Trump presidency to affect the quality of financial reporting information

January 20, 2017

The number of companies using ‘creative accounting techniques’ can be expected to increase in Republican-governed states and decrease in Democrat-governed states when Donald Trump becomes US President tomorrow, according to new research from the University of Bath.

Widely seen in recent accounting scandals, companies under pressure from analysts and investors can resort to manipulating financial reports to hide financial performance, or at best present an overly positive impression of the company’s profitability, through practices known as ‘earnings management’.

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Colonel Sanders KFC marketing was ahead of its time

August 3, 2016

Instilling trust among first-time customers has been a problem for online retailers since the dawn of e-commerce. Now research shows that sometimes the simplest of fixes can reassure would-be buyers.

In “Feeling Close From Afar: The Role of Psychological Distance in Offsetting Distrust in Unfamiliar Online Retailers,” forthcoming in the September 2016 issue of the Journal of Retailing, a clutch of marketing experts demonstrated that including even a photo of a store or of a business owner on a shopping site – something visual and representational – can encourage wary buyers to make a purchase from a vendor with which they were unfamiliar. The research was conducted by Professors Peter Darke, of York University; Michael K. Brady, of Florida State University; and Andrew E Wilson, of Saint Mary’s College of California; and consultant Ray L. Benedicktus, of Lieberman Research Worldwide. Read more

How 5-star online customer reviews can backfire

August 3, 2016

It may be counterintuitive, but the more positive online reviews a product gets may actually lead to a net negative profit for the retailer. That’s the conclusion of new research by a team of marketing experts from a Dutch and a German university that will be published in the September 2016 issue of the Journal of Retailing.

In “To Keep or Not to Keep: Effects of Online Customer Reviews on Product Returns,” Professor Tammo H.A. Bijmolt and PhD candidate Alec Minnema, of the University of Groningen, and Professors Sonja Gensler and Thorsten Wiesel of the University of Münster, analyze more than two years of sales data from a major European online retailer – a total of almost 9 million page views and 631,063 purchase transactions for 2,164 different products in the electronics and furniture categories. Read more

Job switching stokes competitive behavior

April 7, 2016

Colleague today, competitor tomorrow: Moving to a rival firm leads to a conflict of identities – and causes movers to focus their competitive impulses on their former employer, as a study by Ludwig-Maximilians-Universitaet (LMU) in Munich management scholar Thorsten Grohsjean shows. Read more

Research finds reason advertising boosts stock prices for some companies and not others

January 13, 2016

By 2017, total advertising spending is expected to approach $136 billion, placing more pressure on management to demonstrate its impact on sales and stock prices. It’s the age-old question of advertising effectiveness.

While nearly every research study has found that advertising has a positive impact on sales, the results are mixed regarding its effectiveness on stock price, which can be seen as an indicator of future sales. Read more

Increasing liquefied natural gas exports ‘marginally positive’ for US economy

December 30, 2015

Increasing the United States’ export of liquefied natural gas (LNG) above 12 billion cubic feet per day (Bcf/d) would allow the U.S. to continue to provide a competitive advantage for domestic natural-gas-intensive industries relative to their counterparts overseas, according to a new report presented to the U.S. Department of Energy from the Center for Energy Studies at Rice University’s Baker Institute for Public Policy and Oxford Economics.

The study, “The Macroeconomic Impact of Increasing U.S. LNG Exports,” was co-authored by Kenneth Medlock, senior director for the Center for Energy Studies.

“The dramatic growth in shale gas production in the United States has presented a number of opportunities and challenges for the U.S. economy,” Medlock said. “To begin, shale gas production has lowered the domestic price of natural gas so that the United States now has among the lowest prices in the world and shifted the U.S. from emerging as a significant importer to a pending exporter of LNG. This has benefitted consumers and led to gains in competitiveness for U.S. manufacturers.

“Low natural gas prices in the United States negatively impact the profitability of domestic upstream activities, which has, in fact, been a primary driver of interest in exporting LNG as suppliers seek new demands in higher-priced markets. While selling natural gas at higher prices on the world market would increase profits for U.S. gas producers, the price gap between the United States and the rest of the world will shrink, thereby eroding some of the benefits that have accrued to U.S. consumers and manufacturers. So the net balance of the gains and losses associated with trade are at the core of the analysis. In sum, the balance is positive for the U.S. economy.”

For the report, the Center for Energy Studies used the Rice World Gas Trade Model to simulate alternative futures to assess natural gas production, demand and, more generally, the international gas market based on a range of projections of U.S. resource endowments. Oxford Economics addressed the macroeconomic impact of the center’s market analysis.

A comprehensive set of scenarios was developed in the analysis – including U.S. natural gas recovery, international and domestic demand, and natural-gas supply opportunities in the rest of the world – to examine the impact on energy markets and the U.S. macroeconomy.

Key findings from the report include:

LNG exports are associated with a net increase in domestic natural gas production.

Medlock said the study found that “the majority of the increase in LNG exports is accommodated by expanded domestic production rather than reductions in domestic demand, a result that reflects the very elastic long-run supply curve in North America.”

As exports increase, the spread between U.S. domestic prices and international benchmarks narrows. In every case, greater LNG exports raised domestic prices somewhat and lowered prices internationally. The majority of the price movement (in absolute terms), however, occurs in Asia.

The overall macroeconomic impacts of higher LNG exports are marginally positive, a result that is robust under alternative assumptions. With external demand for U.S. LNG exports at 20 Bcf/d, the impact of increasing exports from 12 Bcf/d is between $7 billion to $20 billion annually from 2026 to 2040 in today’s prices.

Medlock said that the impact from added LNG exports will not be felt until after 2025 due to the large amount of LNG supply that is coming online globally in the next few years. The global market simply cannot accommodate U.S. volumes in excess of 12 Bcf/d before 2025 in any of the scenarios considered. Accordingly, while international demand continues to increase, the market must first work through a large amount of available LNG supply before turning to U.S.-sourced LNG.

The reference case forecasts U.S. LNG exports of around 6.5 Bcf/d as there are abundant, competitive resources around the world that can be delivered to international markets via LNG or pipelines. Higher U.S. LNG exports require a variety of factors that limit the otherwise competitive production of natural gas outside of the U.S. Moreover, those factors must become increasingly restrictive to raise U.S. LNG exports over 12 Bcf/d.

Across all of the scenarios assessed, “the macroeconomic impacts of LNG exports are marginally positive,” Medlock said. “Across the domestic cases, the positive impact of higher U.S. gas production exceeds the negative impacts of higher domestic natural gas prices associated with increased LNG exports. The overall macroeconomic impacts of increasing U.S. LNG exports to 20 Bcf/d from 12 Bcf/d are small, reflecting the small size of the natural gas sector and supporting industries relative to the over $13 trillion U.S. economy.”

Men more likely to achieve targets if they are set goals

July 9, 2015

A new study by the University of Leicester has revealed that men are more receptive to goals in the workplace than women.

Using a timed addition task, research from the University’s Department of Economics examined the effect of non-binding goals – where no monetary rewards or punishments are associated with success or failure – on effort, and found:

  • Men are more motivated by achieving goals than women
  • Goal-setting can generate the same effects on success as monetary incentives
  • Having a goal leads to better focus and increased speed to complete a task

One hundred and nine research participants completed a simple addition task summing up sets of five two-digit, randomly drawn numbers over five minutes in one of three groups:

  1. Control – no goal was given
  2. Low goal – to achieve 10 correct answers
  3. High goal – to achieve 15 correct answers

They found participants within the two goal groups scored more correct answers, attempted more questions and had greater accuracy during the tests. However, there was no significant difference between the two goal groups, showing that having a goal is more important than the specific value of the goal.

Research lead Samuel Smithers, PhD student from the University of Leicester’s Department of Economics explained: “The focus of this research was to determine how to motivate people. When we are given a goal, we feel a sense of purpose to achieve it; it naturally helps to focus us. The findings demonstrate that setting a goal induces higher effort.

“My research found that women perform better than men in the no goal setting, but men thrive in both of the goal treatments, suggesting that men are more responsive to goals than women. I also found a 20 per cent and 35 per cent increase in correct number of additions for the medium and challenging goal groups over the control group.

“This is an incredible increase in output without the need for extra monetary incentives. The increase was due to an increase in both the speed and accuracy of the participants in the goal groups.”

Participants were rewarded 25p for every correct answer, but no additional monetary bonus if they achieved their goal, showing that satisfaction for achieving a goal is motivation enough for greater performance.

Research supervisor Professor Sanjit Dhami added: “Samuel contributes to a growing body of literature in behavioural economics that enriches classical economics by incorporating insights from the other social sciences, mainly psychology but also biology, sociology and neuroscience.

“Behavioural economics paints a richer picture of human motivations, such as responsiveness to non-monetary goals, relative to classical economics that almost exclusively explores the effect of monetary incentives.

“Samuel’s research shows that gender differences in economic behaviour are important and widespread. These results will be useful for policy-makers but also for private firms. Furthermore, this research serves to highlight the cutting-edge research in behavioural economics that continues to be undertaken at the University of Leicester.”

The research, which is published in Economics Letters, was funded by the Economic and Social Research Council (ESRC).

Study examines ‘joiners’ who help make startups successful

June 14, 2015

A growing interest in the startup culture has focused attention on company founders who often take great risks to launch new ventures. But what about the people who join these founders to help them develop and commercialize innovative new products and services?

A research highlight published this week in the journal Science reports on research analyzing these ‘joiners,’ and finds that while they resemble founders in their willingness to take risks and their desire for the freedom of a startup, there are important differences. For instance, joiners are less interested in management and more interested in functional roles such as research and development, making them more like the people who go to work for established companies.

‘Sometimes you can have a single founder who handles the full range of activities for a startup, but especially in technology you need additional people to research and develop the products,’ said Henry Sauermann, an associate professor in the Scheller College of Business at the Georgia Institute of Technology. ‘There are many people who are interested in working for startups but who don’t want to be founders.’

Sauermann and co-author Michael Roach, an assistant professor in the Dyson School of Applied Economics and Management at Cornell University, found the differences while examining the entrepreneurial interests of 4,200 Ph.D. candidates who were within two years of obtaining degrees in STEM fields. Nearly half (46 percent) of these scientists and engineers reported an interest in joining a startup as an employee, while slightly more than one in ten (11 percent) said they expected to found their own companies.

The researchers surveyed these Ph.D. candidates about personal characteristics such as acceptance of risk, desire for autonomy, interest in commercializing new technology and willingness to take on managerial tasks. They also asked about interests in entrepreneurship, in roles as both startup founders and the joiners who support them. The study, which includes a more comprehensive companion article to be published in the journal Management Science, may be the first to consider founders and joiners as separate groups.

‘A key insight from our research is that many of the characteristics that we often think of as unique to founders, such as a tolerance for risk and the desire to bring new ideas to life, also generalize to the broader entrepreneurial workforce, including people who want to work in startups but don’t want to be founders themselves,’ Roach said.

Understanding how the personal preferences of newly-minted Ph.D. scientists and engineers fits into their entrepreneurial interests may be important to helping them find the best application for their hard-won knowledge and skills. Increasingly, startups provide an attractive career path for Ph.D. graduates who may not find academic research attractive or may experience difficulty in finding positions in academia — but who still want to be involved in research and commercialization activities, Roach said. More emphasis may be needed on preparing STEM doctorates for these entrepreneurial employee career paths.

‘Most university programs designed to foster entrepreneurship — such as courses, workshops and incubators — focus on training people to be a founder,’ Roach noted. ‘But founders make up a small share of the entrepreneurial workforce, and we do very little to train the larger share of people who will work in startups as employees rather than founders. For example, many programs focus on how to write business plans and secure funding, while less attention is paid to how to work effectively in a small startup team.’

The high degree of interest in entrepreneurship among science and engineering Ph.D. candidates surprised Sauermann, who expected that the soon-to-be-graduates might prefer a safer career path in established companies.

‘A surprising number of people from this group found entrepreneurship attractive,’ he said. ‘This may mean we don’t have as much of a problem getting people interested in startups as is widely believed. It may be more a question of how the transition from the Ph.D. training to the startup world happens.’

The paper is based on a 2010 study of Ph.D. candidates about to graduate from 39 different U.S. tier one colleges and universities. In a follow up study, Roach and Sauermann surveyed the group to examine the career transitions they made into industry, startups and academia. Results are being analyzed, and the two researchers hope to follow this group to see how their careers develop.

The data may also help provide information on how context affects careers. For instance, exposure to an entrepreneurial environment appears likely to increase an individual’s willingness to work in a startup, but doesn’t seem to boost their interest in being a founder.

‘An interest in being a founder is more closely associated with individual traits and preferences that predispose them to entrepreneurship,’ Roach said. ‘At the same time, individuals who lack these traits are unlikely to become interested in being a founder even when exposed to entrepreneurial influences. One implication of this is that programs that hope to stimulate entrepreneurship may do more to increase the pool of entrepreneurial workers than to make people into founders.’

The study should be encouraging for those promoting the entrepreneurial career path, Sauermann said. ‘Not everybody has to start their own company,’ he added. ‘You can also make a difference for the world by joining a founder.’

Companies are making cybersecurity a greater priority

June 11, 2015

Companies are spending increasing amounts on cybersecurity tools, but aren’t convinced their data is truly secure and many chief information security officers believe that attackers are gaining on their defenses, according to a new RAND Corporation study.

Charting the future of cybersecurity is difficult because so much is shrouded in secrecy, no one is entirely certain of all the methods malicious hackers use to infiltrate systems and businesses do not want to disclose their safety measures, according to the report.

While worldwide spending on cybersecurity is close to $70 billion a year and growing at 10 percent to 15 percent annually, many chief information security officers believe that hackers may gain the upper hand two to five years from now, requiring a continual cycle of development and implementation of stronger and more innovative defensive measures.

“Despite the pessimism in the field, we found that companies are paying a lot more attention to cybersecurity than they were even five years ago,” said Martin Libicki, co-lead author of the study and senior management scientist at RAND, a nonprofit research organization. “Companies that didn’t even have a chief information security officer five years ago have one now, and CEOs are more likely to listen to them. Core software is improving and new cybersecurity products continue to appear, which is likely to make a hacker’s job more difficult and more expensive.”

The RAND study draws on interviews with 18 chief information security officers and details the burgeoning world of cybersecurity products. It also reviews the relationship between software quality and the processes used to discover software vulnerabilities. Insights from these elements were used to develop a model that can shed light on the relationship between organizational choices and the cost of confronting cyberattacks.

“Companies know what they spend on cybersecurity, but quantifying what they save by preventing malicious attacks is much harder to tally,” said Lillian Ablon, co-lead author of the report and a researcher at RAND. “In addition, malicious hackers can be extremely sophisticated, so costly measures to improve security beget countermeasures from hackers.

“Cybersecurity is a continual cycle of trying to eliminate weaknesses and out-think an attacker. Currently, the best that defenders can do is to make it expensive for the attackers in terms of money, time, resources and research.”

Libicki and Ablon say several of the study’s findings surprised them. They found that it was the effect of a cyberattack on reputation — rather than direct costs — that worried most chief information security officers. It matters less what actual data is affected than the fact that any data is put at risk.

However, the process of estimating those losses is not particularly comprehensive, and the ability to understand and articulate an organization’s risk from network penetrations in a standard and consistent manner does not exist — and may not exist for the foreseeable future.

RAND created a framework that portrays the struggle of organizations to minimize the cost arising from insecurity in cyberspace over a 10-year period. Those costs include the losses from cyberattack, the direct costs of training users, and the direct cost of buying and using cyber safety tools.

Additional costs also must be factored in, including the indirect costs associated with restrictions on employees using their personal devices on company networks and the indirect costs of air-gapping — ensuring a computer network is physically isolated from unsecure networks. This is particularly true for sensitive sub-networks.

The RAND study includes recommendations for both organizations and policymakers. Organizations need to determine what needs to be protected and how badly, including what machines are on a company’s network, what applications are running and what privileges have been established. Employees’ desire to bring their own devices and connect them to the company network also can increase vulnerabilities.

Libicki said most of the chief information security officers who were interviewed were not interested in government efforts to improve cybersecurity. However, the RAND researchers believe government could play a useful role. For example, a government guide outlining how systems fail — similar to guides for aviation and medical fields — could help build a body of knowledge to help educate companies with the goal of developing higher levels of cybersecurity.

When bosses ‘serve’ their employees, everything improves

May 7, 2015

When managers create a culture where employees know the boss puts employees’ needs over his or her own, measureable improvements in customer satisfaction, higher job performance by employees, and lower turnover are the result, according to research by Robert Liden, Sandy Wayne, Chenwei Liao, and Jeremy Meuser, that has just been published in the Academy of Management Journal.

Employees feel the most valued, and in return give back to the company and its customers when their bosses create a culture of trust, caring, cooperation, fairness and empathy. According to Sandy Wayne one of the authors of the research, “The best business leadership style is far from, ‘Do this. Don’t do that.’ A servant leader looks and sounds a lot more like, ‘Is there anything I can do to help you?’ Or, ‘Let me help you….’ Or, ‘What do you need to…?’ This approach helps employees reach their full potential.”

The corresponding admiration employees have for bosses who care about them manifests itself in teamwork, loyalty and dedication to the business and its customers. The leadership style trickles down. Wayne said, “It’s contagious. The employees see their leaders as role models and often mimic those qualities, creating a culture of servant leadership. This serving culture drives the effectiveness of the business as a whole.”

The study was conducted at the Jason’s Deli national restaurant chain, and the sample included:

  • 961 employees
  • 71 Jason’s Deli restaurants
  • 10 metropolitan areas.

The findings were based on data from surveys completed by managers, employees, and customers, and data from corporate records. “The University of Illinois at Chicago research project on Servant Leadership has provided a remarkable insight into the myriad of opportunities to enhance our greatest asset – our culture,” Joe V. Tortorice, chairman and founder of Jason’s Deli said. “The professional interpretation of the date has educated and inspired our executive team.”

Professor Wayne says stores with servant leaders experienced the following positive outcomes:

  • 6 percent higher job performance
  • 8 percent more customer service behaviors
  • 50 percent less likely to leave the company

(See infographic below)

The study suggests this is an increasingly relevant form of leadership that offers promise to the premise that if businesses lead by caring for their people, the profits will take care of themselves.

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