a positive and significant effect on performance with incentives as an intervening variable, workload has a positive and significant effect on performance with incentives as an intervening variable, motivation has a positive and significant effect on performance with incentives as an intervening variable.

Effect of Corporate Governance on Financial Performance in China

Purpose: The aim of the study was to assess the effect of corporate governance on financial performance in China. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The study indicated a positive correlation between strong corporate governance practices and improved financial outcomes for companies. These practices typically include transparent decision-making processes, effective board oversight, and alignment of management incentives with long-term shareholder value. Study suggests that companies with robust corporate governance structures tend to experience higher profitability, better risk management, increased investor confidence, and enhanced access to capital. Additionally, strong corporate governance is associated with lower instances of financial misconduct and improved overall corporate reputation, which can further contribute to sustainable financial performance over time. Implications to Theory, Practice and Policy: Agency theory, stewardship theory and resource dependency theory may be used to anchor future studies on assessing the effect of corporate governance on financial performance in China. Implement best practices in corporate governance that align with empirical findings and theoretical insights to optimize financial performance. Advocate for regulatory frameworks and policies that incentivize effective corporate governance practices and align them with desired financial performance outcomes.

Compensation incentive, misappropriation risk, and startup innovation: the role of corporate venture capital manager in resource transfer

ABSTRACT Existing studies on the impact of corporate venture capital (CVC) on startup innovation primarily focus on the capability of CVC parent to provide resources for startups. This study examines the role of CVC managers’ motivation in facilitating resource transfer to startups. Utilizing a unique disclosure requirement for investments by Chinese public firms in venture capital (VC) funds, and a hand-collected database on CVC managers’ compensation, our study explores the impact of compensation incentives on CVC managers with respect to startup innovation and the moderating effect of misappropriation risk by the CVC parent. Our two-stage regression model reveals that stronger compensation incentives positively impact startup innovation. Moreover, the effects diminish if the misappropriation risk by the CVC parent increases. These findings underscore that while strong compensation incentives for CVC managers enhance their motivation to facilitate resource transfer from the CVC parent to startups, this is mitigated in contexts with a heightened misappropriation risk.

The bright side of common ownership: Evidence from bank transparency

Over 74% of US banks share common ownership with other banks. Our analysis of a large sample of US banks reveals that those with greater common ownership demonstrate heightened transparency. This manifests as reduced discretion in loan loss provisions, improved financial statement readability, and enhanced comparability. We pinpoint three underlying mechanisms: decreased private information gathering, increased stock liquidity, and diminished managerial incentives for opacity. Furthermore, these commonly owned banks exhibit lower crash risk due to their improved transparency. Our findings hold after using various proxies and two endogeneity-reduction methods: a difference-in-differences analysis based on the 2009 Blackrock–Barclays Global Investors merger and an instrumental variable approach using Russell 2000 index inclusions. Overall, our study underscores the positive impact of common ownership in the banking sector.

The motivation plan, a contemporary solution for increasing the effectiveness of motivation

Motivation employees is a challenge to reach employee satisfaction at the workplace. Many existing studies have investigated the role of motivation and have evidenced the fact that motivation is a precursor to individual and organizational performance. This paper considers some of the motivation issues with a focus on the necessity of drawing up the motivation plan as a very important managerial document. This study has included 55 business managers. Terrain data were analyzed using SPSS. The findings provide important information for the theory of motivation and their application in practice. This study will serve as an incentive for managers with their approach to the motivation plan. The paper also proves the necessity of the commitment of relevant institutions for the support they should give to managers in this direction through training sessions. This paper aims to argue the importance of motivation plan as a necessity to support manager to achieve the organizational objectives and one more warranty for individual and organizational performance.

Shareholder value orientation, corporate cash piles, and the myth of financial accumulation

Financialization scholars argue that the growing financial balance sheets of non-financial corporations indicate a “financial turn in accumulation” driven by the rise of shareholder value orientation (SVO). In this paper, I test whether greater shareholder influence or shareholder-aligning managerial incentives can explain the more rapid accumulation of financial assets among US NFCs. I find that shareholder power is associated with some increase in short-term financial assets but only in the case of certain shareholder types, in particular high turnover institutional investors. The magnitudes of the effect are small however, and only pertain to smaller firms. Moreover, ownership concentration by these impatient investor types is declining. The results suggest that changing corporate governance patterns have little capacity to explain balance sheet financialization. I argue that mainstream accounts focused on the precautionary savings of new, research-intensive firms and tax arbitrage amongst multinationals offer a better explanation for growing financial balances than the financial accumulation hypothesis. Neither of these imply a substitution of financial for real investment, which calls into question an important mechanism thought to connect financialization to secular stagnation and rising inequality.

Lack of professionalism and employee turnover intention: An empirical study among managers

This empirical, quantitative, and survey-based descriptive research undertaken in Tirunelveli city of Tamil Nadu, India has the objective of identifying how lack of professionalism is associated with employee turnover intention of managers working at multi-speciality hospitals in Tirunelveli city. To achieve this objective, the study sampled 50 managers belonging to para-medical departments from leading private multi-speciality hospitals using both convenience and judgement sampling techniques. The primary data were collected using a structured self-made questionnaire along with personal interviews and observation. The secondary data were collected from books, journals, dissertations and conference proceedings to add appropriate significance to the study. Percentage, Mean, and Standard Deviation were used to analyze the data, and the result of the analysis revealed that lack of professionalism-related factors: lack of respect, domination of the medical personnel, involvement of non-paramedical professionals to control para-medical managers, underemployment, performing non-managerial activities, politics among staffs, and under-estimation and inferior opinion about managers have been strongly agreed by the majority of the respondents in the study area that they are associated with their employee turnover intention. The study has offered suitable suggestions to strengthen professionalism-related factors at private hospitals and thereby prevent employee turnover intention among para-medical managers.

Innovation Strategy After IPO: How AI Analytics Spurs Innovation After IPO

We examine the role of AI analytics in facilitating innovation in firms that have gone through IPO. Using patent data on over 1,000 publicly traded firms, we find that firms acquiring AI analytics capability post-IPO experience less of a decline in innovation quality compared with similar firms that have not acquired that capability. This effect is greater when only machine learning capabilities are considered. Moreover, we find this sustained rate of innovation is driven principally by the continued development of innovations that combine existing technologies into new ones—a form of innovation that is especially well supported by analytics. By examining three main mechanisms that hampered post-IPO innovation, we find that AI analytics can ameliorate the pressure to meet short-term financial goals and disclosure requirements. However, it has limited effect in addressing managerial incentives. For firms with long product cycles, the disclosure effect is reduced to a greater extent than it is for those with short cycles. Overall, our results show the importance of examining technology as a critical input factor in innovation. We show that the increased deployment of AI analytics may reduce some of the innovative penalties suffered by IPOs and that investors and managers can potentially mitigate post-IPO reductions in innovative output by directing capital acquired in the IPO process to the acquisition of AI analytics capabilities. This paper was accepted by D. J. Wu, information systems. Funding: The authors appreciate the generous financial support from Wharton Dean’s Research Fund and Mack Institute for Innovation Management. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.01559 .

The Hidden Treasures of the Forest: Promoting Forest Conservation through Non-Timber Forest Products in the Eastern Himalayan Region

The study examined the impact of Non-Timber Forest Products (NTFPs) on forest conservation by local communities in the study areas. Surveying 250 respondents from 20 villages, a good number of plant and animal-based NTFPs were identified in the states of Meghalaya and Nagaland. The Binary Logistic Regression Model confirmed that income from NTFPs had a positive and significant influence on four forest conservation models in Meghalaya and three forest conservation models in Nagaland. It implied that the extraction of NTFPs can serve as a vital incentive for sustainable forest management. The policy recommendations include supporting NTFP-based livelihoods to enhance community engagement in conservation efforts through local conservation bodies and traditional institutions, including the state forest department.

Managers' career preferences and corporate culture

AbstractBuilding effective corporate culture is challenging as it requires senior managers to embed shared values within the firm. Yet some firms can do so, and some cannot. This study examines whether managers' career preferences influence manager‐employee value misalignment and weaken corporate culture. Career preferences for job‐hopping provide incentives for managers to signal their leadership quality in the labor market. We capture managers' and employees' attention allocation across different cultural values using data from conference calls and Glassdoor. We predict and find that job‐hopping managers direct their attention away from soft cultural values (e.g., respect and integrity) that are less observable by the external labor market. Furthermore, job‐hopping managers who pay insufficient attention to soft cultural values fail to address the concerns that employees have in their everyday work, resulting in lower overall employee culture ratings. Our study highlights the significance of managers' career preferences in shaping different cultural values and offers implications for firms selecting senior managers.

Corporate digital transformation and tax avoidance: evidence from China

Digital transformation gives new impetus to corporate growth and influences corporate behavior. This study uses hand-collected digital transformation data on A-share listed non-financial enterprises in China from 2008 to 2019 to examine the relationship between corporate digital transformation and tax avoidance. Our findings suggest that the higher the corporate digital transformation, the lower the level of tax avoidance. This impact is more pronounced in firms with high equity incentives for management, a management team with a strong political background, and in firms located in provinces with a high willingness for government intervention and financial pressure from the government. The mechanism test shows that corporate digital transformation mainly decreases tax avoidance by reducing the agency costs of management and increasing media and analysts' attention to the firm. Thus, actively promoting digital transformation is one of the most important paths for guaranteeing a real and stable source of national tax revenue.

The relationship between sustainable HRM practices and employees’ attraction: the influence of SME managers’ values and intentions

PurposeIn many parts of the world, labor shortages are likely to affect the activities of SMEs. Consequently, SMEs needs to adopt attractive HRM practices. This study analyzes the impact of one type of sustainable HRM (SD-HRM) on employees’ attraction and retention factors such as employees’ motivation, the quality of image and customer satisfaction in SMEs context. It also looks at the impact of SME managers’ value-intentions, calculative (egoist-strategic) and non-calculative (altruist-institutional) on this relationship.Design/methodology/approachDrawing on part of a survey of 409 Quebec SME managers’ commitment to sustainability, a mediation model is used to consider the impact of the manager’s values-intentions on potential workforce attraction and retention factors.FindingsThe results show that the implementation of SD-HRM practices has a positive impact on the outcomes considered, as it was expected, but show the counterintuitive results that it is altruistic values (non-calculative), rather than egoistic values, that helps to maximize the desired effects.Practical implicationsSME managers could adopt SRHRM practices to attract and retain employees. To maximize positive impacts, they might strategically integrate this approach while remaining authentic to their altruistic values. Purely institutional intentions are insufficient. By being both personally committed and strategic, managers can improve both employee well-being and organizational performance.Originality/valueThe original aspect of this research is the integration of expectations of spin-offs (positive or neutral) in relation to SD-HRM, based on the values and intentions of SME managers. This allows to recognize the multiple profiles, justifications and objectives of SMEs, which do not form a monolithic whole and need to be understood and supported by considering their differences.