We provide new evidence linking board characteristics and performance. We employ a sample of index funds to isolate the operational component of performance, thereby minimizing investment policy effects in our performance measures. Using manually collected governance data from the mutual fund industry covering the period from 1998 to 2007, we find an inverse relation between board size and fund performance. We also find evidence supporting our hypotheses that organizational form (whether the fund sponsor is publicly or privately held) plays an important role in determining operational performance. Specifically, we find that board size, the presence of fund sponsor officers, and boards comprised of all independent directors are related to operational performance when the sponsor is publicly held. For privately held firms, board structure is insignificantly related to performance. Overall, the results are consistent with the notion that there may not be a single optimal board structure that is applicable to all funds, attempts to regulate board attributes should be considered with caution, and sponsor level factors are important board structure considerations. (JLE G34, G32, G20)

Theories proposing that how one thinks and feels is influenced by feedback from the body remain controversial. A central but untested prediction of many of these proposals is that how well individuals can perceive subtle bodily changes (interoception) determines the strength of the relationship between bodily reactions and cognitive-affective processing. In Study 1, we demonstrated that the more accurately participants could track their heartbeat, the stronger the observed link between their heart rate reactions and their subjective arousal (but not valence) ratings of emotional images. In Study 2, we found that increasing interoception ability either helped or hindered adaptive intuitive decision making, depending on whether the anticipatory bodily signals generated favored advantageous or disadvantageous choices. These findings identify both the generation and the perception of bodily responses as pivotal sources of variability in emotion experience and intuition, and offer strong supporting evidence for bodily feedback theories, suggesting that cognitive-affective processing does in significant part relate to “following the heart.”

Alphabetic orthographies differ in the transparency of their letter-sound mappings, with English orthography being less transparent than other alphabetic scripts. The outlier status of English has led scientists to question the generality of findings based on English-language studies. We investigated the role of phonological awareness, memory, vocabulary, rapid naming, and nonverbal intelligence in reading performance across five languages lying at differing positions along a transparency continuum (Finnish, Hungarian, Dutch, Portuguese, and French). Results from a sample of 1,265 children in Grade 2 showed that phonological awareness was the main factor associated with reading performance in each language. However, its impact was modulated by the transparency of the orthography, being stronger in less transparent orthographies. The influence of rapid naming was rather weak and limited to reading and decoding speed. Most predictors of reading performance were relatively universal across these alphabetic languages, although their precise weight varied systematically as a function of script transparency.

ABSTRACT: We develop a model to examine the effects of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), on the strategic interaction between publicly traded corporate taxpayers and the government. Several of our findings contradict conjectures voiced by members of the business community regarding the economic effects of implementing FIN 48. Specifically, taxpayers with strong facts obtain higher expected payoffs from uncertain tax benefits and some disclosed liabilities understate the expected tax liability. Consistent with the common conjectures, however, some taxpayers are more likely to be audited or are deterred from entering into transactions that generate uncertain tax benefits because of FIN 48.

We investigate two non-traditional harvest strategies for selling a privately-held company. Dual-track private firms file for an IPO while also courting acquirers. These firms withdraw the IPO to be taken over. Dual-track public firms complete an IPO and are taken over shortly thereafter. Examining 679 takeovers from 1995–2004, we find private dual-track sell-outs earn a 22–26% higher premium and dual-track public sell-outs earn an 18–21% higher premium than single-track sell-outs. Larger, VC-backed, prestigious underwritten, and bubble-year firms have a higher propensity to take the dual-track path. The implication is that entrepreneurs may increase their harvest value by using a dual-track strategy.

Prior research documents performance improvements following the implementation of pay-for-performance (PFP) bonus plans. However, bonus plans typically pay for performance relative to a goal, and the manager whose performance is to be evaluated often participates in setting the goal. In these settings, PFP affects managers' incentive to influence goal levels in addition to affecting performance effort. Prior field research is silent on the effect of PFP on goals, the focus of this paper. Using sales and sales goal data from 61 stores of a U.S. retail firm over 10 quarters, we find that the introduction of a performance-based bonus plan with participative goal setting is accompanied by lower goals that are more accurate predictors of subsequent sales performance. Statistical tests indicate that increased goal accuracy is attributable to managers “meeting but not beating” goals and to new information being impounded in goals. We further investigate how differences among managers are associated with goal levels. We find significant “manager effects” but no “supervisor effects.” In additional tests we find that cross-sectional differences among managers are related to differing marginal returns to slack-building effort. Turning to the role of new information on goals, we find that prior period performance has incremental power to explain goal levels in the postplan period. Our results provide field-based evidence that PFP and participative goal setting affect the level and accuracy of goals, effects that are associated with both information exchange and with managers' incentives to influence goals.

Predictions of firm-level credit spreads based on the current spot and forward credit spreads can be significantly improved upon by using the information contained in the shape of the credit-spread curve. However, the current credit-spread curve is not a sufficient statistic for predicting future out-of-sample credit spreads; predictions can be significantly improved upon by exploiting the information contained in the shape of the riskless yield curve. In the presence of credit-spread and riskless factors, other macroeconomic, marketwide, and firm-specific risk variables do not significantly improve predictions of credit spreads. These results have important implications for credit-spreads modeling as well as for better understanding corporate capital structure and risk management policies.

Idiosyncratic deals (“i-deals”) are special arrangements that individuals negotiate with their employers. This study investigates the link between i-deals and organizational citizenship behavior (OCB). From the perspective of social exchange theory, the relationship between individuals' i-deals and OCB should depend on the quality of workplace relationships with their supervisors, colleagues, and organization. Measuring these respectively as leader-member exchange (LMX), team-member exchange (TMX), and perceived organizational support (POS), we tested hypotheses via data gathered from 231 supervisor-subordinate dyads nested in 53 work groups. Results reveal stronger positive relations between i-deals and OCB for employees with low rather than high LMX or TMX.

ABSTRACT: This study reports the result of an experiment examining two aspects of the audit context that auditors likely do not suspect can influence audited account balances: the magnitude of an audit difference and the presence of a prior client concession. Negotiation theory shows that negotiators’ initial positions (e.g., clients’ unaudited balances) as well as feelings of reciprocity created by prior negotiations serve to create expectations for the current negotiation and, in turn, affect the outcomes of such negotiations. Our results show that the magnitude of an audit difference involving an estimate (i.e., difference between client’s account balance and the auditor’s independent estimate) as well as the presence of a prior client concession influence auditors’ negotiation expectations. Specifically, auditors proposed smaller adjustments when the magnitude of the audit difference was high and when the client conceded on an audit issue prior to resolving the difference in estimates. These manipulations similarly influence the negotiated outcome, and this influence is fully mediated by the auditor’s initial negotiation position.

Although models of alliance network dynamics have focused primarily on alliance formation, this study advances research by investigating member withdrawal from alliances. We develop a model of cohesion and friction at the relationship, network, and market levels and propose cross-level cohesion and time-varying effects on member withdrawal, giving predictions that are distinct from those of alliance formation studies. Our analysis of alliances in the global liner shipping industry showed greater withdrawal rates as a result of market competition and time-dependent effects of prior direct and third-party ties, suggesting that member withdrawal has both social and task-related causes.