Do CEO Performance Measures Motivate Tax Avoidance?
Kathleen Powers, John R. Robinson, and Bridget Stomberg, Department of Accounting
We investigate whether incentivizing CEOs with after-tax performance measures influences the level of corporate income tax avoidance. We examine proxy statement disclosures of the performance targets used to determine annual CEO cash bonuses. Our preliminary results indicate that firms using after-tax performance targets are associated with a 5.5 percent lower GAAP effective tax rate (ETR) measures and a ten percent lower cash ETR relative to firms using pre-tax performance measures, all else equal. Similarly, firms using a mix of pre- and after-tax performance measures are associated with a 4 percent lower GAAP ETR and a seven percent lower cash ETR relative to using pre-tax measures. Together, these results suggest that CEO incentives influence real tax avoidance (and do not simply encourage earnings management through the tax expense). Our findings highlight one mechanism through which top executives affect corporate tax avoidance and offer a potential explanation for the under-sheltering phenomenon.
Team Diversity and Creativity: The Role of Construal Level
Luis L. Martins and Shannon Rariden, Department of Management
With ever-increasing diversity in the workforce, researchers and managers have sought to understand the effects of diversity on individual, team, and organizational outcomes. The findings, however, have been mixed, and recent research has sought to examine the moderating factors that determine whether diversity has positive or negative effects on outcomes. In this vein, this study examines how task construal level influences the effects of diversity on team creativity. Construal level refers to the extent of abstractness or concreteness of an individual’s thinking or construal about objects or events. Using a series of experimental studies that manipulate construal level, we test hypotheses examining the effects of demographic and task-related diversity on team creativity under high and low levels of task construal. Furthermore, we examine whether task construal level changes existing dynamics within diverse teams, and whether teams can influence their dynamics by changing their task construal level. The findings of these studies will help extend theory development on the effects of diversity in teams and will provide guidance for managers on how they can use construal level induction to mitigate the challenges of, and derive benefits from, diversity in teams and organizations
Why did Investment Firms buy Structured Products?
John M. Griffin, Full Professor, Department of Finance
Richard Lowery, Assistant Professor,Department of Finance
Alessio Saretto, Assistant Professor at UT Dallas
Many Insurance Companies and Mutual Funds bought Structured products such as CDOs, MBS, and ABS in the 2002-2007 period. Yet, little is known about how and why they purchased them. There are two main reasons why these investors may have bought structured products. First, investors could have thought they were sophisticated enough to evaluate these securities, finding underpriced offerings and good risk-reward tradeoffs. Second, they could have bought the products because they trusted the certification of the rating agencies and investment banks, who would have certified the products as providing good expected returns with minimal risk. In this paper we obtain ownership data and attempt to discern what proportion of investors fit into each category.
Super Angels’ as Early Organizational Partners: Comparisons to Alternative Sources of Funding and Implications for Entrepreneurial Firm Performance
Rory McDonald, Department of Management
To overcome their initially limited resources, networks, and knowledge, entrepreneurial firms often form partnerships with external parties. Interestingly though, prior research has focused primarily on organizations as partners – e.g., new biotechnology firms forming alliances with established pharmaceutical firms, young child care centers linking to government agencies and community organizations, and high-technology startups forming investment ties with venture capital firms. Even though organizations offer many benefits, entrepreneurial firms can, and often do partner with individuals. Nowhere is this more salient than in early-stage equity investing where individual angel investors account for many times the amount invested in new ventures as venture capital firms do.
Yet there have been few attempts to explicitly compare the benefits of organizations vs. individuals as early partners, even though entrepreneurs have discretion. Our research uses network theory to compare the impact of venture capital firms and angel investors on the performance of Web 2.0 ventures. We hope that our findings and theory will shed light on the recent “super angels” phenomenon and yield helpful prescriptions for entrepreneurs who are seeking to raise capital for their ventures.
The Origin and Evolution of Strategy in Entrepreneurial Firms
Violina Rindova, Professor, Department of Management
Melissa Graebner, Associate Professor, Department of Management
Christina Kyprianou, PhD Student, Department of Management
Entrepreneurial ventures are crucial engines of innovation, job creation and economic growth. However, entrepreneurial firms often face strategic challenges very different from those of well-established organizations. These challenges include limited access to financial and other resources, low levels of legitimacy in the eyes of potential customers, and a high degree of ambiguity regarding how these firms should define their products, customers, and competitive positions. In order to succeed, early-stage ventures must move from a state of fluidity in which multiple alternatives are considered to one in which they focus on specific markets, revenue models and value propositions.
While entrepreneurship research has studied how entrepreneurs acquire resources and legitimacy, we have little information about how new firms crystallize their strategies. To understand this process, we observe entrepreneurial decision-making in real time by attending and participating in strategy meetings and other pivotal events for member-firms of a technology incubator. Our goal is to generate new knowledge about how entrepreneurs identify and address strategic problems and opportunities, and how these choices shape entrepreneurial firm strategies over time. The findings from this research should provide guidance to entrepreneurs about how to formulate effective strategies in highly ambiguous environments.
A New Story for the Poor Performance of Index Call Options
Travis L. Johnson, Assistant Professor, Department of Finance
Existing research in finance documents a puzzling fact: call options on the S&P 500 significantly underperform both the index itself and US treasuries. Because basic option prices teaches us to think about a call option as a combination of borrowing and buying the underlying asset, we’d expect call options to have higher average returns (not lower) than the underlying index.
My research explains this puzzle with another fact from basic option pricing: the value of a call option is higher when markets are more volatile and lower when markets are less volatile. If investors care not just about what direction markets are going but how volatile they are, as recent research suggests, then the sensitivity of call options to market volatility could explain why call option returns are so poor. In other words, investors are willing to expose themselves to the market risk inherent in call options because they provide insurance against increases in market volatility.
Unpacking the Growth: Peeking inside the “Black Box” of Marketing by Indian Contract Software Industry
Raghunath Rao, Assistant Professor, Department of Marketing
Since its humble beginnings in the early 1970s, the Indian contract software industry (ICSI) has shown impressive growth. To provide some perspective on its explosive growth, in 2001 the industry had revenues of about $ 8 billion, while in 2012 the revenues totaled $100 billion. The growth of ICSI has attracted increasing attention of academic community. Much of the research has centered upon how these firms manage frictions induced by the uncertainty and lack of reputation in a market with little recourse through the use of diverse external actions. There is a need for deeper exploration of agency issues within these firms to gain a better understanding of nature of the business and the valuable lessons that these studies could provide to the managers and academicians.
The research questions in this proposal are a part of my development of a programmatic research in the domain of sales management and the roles of incentives therein. We focus on the following specific issues about the internal structure of these firms:
- Pay for Performance. We are interested in understanding the role of incentives for business development positions and how different pay-for performance formats like commissions, bonuses, contests and non-monetary rewards impact the sales performance.
- Team Selling. How do firms set up incentives to reward the performance while dealing with free-riding concerns? How do the composition of sales team and the strength of social ties among its members impact its performance?
- Sales manipulations. What is the economic significance of the sales manipulation issues and what mechanisms are used to minimize their impact upon the firm performance?
- Incentives across hierarchy. The members within selling function are rewarded in different ways across hierarchy. How does the intensity of incentives for managers affect salespersons and vice-versa?
Inspired by the recent surge in interest to understand the “black box” of the inner workings of the firms, we seek to collect detailed data from personnel records of the ICSI firms. Wherever feasible, we also plan to conduct field experimentation to get a more nuanced understanding of the issues of interest.
Research Symposium on Managing in Complex Adaptive Business Systems
Huseyin Tanriverdi, Associate Professor, Information, Risk, and Operations Management
Ning Nan, Assistant Professor, University of British Columbia
In recent decades, information technology (IT) has contributed to the emergence of complex adaptive business systems (CABS) by fusing into the fabric of products, services, and business processes and by increasing the diversity, adaptiveness, interconnectedness, and interdependency of firms. The unique nature of problems in CABS requires us to assess whether the assumptions and logic of the dominant quests of business strategy and information systems (IS) strategy are still relevant and adequate. Concepts from complexity science suggest that we need to reevaluate, revise, and redirect some of our taken-for-granted assumptions and logic of business and IS strategies to increase their relevance to a firm’s strategic challenges in CABS. We need new research questions for understanding how business and IS strategies can enable a firm to remain fit, survive, and thrive in CABS. We may also need new theories and methods that embrace dynamic interactions among actors and co-evolving role of technology and humans in CABS. Few scholars question the value of a pursuit for new research and educational approaches oriented toward the complex nature of today’s business environment. And yet, there is a lack of agreement regarding what we ought to be doing, where we ought to be, and how we ought to get there.
This symposium aims to:
- Bring together complexity scholars to foster exchange of ideas and build a community for advancing research and practice on managing in complex adaptive business systems.
- Show case state of the art research on IT-induced business complexity and IT-enabled solutions for business complexity.
- Motivate further research interest in IT-induced complexity and IT-enabled solutions for complexity by jointly planning a special issue in a top Information Systems journal. This special issue will promote research attention and effort regarding CABS. Symposium participants will produce a plan for proposing and organizing this special issue.
- Establish a solid foundation for long-term CABS research development by planning collaborative research projects.